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                                                                  EXHIBIT 10.56

                         PROFESSIONAL SERVICES AGREEMENT

                                     BETWEEN

                     THE NEW YORK STATE DEPARTMENT OF LABOR

                                       AND

                           APPLIED THEORY CORPORATION


THIS PROFESSIONAL SERVICES AGREEMENT ("Agreement") is entered into by and
between AppliedTheory Corporation, ("AppliedTheory") and the New York State
Department of Labor (" Department"). In consideration of the terms and
conditions and mutual promises contained herein, the parties agree as follows:

1. SCOPE OF AGREEMENT

         1.1 This Agreement will be implemented annually through one or more
Statements of Work entered into from time to time by AppliedTheory and the
Department. Each Statement of Work will specify the services to be performed by
AppliedTheory ("Services"). Software programming and development services
("Software Development Services") will be performed on a time and materials
basis. Other related Services including "Web Hosting" and "Internet Access" will
be performed on a fixed price basis. The initial description of work to be
performed ("Scope of Work"), attached hereto as Appendix B and hereby
incorporated by reference, sets forth the overview of work to be completed
during the term of the contract. Specific Statements of Work will become
effective upon execution by authorized representatives of both parties.
Statements of Work will be numbered consecutively.

         1.2 The parties shall jointly develop specified plans for each project
("Project Plans") which shall identify the deliverables, including a description
of the work to be performed, the personnel assigned to perform the work, the
time frames for completion of each step in the project and any other relevant
factors or contingencies that may be required. AppliedTheory shall deliver an
updated Project Plan to the Department on a bi-monthly basis. The parties agree
and understand that the nature of the services further requires that the Project
Plans may be modified as reasonably requested by the Department and the U.S.
Department of Labor. These changes may result in modifications to the Project
Plan, deliverables, associated work plans, resource allocations, schedules and
costs. Any modification to a Project Plan must be set forth in writing and
agreed to by the parties. All time periods for completion of work as well as
acceptance and testing set forth in a Project Plan shall be amended in
accordance with the modified Project Plan.

2. DEVELOPMENT OF THE WORK

         2.1 AppliedTheory shall develop the software (the "Software") and
perform all other Services specified in each Statement of Work and Project Plan
subject to and in accordance with the terms of this Agreement. AppliedTheory
shall exercise best efforts to deliver the Services and other deliverables set
forth in a Project Plan (together, the "Deliverables") according to the delivery
schedule set forth in such Project Plan (the "Delivery Schedule"). Changes in
scope of the deliverable, requirements, functional specifications, personnel
resources or schedule will result in amended plans as either jointly developed
by the parties or as submitted by AppliedTheory and not objected to in writing
by the Department within five (5) business days.

         2.2 The Department shall provide to AppliedTheory such information and
cooperation as AppliedTheory may reasonably request to assist AppliedTheory in
the development of the Deliverables, and AppliedTheory may use such information
in connection with such development. In the event of a delay by the Department
in providing such information to and cooperation with AppliedTheory or in
approving the Deliverables within the time set forth in this Agreement, or in
the event of a delay caused by third parties, the delivery date for the affected
Deliverables shall be deemed postponed for at least an equivalent period and the
Delivery Schedule shall be amended accordingly. Where such delays impact other
projects and/or deliverables all plans shall be modified as appropriate.

3. TERM AND TERMINATION

         3.1 This Agreement shall commence on June 15, 2000 and, unless earlier
terminated pursuant to Paragraphs 3.2, 3.3, 3.4 or 4.5, continue for a period of
five years.

         3.2 Either party may terminate this Agreement by written notice if the
other party commits a material breach of any of its obligations under this
Agreement and has not remedied such breach within thirty (30) days of receiving
written notice of the breach.


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         3.3 Either party may terminate this Agreement by written notice if the
other party shall cease conducting business in the normal course, become
insolvent or bankrupt, make a general assignment for the benefit of creditors,
suffer or permit the appointment of a receiver for its business or assets, or
become the subject of any proceeding relating to insolvency or the protection of
creditors' rights which is not dismissed within sixty (60) days.

         3.4 The Department may terminate this Agreement without cause within
(60) sixty days written notice.

         3.5 Termination of this Agreement shall not relieve the Department of
its obligation to pay charges that accrued prior to termination except to the
extent such charges relate to services that form the basis for termination of
this Agreement for cause pursuant to Paragraph 3.2.

4. COMPENSATION AND PAYMENT TERMS

         4.1 Payment to AppliedTheory shall be made monthly in arrears for all
time and materials expended by AppliedTheory during the preceding month. Any
estimated time requirements for such work which are set forth in the Statement
of Work are solely AppliedTheory's estimate, and should not be construed as a
limitation on services or a cap on fees. The Department shall pay AppliedTheory
one flat monthly fee in arrears for Web Hosting, Internet Access, or other
fixed-priced Services. The Department shall pay AppliedTheory for all authorized
expenses incurred by AppliedTheory in connection with performance hereunder. The
Department will pay the amount stated in each invoice within thirty days of date
of invoice in accordance with Appendix A and the attachments (including
certifications) thereto, which are attached hereto and hereby incorporated by
reference.

         4.2 The rates charged for services including time and materials are set
forth in Appendix C, which is hereby incorporated by reference. The rates shall
remain fixed at the same rates for a period of one year. The parties agree to
negotiate in good faith annually for rates applicable for the next succeeding
year. In no event shall any rate increase exceed the Consumer Price Index for
the location at which work is performed. AppliedTheory hereby warrants that such
rates represent the most favorable pricing terms available to any of its
customers for similar quantity and quality of services and shall reduce its
prices to the lowest price given to any other customer for the same products and
Services in similar quantities and qualities.

         4.3 The charges do not include taxes or duties. The Department is
exempt from the payment of federal, state and local taxes. The Department shall
not be responsible for paying taxes based on AppliedTheory's net income.

         4.4 If the Department fails to pay any sum due under a Statement of
Work, any late payment fees shall be determined in accordance with Article 11-A
of the State Finance Law.

         4.5 In accordance with section 41 of the State Finance Law, the State
shall have no liability under this contract to AppliedTheory beyond funds
appropriated and made available for this contract by the New York State
Legislature pursuant to one or more grants issued to the Department by the U.S.
Department of Labor.

         4.6 The anticipated scope of the contract provides for expenditures of
up to Eighty Two Million Dollars ($82,000,000) during the term of this Agreement
in annual increments set forth in Appendix B. The amount available for
expenditure for the first year through June 15, 2001 is Nineteen Million Dollars
($19,000,000.00). The Department shall seek additional funding in the amounts
set forth in Appendix B from the U.S. Department of Labor.

5. STAFFING BY EACH PARTY

         5.1 When members of one party's staff are employed on the premises of
the other party, they will comply with such rules and regulations of which they
are notified for the conduct of staff on those premises.

         5.2 All members of both parties' staff participating in the performance
of the Services will possess the appropriate skills, authority and experience
for the tasks assigned to them, and will be available at such times as are
agreed by the parties.

         5.3 Where required under a Statement of Work, each of the parties will
provide appropriate office accommodations, equipment and support to members of
the other party's staff.

         5.4 Upon execution of this Agreement, each party will designate a
member of its staff as contract coordinator, responsible for all administrative
matters relating to this Agreement and the Services. Additionally, each party
will designate a member of its staff as Project Manager who will have the
authority to represent such party on all technical and staffing matters relating
to the Services. A party may change its designated coordinator or project
manager on notice to the other party.

6. DELIVERY OBLIGATIONS; ACCEPTANCE



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         6.1 AppliedTheory will deliver to the Department one copy of the
Software in object code form, and one copy of the Software in Source Code Form
at the time completion of work for each Deliverable set forth in the Project
Plan for acceptance testing. For purposes hereof, the term "Source Code Form"
shall mean a well-documented listing in printed form of the source code (i.e.,
human intelligible version) of the Software, the related instructions and
compilers necessary for building that software into object code and written
materials sufficient to permit a person skilled in the language of the source
code to follow and understand the theory and sequence of program operation and
to maintain and modify the program. Upon termination of this Agreement, the
Department shall retain the Software and the Source Code Form for its continued
and uninterrupted use and development subject to the license provisions of
Section 12.

         6.2 Upon delivery to the Department of a Deliverable, the Department
shall have fifteen (15) days to conduct acceptance testing and approve or reject
such Deliverable. A Deliverable shall include all functional specifications
(and, if applicable, performance specifications) set forth in a Project Plan.
The Department shall deliver to AppliedTheory a written notice of either
acceptance or rejection within such period. The Department may not reject a
Deliverable unless such Deliverable fails to comply materially with the relevant
specifications or other descriptions contained in a Project Plan and Statement
of Work. A Deliverable shall not be rejected for bugs that do not affect the
operation of the Software in accordance with the Project Plan and Statement of
Work in any material respect. If the Department rejects any Deliverable, its
notice of rejection shall include the reasons for its rejection and the
Department shall return the rejected Deliverable to AppliedTheory. AppliedTheory
shall make best efforts to correct and/or replace such Deliverable promptly.
This process shall continue until the Department approves the Deliverable
without any additional costs beyond that specified for the anticipated hours set
forth in a Project Plan. Any modification to a Project Plan must be set forth in
writing and agreed to by the parties. All time periods for completion of work as
well as acceptance and testing set forth in a Project Plan shall be modified in
accordance with the modified Project Plan.

7. INFRINGEMENT INDEMNITY

         7.1

                  A.       AppliedTheory will defend, indemnify and hold
                           harmless the Department against any claim that any
                           information, design, specification, instruction,
                           software, data, or material furnished by
                           AppliedTheory ("Material") and used by the Department
                           infringes a copyright, patent, or trademark, provided
                           that: (a) the Department notifies AppliedTheory in
                           writing within thirty (30) days of the claim; (b)
                           AppliedTheory has control of the defense and all
                           related settlement negotiations; and (c) the
                           Department provides AppliedTheory with the
                           assistance, information, and authority reasonably
                           necessary to perform the above. The Department shall
                           be reimbursed by AppliedTheory for any reasonable
                           out-of-pocket expenses incurred by providing such
                           assistance. The Department may participate in the
                           defense of and settlement negotiations relating to
                           any such claim, at its own expense.

                  B.       AppliedTheory shall have no liability for any claim
                           of infringement resulting from: (a) the Department's
                           use of a superseded or altered release of some or all
                           of the Material if infringement would have been
                           avoided by the use of a subsequent unaltered release
                           of the Material which AppliedTheory has provided to
                           the Department; or (b) any information, design,
                           specification, instruction, software, data, or
                           material not furnished by AppliedTheory.

                  C.       In the event that some or all of the Material is held
                           or is believed by AppliedTheory to infringe,
                           AppliedTheory shall have the option, at its expense:
                           (a) to modify the Material to be non-infringing; or
                           (b) to obtain for the Department a license to
                           continue using the Material. If it is not
                           commercially feasible to perform either of the above
                           options, then AppliedTheory may require that the
                           Department return the infringing Material, and all
                           rights of the Department thereto shall cease. Upon
                           return of the infringing Material to the
                           AppliedTheory, the Department may terminate the
                           affected Statement of Work upon ten (10) days'
                           written notice and: the Department shall be entitled
                           to a refund of the fees paid for the Deliverables
                           which contain the infringing Material. This Section
                           states the parties' entire liability and exclusive
                           remedy for infringement.

8. REPRESENTATIONS AND WARRANTY

         8.1

                  A.       Expertise. AppliedTheory represents and warrants that
                           it is highly skilled and experienced in performing
                           the services described in the Statements of Work and
                           Project Plans. AppliedTheory acknowledges that the
                           Department is relying upon the skill and expertise of
                           AppliedTheory for the performance of this Agreement.


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                           AppliedTheory warrants that it will perform the
                           services described herein in a good and workmanlike
                           manner and in accordance with the specifications
                           contained in the Statements of Work and Project Plan.

                  B.       Non-Infringement of Third Party Rights. Services
                           provided under this Agreement will not violate or in
                           any way infringe upon the rights of third parties,
                           including property, trade secrets, proprietary rights
                           and non-disclosure rights, or any trademark,
                           copyright or patent rights.

                  C.       AppliedTheory does not warrant that the Work will
                           operate at all times without interruption or will be
                           error free.

                  D.       AppliedTheory warrants that the Web Hosting and
                           Access Service will perform in accordance with the
                           service descriptions contained in Appendices F and G.

         8.2 Additional work on the Deliverables will be charged on a time and
materials basis in accordance with the consulting rates established herein.

         8.3 The warranty herein is exclusive and in lieu of all other
warranties, whether express or implied. APPLIEDTHEORY HEREBY DISCLAIMS ALL
IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.

9. ALLOWANCE FOR SERVICE INTERRUPTIONS (ACCESS AND WEB HOSTING)

         9.1 The Department's sole and exclusive remedy for Service
interruptions in connection with Access and Web Hosting Services will be credits
based upon the accumulated interruption of Service, measured from the time of
notification to the AppliedTheory Customer Support Center ("CCC") to the
restoration of Service as described below. Any claim for credit must be
submitted in writing by Department to AppliedTheory within ten business days of
the interruption.

                  A.       If the accumulated interruption of Service is equal
                           or greater than one (1) hour, but less than four (4)
                           hours in any one day, Department shall receive a
                           credit equal to the pro-rated monthly charges for the
                           period that such interruption existed.

                  B.       If the accumulated interruption of Service is more
                           than four (4) hours in any one day, Department shall
                           receive a credit equal to the pro-rated charges for
                           one (1) day's service.

                  C.       If the accumulated interruption within any seven (7)
                           day period equals or exceeds ninety-six (96) hours,
                           Department shall receive a credit equal to the
                           pro-rated charges for 1 week's Service or may
                           terminate the affected Access or Web Hosting Service
                           with no penalty.

         The Department shall not receive credit if an interruption is (a)
         caused by the negligence or willful misconduct of the Department or
         others authorized by the Department to use the Services provided by
         AppliedTheory; (b) due to a failure of power, or any problem of any
         type occurring at the Department's side of the Service Demarcation; (c)
         caused by the failure of access to AppliedTheory's network, unless such
         failure is solely caused by AppliedTheory; (d) a result of scheduled
         maintenance, or (e) due to any cause beyond AppliedTheory's control.
         The Department shall also not receive credit if correction of the
         problem requires access to the Department's premises and such access is
         denied or delayed by the Department.

         AppliedTheory provides no service level guarantees or credits for
         optional or additional services including POP mail and Network News and
         temporary outages may occur as a result of scheduled or unscheduled
         maintenance.

         AppliedTheory shall provide the Department with a report setting forth
         the reason for any outage including the time period of any outage and
         the plan for preventing reoccurrence of such outage in the future
         within five days.

10. LIMITATION OF LIABILITY

         10.1 In no event shall either party be liable for any indirect,
incidental, special, or consequential damages, or damages for loss of profits,
revenue, data, or use, incurred by the other party or any third party, whether
in an action in contract or tort, even if such party has been advised of the
possibility of such damages.

         10.2 AppliedTheory's liability for damages hereunder shall in no event
exceed the lesser of $10,000,000 or the amounts paid for the Deliverables under
the applicable Statement of Work; provided however that AppliedTheory's
liability for damages with respect to Section 7 and sub-Section 10.4 herein
shall be without limitation.


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         10.3 The provisions of this Agreement allocate the risks under this
Agreement between AppliedTheory and the Department. The Department acknowledges
that AppliedTheory's pricing reflects this allocation of risk and the
limitations of liability specified herein.

         10.4 AppliedTheory shall fully defend, indemnify and save harmless the
Department from suits, actions, damages and costs of every name and description
relating to personal injury, damage to real or personal tangible or intangible
property, or any other claim for direct damages arising as a result of acts or
omissions of AppliedTheory, its officers, employees, subcontractors, partners or
agents

11. NON-DISCLOSURE

         11.1 The parties may provide to one another information that is
confidential ("Confidential Information"). Confidential Information shall be
limited to information clearly identified in writing as confidential when
delivered. Confidential Information shall not include information which: (a) is
or becomes a part of the public domain through no act or omission of the
receiving party; (b) was in the receiving party's lawful possession prior to the
disclosure and has been obtained by the receiving party either directly or
indirectly from the disclosing party; (c) is lawfully disclosed by the
disclosing party to a third party without restriction on disclosure; (d) is
independently developed by the receiving party; or (e) is disclosed by operation
of law. The parties agree to hold each other's Confidential Information in
confidence while the Services are being performed and for a period of three
years thereafter provided however, Software and Source code shall be subject to
the provisions of Section 12 and the Sub-License Agreement and held in
confidence in perpetuity.

         11.2 The Department shall: (a) keep confidential the Software and the
source code therefor, and limit access to the same to those of its employees,
agents and subcontractors who are engaged in the use of the Software and shall
not, except as expressly permitted herein, publish, communicate or disclose, or
permit to be published, communicated or disclosed, to third parties such
information and data without AppliedTheory's prior written consent; (b)
reproduce on any copy of the Software copyright notices; and (c) notify
AppliedTheory immediately if the Department becomes aware of any unauthorized
use of the whole or any part of the Software.

12. PROPRIETARY RIGHTS

         12.1 Subject to the terms and conditions set forth herein,
AppliedTheory grants to the Department a perpetual, non-exclusive, royalty-free
license:

                  a.       To use, copy and reproduce the Software in any and
                           all forms and media now known or hereafter invented
                           for any purpose relating to the Department's
                           programs;

                  b.       To recast, reorganize, convert, translate, modify,
                           improve and edit the Software and to prepare or have
                           prepared one or more derivative works of any sort
                           therefrom or based thereon for any purpose relating
                           to the Department's programs;

                  c.       To sublicense other governmental entities or
                           authorized providers of such entities (hereinafter
                           "Sublicensees") to use (but without the right to
                           sublicense) the Software in object code form for any
                           purpose relating solely to Workforce Development
                           Services provided by the Department; and

                  d.       Solely in the event that the grant funding from the
                           U.S. Department of Labor to the Department which is
                           being used to fund the development and support of the
                           Software is permanently terminated, the Department
                           shall have the right to sublicense the source code to
                           Sublicensees to use, modify, improve and edit (but
                           without the right to sublicense) the Software solely
                           for purposes of completing the development of the
                           Software related to the provision of Workforce
                           Development Services; and

                  e.       To copy and to grant to its Sublicensees the right to
                           copy the Software in support of the foregoing
                           permitted uses and sublicenses set forth in the above
                           clauses (a), (b), (c) and (d).

         12.2 Preexisting Works. Title to all works, including any software,
codes, data, interfaces and documentation or portions thereof, used and/or
developed by AppliedTheory prior to the date of agreement number C000525 or
developed by AppliedTheory for purposes other than in connection with the
Software, and to all algorithms, know-how, ideas, techniques, and concepts used
by AppliedTheory in the performance of this Agreement, whether or not

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incorporated in the Software (collectively, "Preexisting Works"), will remain
the property of AppliedTheory, subject only to the license rights granted to the
Department in Paragraph 12.1.

         12.3 Developed Works. All computer software programs (including codes,
data, interfaces and documentation) which have been and will be created by
AppliedTheory in the performance of this Agreement, including without limitation
the Software, is the exclusive property of AppliedTheory, subject only to the
license rights granted to the Department in Paragraph 12.1. The Department
hereby assigns to AppliedTheory any rights it may have in the Software and in
any associated copyrights, subject to the licenses expressly granted in this
Agreement. The Department agrees to assist AppliedTheory in obtaining copyrights
to the Software and will execute any documents that AppliedTheory may reasonably
request for use in obtaining or enforcing such copyrights. Any expenses incurred
in obtaining such copyrights shall be the sole responsibility of AppliedTheory.

         12.4 The Department hereby agrees that all sublicenses of the Software
granted by the Department shall be in writing and contain appropriate and
adequate protections of AppliedTheory's intellectual property, confidentiality
and other rights. The parties acknowledge and agree that the Sub-License
Agreement, attached hereto as Appendix D and hereby incorporated by reference,
contains such appropriate and adequate protections. The Department shall enforce
the terms of such sublicenses to the extent necessary to protect AppliedTheory's
intellectual property, confidentiality and other rights.

         12.5 Until the Termination Date, AppliedTheory shall not use the
Software (but may use components thereof ) for or on behalf of, or license the
Software (but may license components thereof ) to, any third parties except on
terms agreed to between the Department and AppliedTheory in a separate agreement
negotiated in good faith. Nothing in this Agreement shall limit AppliedTheory's
right to use or license Preexisting Works which may be incorporated into the
Deliverables.

         12.6 For purposes of this Section 12, the following terms shall have
the following meanings:

                  (a)      "Software" Shall mean the software AppliedTheory
                           provides to the Department including that provided
                           under previous agreements as more particularly
                           described in Appendix E hereto, which is hereby
                           incorporated by reference, including all
                           modification, enhancements and revisions to such
                           software made by or through either of the parties
                           hereto.

                  (b)      "Termination Date." Shall mean the (i) the date this
                           Agreement expires or is otherwise terminated by the
                           parties, or, if earlier (ii) the last date for which
                           funding of Software Development Services is
                           permanently terminated by the U.S. Department of
                           Labor and no longer available to the Department.

                  (c)      "Workforce Development Services" means services
                           relating to job searches, including management of
                           "welfare-to-work" programs, collection of labor
                           market information and tracking of employers, job
                           seekers and job training programs under federal and
                           state programs.

13. ADDITIONAL SERVICES

         13.1 AppliedTheory shall provide web hosting services to the Department
including hardware, software, networking, and help desk services for national
and state sites and for Association sites, ACINet and ALX at rates set forth in
Appendix C and in accordance with the Service Description contained in Appendix
F, attached hereto and hereby incorporated by reference. AppliedTheory shall,
upon request and approval of the Department, purchase equipment in support of
the web hosting site on behalf of the Department at competitive market prices
and, where applicable, pursuant to State centralized contracts. Such equipment
shall reside at AppliedTheory's web hosting facilities during the term of the
Agreement Title and ownership to all equipment purchased under the contract
shall vest with the State of New York . Such equipment shall be returned to the
Department at the termination of the contract or upon removal from service,
whichever is earlier.AppliedTheory will invoice the Department for all labor and
expenses incurred by AppliedTheory related to de-installation, packaging, and
shipping of the Department's equipment.

         13.2 AppliedTheory shall provide access to Internet service at rates
established in Appendix C and in accordance with the Service Description
contained in Appendix G, attached hereto and hereby incorporated by reference.


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         13.4 AppliedTheory will provide, upon request of the Department, the
services specified herein to other states at such states sites in furtherance of
the terms of the Department's technical support responsibilities under the
federal grant issued by the U.S. Department of Labor. Such services shall be
provided pursuant to the rates and terms of this Agreement.

14. REVENUE SHARING ARRANGEMENT

         14.1 The Department grants AppliedTheory an exclusive right to provide
services related to the Association version of the Software to certain private
not-for-profit entities and other for-profit entities. In the event that
AppliedTheory charges fees for such services during the term of this Agreement,
AppliedTheory and the Department agree to share a portion of such fees in
accordance with the terms and conditions established by the parties in a
separate written agreement which shall be paid by AppliedTheory as credit for
fees owing under this Agreement.

15. YEAR 2000 DATE CHANGE WARRANTY

         15.1. Definitions

         For purposes of this warranty, the following definitions shall apply:

                  a.       "PRODUCT" shall include, without limitation: any
                           piece or component of equipment, hardware, firmware,
                           middleware, custom or commercial software, or
                           internal components or subroutines therein which
                           perform any date/time data recognition function,
                           calculation, comparing or sequencing. Where services
                           are being furnished, e.g. consulting, systems
                           integration, code or data conversion or data entry,
                           the term "Product" shall include resulting
                           deliverables.

                  b.       "APPLIEDTHEORY'S PRODUCT" shall include all Product
                           delivered under this Agreement by AppliedTheory other
                           than Third Party Product.

                  c.       "THIRD PARTY PRODUCT" shall include product
                           manufactured or developed by a corporate entity
                           independent from AppliedTheory and provided by
                           AppliedTheory on a non-exclusive licensing or other
                           distribution Agreement with the third party
                           manufacturer. "Third Party Product" does not include
                           product where AppliedTheory is: a) a corporate
                           subsidiary or affiliate of the third party
                           manufacturer/developer; and/or b) the exclusive
                           re-seller or distributor of product manufactured or
                           developed by said corporate entity.

15.2. Warranty Disclosure

At the time of bid, Product order or Product quote, AppliedTheory is required to
disclose the following information in writing to the Department:

                  a)       FOR APPLIEDTHEORY PRODUCT AND FOR PRODUCTS
                           (INCLUDING, BUT NOT LIMITED TO, APPLIEDTHEORY AND/OR
                           THIRD PARTY PRODUCTS AND/OR DEPARTMENT'S INSTALLED
                           PRODUCT) WHICH HAVE BEEN SPECIFIED TO PERFORM AS A
                           SYSTEM: Compliance or non-compliance of the Products
                           individually or as a system with the Warranty
                           Statement set forth below; and

                  b)       FOR THIRD PARTY PRODUCT NOT SPECIFIED AS PART OF A
                           SYSTEM: Third Party Manufacturer's statement of
                           compliance or non-compliance of any Third Party
                           Product being delivered with Third Party
                           Manufacturer/Developer's Year 2000 warranty. If such
                           Third Party Product is represented by Third Party
                           Manufacturer/Developer as compliant with Third Party
                           Manufacturer/Developer's Year 2000 Warranty,
                           AppliedTheory shall pass through said Third Party
                           Warranty from the Third Party Manufacturer to the the
                           Department but shall not be liable for the testing or
                           verification of Third Party's compliance statement.

An absence or failure to furnish the required written warranty disclosure shall
be deemed a statement of compliance of the Product(s) or System(s) in question
with the Year 2000 Warranty Statement set forth below.

15.3. Warranty Statement

Year 2000 warranty 'compliance' shall be defined in accordance with the
following warranty statement:

AppliedTheory warrants that Product(s) furnished pursuant to this Agreement
shall, when used in accordance with the Product documentation, be able to
accurately process date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, and the years 1999 and 2000, including leap year
calculations. Where a purchase requires that specific Products must perform as a
package or system, this warranty shall apply to the Products as a system.


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In the event of any breach of this warranty, AppliedTheory shall restore the
Product to the same level of performance as warranted herein, or repair or
replace the Product with conforming Product so as to minimize interruption to
the Department's ongoing business processes, time being of the essence, at
AppliedTheory's sole cost and expense. This warranty does not extend to
correction of the Department's errors in data entry or data conversion.

This warranty shall survive beyond termination or expiration of the Agreement.

Nothing in this warranty shall be construed to limit any rights or remedies
otherwise available under this Agreement.

16. RELATIONSHIP OF PARTIES

         16.1 AppliedTheory is an independent contractor. Nothing in this
Agreement shall be construed to create a partnership, joint venture, or agency
relationship between the parties. Each party will be solely responsible for
payment of all compensation owed to its employees, as well as employment related
taxes. Each party will maintain appropriate worker's compensation insurance and
unemployment insurance for its employees as well as general liability insurance.

17. ASSIGNMENT

         17.1 This Agreement may not be assigned or delegated by AppliedTheory
without the prior written approval of the other party, which consent will not
unreasonably be withheld. Subject to the foregoing, this Agreement is binding on
the parties and their successors and assigns.

18. NOTICES

         18.1 All notices, including notices of address change, required to be
sent hereunder shall be in writing and shall be deemed to have been given to
AppliedTheory when mailed by first class mail to the following address:

                                  AppliedTheory

                               224 Harrison Street

                               Syracuse, NY 13202

                             Attn: Contracts Manager

         18.2 Notice to the Department shall be sent to the address and to the
person identified as the Department Project Coordinator identified in the
Statement of Work.

19. GENERAL

         19.1 This Agreement will be governed by and construed in accordance
with the laws of the State of New York, without reference to its choice of law
rules.

         19.2 This Agreement, including all exhibits, serves to document
formally the entire agreement between AppliedTheory and the Department. As such,
this Agreement supersedes and replaces any prior or contemporaneous agreements,
negotiations or understandings (whether oral or written), relating generally to
the same subject matter. However, any licensing rights to software obtained by
the Department under such prior agreements are hereby transferred and
incorporated into this Agreement without any loss of rights established
thereunder.

         19.3 No modification of, or waiver of rights under, this Agreement will
be effective unless it is in writing and signed by the party against which
enforcement is sought. A waiver of a provision shall in no way be construed as a
waiver of any succeeding breach of such provision or a waiver of the provision
itself.

         19.4 If any provision of this Agreement is determined to be invalid or
unenforceable, the validity or enforceability of the other provisions of this
Agreement shall not be affected; and, in such event, such provision shall be
changed and interpreted so as best to accomplish the objectives of such
provision within the limits of applicable law or applicable court decision.

         19.5 Department acknowledges and agrees that in the development of the
Deliverables, AppliedTheory may use one or more independent contractors upon the
prior approval of the Department.

         19.6 Neither party shall be responsible for its failure to perform due
to circumstances or causes beyond its reasonable control, including, without
limitation, acts of God, wars, riots, embargoes, acts of civil or military
authorities, fires, floods, earthquakes, accidents, strikes, failure of
suppliers or shortages of transportation, facilities, fuel or energy.


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         IN WITNESS WHEREOF the parties have executed this Agreement as of the
date of last signature below.

FOR: AppliedTheory Corporation

  /s/  Angelo Gencarelli
---------------------------------------------------
Name:  Angelo Gencarelli
Title: V.P. Business Integration and Administration
Date:  11/2/2000

FOR: The New York State Department of Labor

  /s/  Paul D. Danaher
---------------------------------------------------
Name:  Paul D. Danaher
Title: Principal Accountant (ES)
Date:  11/2/00




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