UPGRADE INTERNATIONAL CORPORATION

                            UPGRADE ACQUISITION INC.

                            THE PATHWAYS GROUP, INC.

                      AGREEMENT AND PLAN OF REORGANIZATION

                         Dated as of September ___, 2000




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                              TABLE  OF  CONTENTS

                                                                            Page

ARTICLE  I  :  THE  MERGER                                                     1

     1.1     Effective  Time  of  the  Merger. . . . . . . . . . . . . .       1
     1.2     Closing . . . . . . . . . . . . . . . . . . . . . . . . . .       2
     1.3     Effects  of  the  Merger. . . . . . . . . . . . . . . . . .       2
     1.4     Tax-Free  Reorganization. . . . . . . . . . . . . . . . . .       2
     1.5     Accounting  Treatment . . . . . . . . . . . . . . . . . . .       2

ARTICLE  II  :  EFFECT  OF  THE  MERGER ON THE CAPITAL STOCK  OF THE CONSTITUENT
CORPORATIONS,  EXCHANGE  OF  CERTIFICATES. . . . . . . . . . . . . . . .       3

     2.1     Effect  on  Capital  Stock. . . . . . . . . . . . . . . . .       3
             2.1.1     Capital  Stock  of  Sub . . . . . . . . . . . . .       3
             2.1.2     Cancellation  of  Company  Common  Stock. . . . .       3
             2.1.3     Conversion  of  Company  Common  Stock. . . . . .       3
             2.1.4     Adjustments  of  Exchange  Ratio. . . . . . . . .       3
             2.1.5     Dissenters'  Rights . . . . . . . . . . . . . . .       4
             2.1.6     Fractional  Shares. . . . . . . . . . . . . . . .       4
     2.2     Exchange  of  Certificates. . . . . . . . . . . . . . . . .       4
             2.2.1     Exchange  Agent . . . . . . . . . . . . . . . . .       4
             2.2.2     Upgrade  to  Provide  Common  Stock  and  Cash. .       5
             2.2.3     Exchange  Procedures. . . . . . . . . . . . . . .       5
             2.2.4     No Further Ownership  Rights in Company Common Stock    5
             2.2.5     Return  to  Upgrade . . . . . . . . . . . . . . .       6
     2.3     Company  Options. . . . . . . . . . . . . . . . . . . . . .       6
             2.3.1     Assumption  by  Upgrade . . . . . . . . . . . . .       6
             2.3.2     Registration. . . . . . . . . . . . . . . . . . .       7
             2.3.3     Notice;  Reservation  of  Shares. . . . . . . . .       7
     2.4     Employee  Stock  Purchase  Plan. . . . . . . . . . . . . . .      7
     2.5     Company  Warrants. . . . . . . . . . . . . . . . . . . . . .      7
             2.5.1     Assumption  by  Upgrade. . . . . . . . . . . . . .      7
             2.5.2     Notice;  Reservation  of  Shares . . . . . . . . .      8
     2.6     Effect  of  Interim  Financing  on  Exchange  Ratio. . . . .      8

ARTICLE  III  :  REPRESENTATIONS  AND  WARRANTIES                              8

     3.1     Representations  and  Warranties  of  Company. . . . . . . .      8
             3.1.1     Organization,  Standing  and  Power. . . . . . . .      8
             3.1.2     Capital  Structure . . . . . . . . . . . . . . . .      9


                                     i
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             3.1.3     Authority. . . . . . . . . . . . . . . . . . . . .     10
             3.1.4     SEC  Documents  and  Financial  Statements . . . .     11
             3.1.5     Nasdaq  Exchange . . . . . . . . . . . . . . . . .     11
             3.1.6     Information  Supplied. . . . . . . . . . . . . . .     12
             3.1.7     No  Defaults . . . . . . . . . . . . . . . . . . .     12
             3.1.8     Litigation . . . . . . . . . . . . . . . . . . . .     12
             3.1.9     No  Material  Adverse  Change. . . . . . . . . . .     13
             3.1.10    Absence  of  Undisclosed  Liabilities . . . . . . .    13
             3.1.11    No  Violations. . . . . . . . . . . . . . . . . . .    13
             3.1.12    Certain  Agreements . . . . . . . . . . . . . . . .    14
             3.1.13    Collective  Bargaining  Agreements. . . . . . . . .    14
             3.1.14    Employee  Benefit  Plans. . . . . . . . . . . . . .    14
             3.1.15    Major  Contracts. . . . . . . . . . . . . . . . . .    15
             3.1.16    Taxes . . . . . . . . . . . . . . . . . . . . . . .    15
             3.1.17    Interests  of  Officers . . . . . . . . . . . . . .    17
             3.1.18    Technology  and  Intellectual  Property  Rights . .    17
             3.1.19    Vote  Required. . . . . . . . . . . . . . . . . . .    19
             3.1.20    Brokers  and  Finders . . . . . . . . . . . . . . .    19
             3.1.21    Change  of  Control . . . . . . . . . . . . . . . .    19
             3.1.22    Leases  in  Effect. . . . . . . . . . . . . . . . .    20
             3.1.23    Environmental. . . . . . . . . . . . . . . . . . .     20
             3.1.24    Certain  Payments . . . . . . . . . . . . . . . . .    21
             3.1.25    Reliance. . . . . . . . . . . . . . . . . . . . . .    21
     3.2     Representations  and  Warranties  of  Upgrade  and  Sub. . .     21
             3.2.1     Organization;  Standing  and  Power. . . . . . . .     21
             3.2.2     Capital  Structure . . . . . . . . . . . . . . . .     22
             3.2.3     Authority. . . . . . . . . . . . . . . . . . . . .     22
             3.2.4     SEC  Documents  and  Financial  Statements . . . .     23
             3.2.5     Information  Supplied. . . . . . . . . . . . . . .     23
             3.2.6     No  Defaults . . . . . . . . . . . . . . . . . . .     24
             3.2.7     Absence  of  Certain  Changes  or  Events. . . . .     24
             3.2.8     Litigation . . . . . . . . . . . . . . . . . . . .     24
             3.2.9     Absence  of  Undisclosed  Liabilities. . . . . . .     25
             3.2.10    No  Violations. . . . . . . . . . . . . . . . . . .    25
             3.2.11    Employee  Benefit  Plans. . . . . . . . . . . . . .    25
             3.2.12    Major  Contracts. . . . . . . . . . . . . . . . . .    25
             3.2.13    Taxes . . . . . . . . . . . . . . . . . . . . . . .    25
             3.2.14    Interest  of  Officers. . . . . . . . . . . . . . .    25
             3.2.15    No  Vote  Required. . . . . . . . . . . . . . . . .    26
             3.2.16    Brokers  and  Finders . . . . . . . . . . . . . . .    26
             3.2.17    Interim  Operation  of  Sub . . . . . . . . . . . .    26
             3.2.18    Reliance. . . . . . . . . . . . . . . . . . . . . .    26

ARTICLE  IV  :  COVENANTS  OF  COMPANY. . . . . . . . . . . . . . . . . .     26

     4.1     Conduct  of  Business. . . . . . . . . . . . . . . . . . . .     26
             4.1.1     Ordinary  Course . . . . . . . . . . . . . . . . .     26


                                     ii
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             4.1.2     Dividends:  Changes  in  Stock . . . . . . . . . .     27
             4.1.3     Issuance  of  Securities . . . . . . . . . . . . .     28
             4.1.4     Governing  Documents . . . . . . . . . . . . . . .     28
             4.1.5     Exclusivity;  Acquisition  Proposals . . . . . . .     28
             4.1.6     No  Acquisitions . . . . . . . . . . . . . . . . .     29
             4.1.7     No  Dispositions . . . . . . . . . . . . . . . . .     30
             4.1.8     Indebtedness . . . . . . . . . . . . . . . . . . .     30
             4.1.9     Plans. . . . . . . . . . . . . . . . . . . . . . .     30
             4.1.10    Claims. . . . . . . . . . . . . . . . . . . . . . .    30
             4.1.11    Agreement . . . . . . . . . . . . . . . . . . . . .    30
     4.2     Breach  of  Representations  and  Warranties . . . . . . . .     30
     4.3     Consents . . . . . . . . . . . . . . . . . . . . . . . . . .     31
     4.4     Nasdaq  Requirements . . . . . . . . . . . . . . . . . . . .     31
     4.5     Commercially  Reasonable  Best  Efforts. . . . . . . . . . .     31
     4.6     Information  for  Prospectus/Proxy  Statement. . . . . . . .     31
     4.7     Stockholder  Approval. . . . . . . . . . . . . . . . . . . .     31
     4.8     Tax  Returns . . . . . . . . . . . . . . . . . . . . . . . .     32
     4.9     Representations  of  Stockholders. . . . . . . . . . . . . .     32
     4.10    Employee  Benefits  Matters . . . . . . . . . . . . . . . . .    32
             4.10.1     Benefit  Plans. . . . . . . . . . . . . . . . . .     32
             4.10.2     Section  16  Approval . . . . . . . . . . . . . .     33
     4.11    Financial  Condition. . . . . . . . . . . . . . . . . . . . .    33
     4.12    Opinion  of  Financial  Advisor . . . . . . . . . . . . . . .    33
     4.13    Consent  of  Series  A  Secured  Note  Holders. . . . . . . .    33

ARTICLE  V  :  COVENANTS  OF  UPGRADE                                         33

     5.1     Breach  of  Representations  and  Warranties . . . . . . . .     33
     5.2     Conduct  of  Business  by  Upgrade  Pending  the  Merger . .     34
     5.3     Consents . . . . . . . . . . . . . . . . . . . . . . . . . .     34
     5.4     Commercially  Reasonable  Best  Efforts. . . . . . . . . . .     34
     5.5     Representations  of  Shareholders. . . . . . . . . . . . . .     34
     5.6     Tax  Free  Reorganization. . . . . . . . . . . . . . . . . .     34
     5.7     Stock  Exchange  Listing . . . . . . . . . . . . . . . . . .     35
     5.8     Payment  of  Liabilities . . . . . . . . . . . . . . . . . .     35

ARTICLE  VI  :  ADDITIONAL  AGREEMENTS. . . . . . . . . . . . . . . . . .     35

     6.1     Preparation  of  S-4 . . . . . . . . . . . . . . . . . . . .     36
     6.2     Access  to  Information;  Confidentiality. . . . . . . . . .     36
             6.2.1     Access . . . . . . . . . . . . . . . . . . . . . .     36
             6.2.2     Confidentiality. . . . . . . . . . . . . . . . . .     36
     6.3     Legal  Conditions  to  the  Merger . . . . . . . . . . . . .     37
     6.4     Affiliates . . . . . . . . . . . . . . . . . . . . . . . . .     37
     6.5     HSR  Act  Filings. . . . . . . . . . . . . . . . . . . . . .     38
             6.5.1     Filings  and  Cooperation. . . . . . . . . . . . .     38
             6.5.2     Objections . . . . . . . . . . . . . . . . . . . .     38


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     6.6     Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .     39
     6.7     Interim  Financing . . . . . . . . . . . . . . . . . . . . .     39
     6.8     Additional  Agreements . . . . . . . . . . . . . . . . . . .     40
     6.9     Public  Announcements. . . . . . . . . . . . . . . . . . . .     40
     6.10    State  Takeover  Laws . . . . . . . . . . . . . . . . . . . .    40
     6.11    State  Securities  Laws . . . . . . . . . . . . . . . . . . .    40

ARTICLE  VII  :  CONDITIONS  PRECEDENT. . . . . . . . . . . . . . . . . .     40

     7.1     Conditions  to  Each Party's Obligation to Effect the Merger     40
             7.1.1     Stockholder  Approval. . . . . . . . . . . . . . .     40
             7.1.2     Consents . . . . . . . . . . . . . . . . . . . . .     40
             7.1.3     S-4. . . . . . . . . . . . . . . . . . . . . . . .     41
             7.1.4     No  Restraints . . . . . . . . . . . . . . . . . .     41
             7.1.5     Tax-Free  Reorganization . . . . . . . . . . . . .     41
             7.1.6     No  Burdensome  Condition. . . . . . . . . . . . .     41
             7.1.7     No  Prohibition. . . . . . . . . . . . . . . . . .     41
     7.2     Conditions  of  Obligations  of  Upgrade  and  Sub . . . . .     41
             7.2.1     Representations  and  Warranties  of  Company. . .     42
             7.2.2     Performance  of  Obligations  of  Company. . . . .     42
             7.2.3     Affiliates . . . . . . . . . . . . . . . . . . . .     42
             7.2.4     Opinion  of  Company's  Counsel. . . . . . . . . .     42
             7.2.5     Approval  of  Company's  Stockholders. . . . . . .     42
             7.2.6     Company's  Pending  Acquisitions . . . . . . . . .     42
             7.2.7     Company Warrant and Series A Secured Note Holder
                       Consent  . . . . . . . . . . . . . . . . . . . . .     42
     7.3     Conditions  of  Obligation  of  Company. . . . . . . . . . .     43
             7.3.1     Representations  and  Warranties  of  Upgrade and Sub  43
             7.3.2     Performance  of  Obligations  of  Upgrade  and  Sub    43
             7.3.3     Opinion  of  Upgrade's  Counsel  . . . . . . . . .     43

ARTICLE  VIII  :  DUE  DILIGENCE  TERMINATION,  AMENDMENT  AND  WAIVER        43

     8.1     Termination. . . . . . . . . . . . . . . . . . . . . . . . .     43
     8.2     Effect  of  Termination. . . . . . . . . . . . . . . . . . .     44
     8.3     Break-up  Fee. . . . . . . . . . . . . . . . . . . . . . . .     45
     8.4     Amendment. . . . . . . . . . . . . . . . . . . . . . . . . .     46
     8.5     Extension,  Waiver . . . . . . . . . . . . . . . . . . . . .     46

ARTICLE  IX  :  GENERAL  PROVISIONS                                           46

     9.1     Nonsurvival  of  Representations,  Warranties and Agreements     46
     9.2     Notices. . . . . . . . . . . . . . . . . . . . . . . . . . .     46
     9.3     Interpretation . . . . . . . . . . . . . . . . . . . . . . .     47
     9.4     Counterparts . . . . . . . . . . . . . . . . . . . . . . . .     48
     9.5     Entire  Agreement;  No  Third  Party  Beneficiaries. . . . .     48
     9.6     No  Joint  Venture . . . . . . . . . . . . . . . . . . . . .     48
     9.7     Governing  Law . . . . . . . . . . . . . . . . . . . . . . .     48


                                     iv
<PAGE>
     9.8     Specific  Performance. . . . . . . . . . . . . . . . . . . .     48
     9.9     Severability . . . . . . . . . . . . . . . . . . . . . . . .     48
     9.10    Headings. . . . . . . . . . . . . . . . . . . . . . . . . . .    49
     9.11    Succession  and  Assignment . . . . . . . . . . . . . . . . .    49




                                     v
<PAGE>
                                 INDEX OF DEFINED TERMS

Term                                                                       Page

Acquisition Transaction. . . . . . . . . . . . . . . . . . . . . . . . .     28
affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5
Affiliate Letters. . . . . . . . . . . . . . . . . . . . . . . . . . . .     37
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
Amended Financing Agreement. . . . . . . . . . . . . . . . . . . . . . .     39
Amended Security Agreements. . . . . . . . . . . . . . . . . . . . . . .     39
Antitrust Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     38
blue sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     11
Business Condition . . . . . . . . . . . . . . . . . . . . . . . . . . .      9
Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
Company Business . . . . . . . . . . . . . . . . . . . . . . . . . . . .      9
Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . .      3
Company Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . .      8
Company Financial Statements . . . . . . . . . . . . . . . . . . . . . .     11
Company Incentive and Stock Option Plans . . . . . . . . . . . . . . . .      9
Company Intellectual Property. . . . . . . . . . . . . . . . . . . . . .     17
Company Licensed Intellectual Property . . . . . . . . . . . . . . . . .     17
Company Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      9
Company Owned Intellectual Property. . . . . . . . . . . . . . . . . . .     17
Company Required Statutory Approvals . . . . . . . . . . . . . . . . . .     11
Company SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . .     11
Company Section 16 Insider . . . . . . . . . . . . . . . . . . . . . . .     32
Company Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . .     31
Company Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . .      3
Company Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . .      9
Company's Principal Stockholders . . . . . . . . . . . . . . . . . . . .     32
Condition Satisfaction Date. . . . . . . . . . . . . . . . . . . . . . .      2
Confidential Information . . . . . . . . . . . . . . . . . . . . . . . .     36
Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     14
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      4
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     11
Governmental Entity. . . . . . . . . . . . . . . . . . . . . . . . . . .     10


                                     vi
<PAGE>
Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . .     20
HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10
include. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     47
includes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     47
including. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     47
Interim Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . .     39
Interim Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     39
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     20
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     20
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     13
Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . .      9
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . .      3
Merger Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
multiemployer plan . . . . . . . . . . . . . . . . . . . . . . . . . . .     14
Named Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     37
Nasdaq Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     11
Non-U.S. Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     14
Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     38
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     14
plan of reorganization . . . . . . . . . . . . . . . . . . . . . . . . .      2
prohibited transaction . . . . . . . . . . . . . . . . . . . . . . . . .     14
Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     11
Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . .     11
Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     20
Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     15
S-4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     11
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5
Signing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
single-employer plan . . . . . . . . . . . . . . . . . . . . . . . . . .     14
Sub. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
Superior Proposal. . . . . . . . . . . . . . . . . . . . . . . . . . . .     29
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . .      2
tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     15
taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     15
U.S. Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     14
Upgrade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
Upgrade Average Closing Price. . . . . . . . . . . . . . . . . . . . . .      4
Upgrade Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . .      3
Upgrade Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . .     21
Upgrade Financial Statements . . . . . . . . . . . . . . . . . . . . . .     23
Upgrade Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     21
Upgrade Required Statutory Approvals . . . . . . . . . . . . . . . . . .     23
Upgrade SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . .     23
Upgrade Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . .     22


                                     vii
<PAGE>
Upgrade Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . .     22
Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10
Voting Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10
WBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1


                                     viii
<PAGE>
                      AGREEMENT AND PLAN OF REORGANIZATION



     AGREEMENT AND PLAN OF  REORGANIZATION  ("AgreementAgreement"),  dated as of
September ___, 2000 ("Signing  DateSigning Date"),  among Upgrade  International
Corporation,  a  Florida  corporation,  to  be  reincorporated  as a  Washington
corporation prior to the Effective Time ("UpgradeUpgrade"),  Upgrade Acquisition
Inc.,  a  Delaware   corporation  and  a  wholly-owned   subsidiary  of  Upgrade
("SubSub"),   and   The   Pathways   Group,   Inc.,   a   Delaware   corporation
("CompanyCompany").

                                    RECITALS


     WHEREAS, upon the terms and subject to the conditions of this Agreement and
in  accordance with the Washington Business Corporation Act (the "WBCAWBCA") and
the  Delaware  General  Corporation  Law  ("DGCLDGCL"), Upgrade and Company will
enter  into  a business combination transaction pursuant to which Sub will merge
with  and  into  Company  (the  "MergerMerger");

     WHEREAS,  the  Board  of  Directors  of Company (i) has determined that the
Merger  is  advisable and fair to, and in the best interests of, Company and its
stockholders  and  has  adopted  this  Agreement,  the  Merger  and  the  other
transactions  contemplated  by  this  Agreement  and  (ii)  has  recommended the
approval  of  this  Agreement  by  the  stockholders  of  Company;

     WHEREAS,  the  respective  Boards  of  Directors  of  Upgrade  and Sub have
determined  that  the Merger is advisable and fair to, and in the best interests
of,  Upgrade  and  Sub;  and

     WHEREAS,  for  United  States  federal  income  tax purposes, the Merger is
intended to qualify as a reorganization within the meaning of Section 368 of the
United  States  Internal  Revenue  Code  of  1986,  as  amended.

     INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and the
mutual  representations,  warranties, covenants and agreements contained herein,
Upgrade,  Sub  and  Company  hereby  agree  as  follows:


                             ARTICLE I:  THE MERGER

     1.1     Effective  Time  of  the  Merger

     Subject  to  the  provisions of this Agreement, Sub will be merged with and
into  Company.  An  Agreement  and Plan of Merger, and articles, certificates or
other  appropriate  filing  documents  (the  "Merger DocumentsMerger Documents")
shall  be duly prepared, executed and acknowledged by the parties and thereafter
delivered  to the Secretary of State of Delaware, for filing, as provided in the
DGCL  as soon as practicable on or after the Closing Date (as defined in Section
1.2).  The Merger shall become effective upon the filing of the Merger Documents
with  the  Secretary  of  State  of  Delaware  or  at such time thereafter as is
provided  in the Merger Documents (the "Effective TimeEffective Time").  Company
acknowledges and agrees that Upgrade will have no obligation to make any payment
or  issue  any  securities  pursuant to this Agreement until the Merger has been
confirmed  in  writing  by  the  Secretary  of  State  of  Delaware.


                                        1
<PAGE>
     1.2     Closing

     Unless another date or place is agreed to in writing by the parties hereto,
the  closing of the Merger (the "ClosingClosing") will take place at the offices
of  Ogden  Murphy  Wallace,  PLLC,  Seattle, Washington, on a date (the "Closing
DateClosing  Date")  that is as soon as practicable after, but no later than the
third  business day after, satisfaction or waiver of the last to be fulfilled of
the  conditions set forth in ARTICLE VII that by their terms are not to occur at
the Closing (the date on which such conditions are satisfied or waived being the
"Condition  Satisfaction  DateCondition  Satisfaction Date"); provided, however,
and  subject  to  Section 8.1(c), that  the Closing Date shall not be later than
December  29,  2000;  and provided further, however, that if the S-4 (as defined
below) is declared effective after November 14, 2000, the Closing Date shall not
be  later  than  fifty  (50)  days after the date the S-4 is declared effective.

     1.3     Effects  of  the  Merger

     At the Effective  Time,  (i) the separate  existence of Sub shall cease and
Sub shall be merged with and into Company (Company after the Merger is sometimes
referred to herein as the "Surviving  CorporationSurviving  Corporation"),  (ii)
the  Certificate  of  Incorporation  of the Surviving  Corporation  shall be the
Certificate  of  Incorporation  of  Company,   (iii)  the  Bylaws  of  Surviving
Corporation  shall be the  Bylaws  of the  Company,  (iv) the  directors  of the
Surviving  Corporation  shall be the directors of Sub  immediately  prior to the
Effective  Time,  (v) the  officers of the  Surviving  Corporation  shall be the
officers of Company immediately prior to the Effective Time, and (vi) the Merger
shall,  from and after the  Effective  Time,  have all the  effects  provided by
applicable law.

     1.4     Tax-Free  Reorganization

     The Merger is intended to be a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "CodeCode"),  and this
Agreement  is intended to be a "plan of  reorganizationplan  of  reorganization"
within the meaning of the regulations promulgated under Section 368 of the Code.
Each  party  hereto  and  its  affiliates   agree  to  treat  the  Merger  as  a
reorganization within the meaning of Section 368 of the Code, and this Agreement
is  intended  to be a  "plan  of  reorganization"  within  the  meaning  of  the
regulations promulgated under Section 368 of the Code, unless and until there is
a  determination,  within  the  meaning  of  Section  1313 of the Code that such
conclusions are wholly or partially incorrect.

     1.5     Accounting  Treatment

     The  business  combination  to  be effected by the Merger is intended to be
treated  for  accounting  purposes  as a "purchase," within the meaning of GAAP.


                                        2
<PAGE>
             ARTICLE II:  EFFECT OF THE MERGER ON THE CAPITAL STOCK
            OF THE CONSTITUENT CORPORATIONS, EXCHANGE OF CERTIFICATES

     2.1     Effect  on  Capital  Stock

     As  of  the  Effective Time, by virtue of the Merger and without any action
(except  as  provided in Section 4.7) on the part of the holder of any shares of
Company  common  stock,  par  value $.01 per share ("Company Common StockCompany
Common  Stock"):

          2.1.1     Capital  Stock  of  Sub

     All issued and outstanding shares of capital stock of Sub shall continue to
be issued and outstanding with the stock certificate of Sub evidencing ownership
of  such  shares  of  capital  stock  of  the  Surviving  Corporation.

          2.1.2     Cancellation  of  Company  Common  Stock

     All shares of Company Common Stock that are owned directly or indirectly by
Company  or  Upgrade or by any of the Company Subsidiaries (as defined below) or
Upgrade  immediately  prior  to  the  Merger  shall  be canceled and no stock of
Upgrade or other consideration shall be delivered in exchange therefor.  In this
Agreement,  "Company  SubsidiariesCompany  Subsidiaries" shall mean an entity of
which  an  amount  of the voting securities, or other voting ownership or voting
partnership interests of which is sufficient to elect a majority of its board of
directors  or  other  governing body (or, if there are no such interests, 50% or
more  of  the  equity  interests  of  which)  is owned directly or indirectly by
Company.  All  Company  Subsidiaries  are  identified  in the Company Disclosure
Schedule  (as  defined  in  Section  3.1).

          2.1.3     Conversion  of  Company  Common  Stock

     Subject  to  adjustment  as  provided  by  Sections  2.1.4  and 2.6, at the
Effective  Time every fourteen and three tenths (14.3) of issued and outstanding
shares  of  Company  Common  Stock (other than shares to be canceled pursuant to
Section  2.1.2  and  dissenting  shares  as described in Section 2.1.5) shall be
converted, without any action on the part of the holders thereof, into the right
to  receive one (1) share ( as it may be adjusted pursuant to Sections 2.1.4 and
2.6,  the  "Exchange RatioExchange Ratio") of common stock, par value $0.001 per
share,  of Upgrade (the "Upgrade Common StockUpgrade Common Stock") (the "Merger
ConsiderationMerger Consideration").  From and after the Effective Time, subject
to applicable provisions of Delaware General Corporation Law, all such shares of
Company  Common  Stock  shall no longer be outstanding and shall cease to exist,
and  each  certificate  (a "CertificateCertificate") previously representing any
such  shares  of  Company Common Stock shall represent only the right to receive
(i)  whole  shares  of Upgrade Common Stock computed in accordance with Exchange
Ratio  and  (ii)  cash in lieu of fractional shares, in each case as provided by
this  Section  2.1.

          2.1.4          Adjustments  of  Exchange  Ratio

     If,  between  the  date  of  this  Agreement  and  the  Effective Time, the
outstanding  shares  of  Upgrade Common Stock or Company Common Stock shall have
been changed into a different number of shares or a different class or series or
otherwise changed by reason of any reclassification, recapitalization, split-up,
stock dividend, stock combination, exchange of shares or readjustment or similar
transaction,  the  Exchange  Ratio  shall  be  correspondingly  adjusted.


                                        3
<PAGE>
          2.1.5     Dissenters'  Rights

     Notwithstanding  any  provision  of  this  Agreement  to the contrary, each
outstanding  share of Company Common Stock, the holder of which has demanded and
perfected such holder's right to dissent from the Merger and to be paid the fair
value  of  such  shares  in  accordance  with Section 262 of the DGCL, as of the
Effective Time, and which has not effectively withdrawn or lost such dissenters'
rights,  shall  not be converted into or represent a right to receive the Merger
Consideration,  but  the holder thereof shall be entitled only to such rights as
are  granted  by the DGCL.  Company shall give Upgrade (i) prompt written notice
of  any  notice  of intent to demand fair value for any shares of Company Common
Stock, withdrawals of such notices, and any other instruments served pursuant to
the  DGCL  or  any other provisions of Delaware law and received by the Company,
and  (ii)  the  opportunity to conduct jointly with the Company all negotiations
and  proceedings  with  respect  to demands for fair value for shares of Company
Common  Stock  under the DGCL.  Company shall not, except with the prior written
consent of Upgrade, voluntarily make any payment with respect to any demands for
fair  value  for shares of Company Common Stock or offer to settle or settle any
such  demands.

          2.1.6     Fractional  Shares

     No  fractional shares of Upgrade Common Stock shall be issued in the Merger
and  such  fractional interests shall not entitle the owner thereof to vote.  In
lieu  of any fractional share, each holder of shares of Company Common Stock who
would  otherwise  be entitled to receive a fraction of a share of Upgrade Common
Stock  will  be  entitled  to  receive  from  Upgrade an amount of cash, without
interest,  equal  to  the  Upgrade  Average  Closing  Price  (as  defined below)
multiplied  by  the  fraction  of  a share of Upgrade Common Stock to which such
holder  would  otherwise be entitled.  The "Upgrade Average Closing PriceUpgrade
Average  Closing  Price"  shall  mean  the  average closing price of the Upgrade
Common  Stock  as  publicly  reported  on a national exchange or other automated
quotation  system  from time to time, as of 4:00 p.m. Eastern Time over the last
twenty  (20)  trading  days ending on the fifth trading day prior to the Closing
Date.

     2.2     Exchange  of  Certificates

          2.2.1     Exchange  Agent

     Prior  to  the  Closing Date, Upgrade shall appoint ChaseMellon Shareholder
Services,  LLC,  or  other  bank  or  trust  company  reasonably satisfactory to
Company,  to  act  as exchange agent (the "Exchange AgentExchange Agent") in the
Merger.  Upgrade  shall  instruct  the Exchange Agent to cooperate with American
Stock  Transfer  Company,  the  transfer  agent for the Company Common Stock, in
order  to  effect  the  exchange  as  described  in  this  Section  2.2

          2.2.2     Upgrade  to  Provide  Common  Stock  and  Cash

     As  promptly  as  practicable  after the Effective Time, Upgrade shall make
available  to  the  Exchange Agent the certificates representing whole shares of
Upgrade  Common Stock issued pursuant to Section 2.1 in exchange for outstanding
shares  of  Company  Common  Stock  and,  as required by Section 2.1.6, cash for
payment  in  lieu  of  fractional  shares.


                                        4
<PAGE>
          2.2.3     Exchange  Procedures

     As  soon  as  practicable after the Effective Time, Upgrade shall cause the
Exchange  Agent  to  mail to each holder of record as of the Effective Time of a
Certificate  or  Certificates,  (i)  a  letter of transmittal (which shall be in
customary  form  and  shall specify that delivery shall be effected, and risk of
loss  and  title  to  the  Certificates  shall  pass,  only upon delivery of the
Certificates  to  the Exchange Agent) and (ii) instructions for use in effecting
the  surrender  of  the  Certificates  in exchange for certificates representing
Upgrade  Common  Stock.  Upon surrender of a Certificate for cancellation to the
Exchange  Agent,  together  with  a duly executed letter of transmittal and such
other  documents  as  the  Exchange  Agent  shall  require,  the  holder of such
Certificate  shall  be  entitled  to  receive in exchange therefor the number of
whole shares of Upgrade Common Stock to which the holder of Company Common Stock
is  entitled  pursuant  to  Section  2.1  hereof plus cash in lieu of fractional
shares  as  provided  in  Section  2.1.6.  The  Certificate so surrendered shall
forthwith  be  canceled.  Notwithstanding any other provision of this Agreement,
until  holders  of  Certificates  have surrendered them for exchange as provided
herein,  (i)  no  dividends or other distributions shall be paid with respect to
any shares represented by such Certificates and no payment for fractional shares
shall be made, and (ii) without regard to when such Certificates are surrendered
for  exchange  as provided herein, no interest shall be paid on any dividends or
other  distributions  or any payment for fractional shares.  Upon surrender of a
Certificate, there shall be paid to the holder of such Certificate the amount of
any  dividends  or  other  distributions  which  after the Effective Time became
payable, but which were not paid by reason of the foregoing, with respect to the
number of whole shares of Upgrade Common Stock represented by the certificate or
certificates  issued upon such surrender.  If any certificate for Upgrade Common
Stock  is to be issued in a name other than in which the Certificate surrendered
in  exchange  therefor  is  registered, it shall be a condition of such exchange
that  the  person  requesting  such  exchange  pay  any  transfer or other taxes
required  by  reason  of the issuance of certificates for such shares of Upgrade
Common  Stock  in  a  name  other  than  that  of  the  registered holder of the
Certificate  surrendered,  or  establish  to  the  satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. In connection with
its  undertakings  pursuant  to  this Section 2.2.3, the Exchange Agent shall be
entitled  to  withhold  any  income  taxes  as  required  by  the  Code.

          2.2.4     No  Further  Ownership  Rights  in  Company  Common  Stock

     All  Upgrade  Common  Stock  delivered  upon  the surrender for exchange of
shares  of  Company  Common  Stock  in accordance with the terms hereof shall be
deemed  to  have been delivered in full satisfaction of all rights pertaining to
such  shares of Company Common Stock. After the Effective Time there shall be no
transfers  on  the  stock  transfer books of Company of shares of Company Common
Stock.  If,  after  the  Effective  Time,  Certificates  are  presented  to  the
Surviving  Corporation  for  any reason, they shall be canceled and exchanged as
provided  in  this  ARTICLE  II.


                                        5
<PAGE>
          2.2.5     Return  to  Upgrade

     Any Upgrade Common Stock and any cash in lieu of fractional share interests
made available to the Exchange Agent and not exchanged for  Certificates  within
one year after the Effective  Time and any dividends and  distributions  held by
the  Exchange  Agent for payment or  delivery  to the  holders of  unsurrendered
Certificates  representing Company Common Stock and unclaimed at the end of such
one year period shall be redelivered or repaid by the Exchange Agent to Upgrade,
after which time any holder of Certificates who has not theretofore delivered or
surrendered such Certificates to the Exchange Agent,  subject to applicable law,
shall look as a general  creditor  only to Upgrade  for  payment of the  Upgrade
Common  Stock,  cash in lieu of  fractional  shares,  and any such  dividends or
distributions. Notwithstanding any provision of this Agreement, none of Upgrade,
the Exchange Agent, the Surviving Corporation or any other party hereto shall be
liable to any holder of Company Common Stock for any Upgrade Common Stock,  cash
in lieu of fractional shares or dividends or distributions delivered to a public
official pursuant to applicable abandoned property, escheat or similar law.

     2.3     Company  Options

          2.3.1     Assumption  by  Upgrade

     At  the  Effective  Time,  each of the then outstanding Company Options (as
defined  in  Section  3.1.2) shall, by virtue of the Merger and at the Effective
Time,  and  without  any  further  action  on the part of any holder thereof, be
assumed  by  Upgrade  and  converted  into  an option to purchase that number of
shares  of  Upgrade  Common Stock determined by dividing the number of shares of
Company Common Stock subject to such Company Option at the Effective Time by the
Exchange  Ratio, at an exercise price per share of Upgrade Common Stock equal to
the  exercise  price  per  share of such Company Option immediately prior to the
Effective  Time multiplied by the Exchange Ratio.  Such converted Company Option
shall  otherwise  continue  to have the same vesting provisions and other rights
after  the  Effective  Time  as it had prior to the Effective Time, and shall be
deemed  to  have  been  issued under the Upgrade Stock Option Plans and shall be
subject  to  the  rights  and benefits thereunder.  If the foregoing calculation
results in an assumed Company Option being exercisable for a fraction of a share
of  Upgrade  Common  Stock,  then  the  number of shares of Upgrade Common Stock
subject  to  such  option  shall  be  rounded  up to the nearest whole number of
shares.  Continuous employment with Company or any Company Subsidiaries shall be
credited  to  the optionee for purposes of determining the vesting of the number
of  shares  of  Upgrade  Common  Stock  subject to exercise under the optionee's
converted  Company  Option after the Effective Time.  Except as provided in this
Section  2.3.1,  each  Company  Option  assumed  by  Upgrade  hereunder shall be
exercisable  upon, and otherwise be subject to, the same terms and conditions as
under  the  applicable  Company  Amended  and  Restated Stock Incentive Plan (as
defined in Section 3.1.2), the applicable option agreement issued thereunder and
any  other  plan or agreement pertaining to the exercisability or any other term
of  such  Company Option.  Notwithstanding anything in this Section 2.3.1 to the
contrary,  the Company Options shall be assumed by Upgrade in such a manner that
Upgrade  (i) is a corporation "assuming a stock option in a transaction to which
Section  424(a)  applies"  within the meaning of Section 424 of the Code and the
regulations  thereunder  or (ii) to the extent that Section 424 of the Code does
not  apply to any such Company Options, would be such a corporation were Section
424  of  the  Code  applicable  to  such  Company  Options.


                                        6
<PAGE>
          2.3.2     Registration

     Upgrade  shall  cause  the  shares  of  Upgrade  Common Stock issuable upon
exercise  of  the  assumed  Company  Options  to  be registered, or to be issued
pursuant  to  a  then  effective  registration statement, as soon as practicable
after  the  Effective  Time,  but in no event later than ten (10) days after the
Effective  Time,  on  Form  S-8  promulgated  by  the  SEC  and  shall  use  its
commercially  reasonable  best  efforts  to  maintain  the effectiveness of such
registration  statement  or  registration statements for so long as such assumed
Company  Options  remain  outstanding.  With  respect  to  those individuals who
subsequent  to  the  Merger  will be subject to the reporting requirements under
Section  16(a) of the Exchange Act (as defined in Section 4.10.2), Upgrade shall
administer Company Options assumed pursuant to this Section 2.3 in a manner that
complies  with  Rule  16b-3  promulgated  by the SEC under the Exchange Act, but
shall have no responsibility for such compliance by Company or its predecessors.

          2.3.3     Notice;  Reservation  of  Shares

     As  soon  as practicable after the Effective Time, Upgrade shall deliver to
each  holder  of  an  assumed Company Option an appropriate notice setting forth
such  holder's  rights pursuant thereto.  Upgrade shall comply with the terms of
all  such  Company  Options  and  shall  take  all corporate action necessary to
reserve  for  issuance a sufficient number of shares of Upgrade Common Stock for
delivery  upon  exercise  of  the  assumed  Company  Options.

          2.4     Employee  Stock  Purchase  Plan

     Company  shall cause its 2000 Employee Stock Purchase Plan to be terminated
as  of the day immediately prior to the Effective Time, and all funds which have
been  withheld from the wages of Company's employees for the purchase of Company
Common  Stock  as  of such time shall be applied to a final purchase thereunder.

     2.5     Company  Warrants

          2.5.1     Assumption  by  Upgrade

     At the Effective Time, each of the then  outstanding  Company  Warrants (as
defined in Section  3.1.2)  shall,  by virtue of the Merger and at the Effective
Time,  and  without  any further  action on the part of any holder  thereof,  be
assumed by Upgrade  and  converted  into a warrant to  purchase  that  number of
shares of Upgrade  Common Stock  determined  by dividing the number of shares of
Company  Common Stock subject to such Company  Warrants at the Effective Time by
the Exchange Ratio, at an exercise price per share of Upgrade Common Stock equal
to the exercise price per share of such Company  Warrants  immediately  prior to
the  Effective  Time   multiplied  by  the  Exchange  Ratio.  If  the  foregoing
calculation  results in an  assumed  Company  Warrant  being  exercisable  for a
fraction  of a share of  Upgrade  Common  Stock,  then the  number  of shares of
Upgrade  Common Stock subject to such  warrants  shall be rounded to the nearest
whole number of shares.  Except as provided in this Section 2.5.1,  each Company
Warrant assumed by Upgrade hereunder shall be exercisable upon, and otherwise be
subject  to,  the same  terms and  conditions  as under the  applicable  Company
Warrants (as defined in Section 3.1.2),  the applicable warrant agreement issued
thereunder  and  any other plan or agreement pertaining to the exercisability or


                                        7
<PAGE>
any  other  term  of  such  Company  Warrant.  Notwithstanding  anything in this
Section  2.5.1 to the contrary, the Company Warrants shall be assumed by Upgrade
in such a manner that Upgrade (i) is a corporation "assuming a stock option in a
transaction  to  which Section 424(a) applies" within the meaning of Section 424
of  the  Code  and the regulations thereunder or (ii) to the extent that Section
424  of  the  Code  does not apply to any such Company Warrants, would be such a
corporation  were  Section  424 of the Code applicable to such Company Warrants.

          2.5.2     Notice;  Reservation  of  Shares

     As  soon  as practicable after the Effective Time, Upgrade shall deliver to
each  holder  of  an assumed Company Warrant an appropriate notice setting forth
such  holder's  rights pursuant thereto.  Upgrade shall comply with the terms of
all  such  Company  Warrants  and  shall  take all corporate action necessary to
reserve  for  issuance a sufficient number of shares of Upgrade Common Stock for
delivery  upon  exercise  of  the  assumed  Company  Warrants.

     2.6     Effect  of  Interim  Financing  on  Exchange  Ratio

     For  every  One  Hundred Thousand Dollars ($100,000) advanced to Company by
Upgrade  pursuant to the Interim Financing, as defined in Section 6.7 below, the
Exchange  Ratio  shall  be  increased  by  0.313%.

                  ARTICLE III:  REPRESENTATIONS AND WARRANTIES

     3.1     Representations  and  Warranties  of  Company

     Except as disclosed in the Company SEC Documents (as defined below) or in a
Disclosure   Schedule  which  identifies  by  section  number  the  section  and
subsection to which such disclosure  relates  (provided,  however,  that Company
shall be deemed to have  adequately  disclosed  with  respect to any  section or
subsection any matters that are clearly described  elsewhere in such document if
a reader(s)  who has not been  actively  involved  in Company  but is  generally
familiar with the smart card industry can understand the  applicability  of such
disclosure to such  non-referenced  sections or subsections) and is delivered by
Company  to Upgrade  concurrently  with the  execution  of this  Agreement  (the
"Company Disclosure  ScheduleCompany  Disclosure Schedule"),  whether or not the
Company  Disclosure  Schedule is referred to in a specific section or subsection
and except as  specifically  provided  for in this  Agreement  or any  agreement
attached as an Exhibit  hereto,  Company  represents and warrants to Upgrade and
Sub as follows:

          3.1.1     Organization,  Standing  and  Power

     Each  of  Company and the Company Subsidiaries is an entity duly organized,
validly  existing  and  in  good  standing,  as applicable under the laws of its
jurisdiction  of  incorporation  or  organization  has  all  requisite power and
authority  to  own,  lease  and  operate  its  properties  and  to  carry on its
businesses as now being conducted, and is duly qualified and in good standing to
do  business  in  each  jurisdiction  in  which  it owns, leases or operates its
properties  or  conducts  its  businesses  so  as to require such qualification,
except  where  the  failure  to  be so organized, existing, qualified or in good
standing  or to have such corporate or other applicable power and authority have
not  had, and would not have, a Material Adverse Effect (as hereinafter defined)


                                        8
<PAGE>
on  the Business Condition (as hereinafter defined) of Company.  As used in this
Agreement,  "Business  Condition"Business  Condition  with respect to any entity
shall  mean  the  financial  condition and results of operations (without giving
effect  to  the consequences of the transactions contemplated by this Agreement)
of  such  entity  and  the  Company Subsidiaries or Upgrade Subsidiaries (as the
context  may  require) taken as a whole. For the purposes of this Agreement, the
term  "Material  Adverse  EffectMaterial  Adverse Effect" means material adverse
effect  other  than  resulting  from  (i)  changes  attributable  to  conditions
affecting  the  Company  Business or the Upgrade Business, as defined in Section
3.2.1  (as  the  context  may  require)  generally  or  the  smart card industry
generally, (ii) changes in general economic, political or regulatory conditions,
(iii) changes attributable to the announcement or pendency of the Merger, or the
other  transactions  contemplated  hereby,  or  (iv)  with  respect  to Company,
litigation  arising  from  allegations of a breach of fiduciary duty relating to
this  Agreement.  Company  has  made  available  to Upgrade complete and correct
copies  of  the Certificate or Articles of Incorporation, Bylaws, and minutes of
each  meeting  of the board (and each committee thereof) of directors of Company
and  each  of  the  Company  Subsidiaries,  in each case, as amended to the date
hereof.  "Company BusinessCompany Business" means the business generally related
to  the  development,  design, marketing, sales and service of custom smart card
applications  and  services  together with all other Company assets dedicated to
such  business.

          3.1.2     Capital  Structure

     The authorized  capital stock of Company  consists of 50,000,000  shares of
Company Common Stock of which  17,485,062 were outstanding as of August 31, 2000
and no more than a total of 26,750,000  of which shall as of the Effective  Time
be outstanding (or issuable in connection with the exercise or conversion of any
Company Options and Company Warrants),  none of which is or shall be held by the
Company Subsidiaries.  As part of the 26,750,000 shares of Company Common Stock,
and as of August 31, 2000 there were  1,363,136  shares of Company  Common Stock
issuable upon the exercise of outstanding stock options ("Company OptionsCompany
Options"), whether or not vested, under the Company's Amended and Restated Stock
Incentive Plan and the  Directors'  Stock Option Plan and any other stock option
plans and other options  (collectively,  the "Company Incentive and Stock Option
PlansCompany  Incentive  and Stock Option  Plans").  As of August 31, 2000 there
were  3,728,840  shares of Company  Common Stock  issuable  upon the exercise of
outstanding  warrants  (the  "Company  WarrantsCompany   Warrants")  as  further
described in the Company Disclosure Schedule.  All outstanding shares of Company
Common Stock are, and any shares of Company Common Stock issued upon exercise of
any Company Options and Company Warrants,  or otherwise,  will be, upon issuance
on the terms and conditions  specified in the instruments pursuant to which they
are issuable,  validly issued, fully paid,  nonassessable and not subject to any
preemptive  rights,  or to any  agreement to which Company or any of the Company
Subsidiaries  is a party or by which Company or any of the Company  Subsidiaries
may be bound.  Except for the shares of Common Stock  issuable upon the exercise
of Company Options and Company Warrants,  there are not now and at the Effective
Time  there  will  not be  any  options,  warrants,  calls,  conversion  rights,
commitments, agreements, contracts, understandings,  restrictions,  arrangements
or rights of any character to which  Company or any of the Company  Subsidiaries
is a party or by which any of them may be bound obligating Company or any of the
Company Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Company or of any the Company
Subsidiaries  or obligating  Company or any the Company  Subsidiaries  to grant,
extend  or  enter  into  any  such  option,  warrant,  call,  conversion  right,
commitment,  agreement,  contract,  understanding,  restriction,  arrangement or
right. Company does not have outstanding any bonds,  debentures,  notes or other
indebtedness  the  holders  of  which  have the right to vote (or convertible or


                                        9
<PAGE>
exercisable  into  securities  having the right to vote) with holders of Company
Common  Stock  on  any matter ("Voting DebtVoting Debt").  Company is the owner,
directly  or  indirectly,  of all outstanding shares of capital stock of each of
the  Company  Subsidiaries  free  and  clear  of  all  liens,  pledges, security
interests, claims or other encumbrances and all such shares are duly authorized,
validly  issued,  fully  paid  and  nonassessable.

          3.1.3     Authority

     Company has all requisite  corporate power and authority to enter into this
Agreement  and  subject,  in the case of this  Agreement,  to  approval  of this
Agreement  by the  stockholders  of Company and the  procurement  of the Company
Required Statutory  Approvals (as defined below), to consummate the transactions
contemplated hereby. The execution and delivery by Company of this Agreement and
the  consummation  of  the  transactions  contemplated  hereby  have  been  duly
authorized by all necessary  corporate action on the part of Company,  including
the approval of the Board of  Directors of Company,  subject only to approval of
this  Agreement by the  stockholders  of Company.  This  Agreement has been duly
executed and delivered by Company and assuming the due authorization,  execution
and delivery by Upgrade and Sub,  constitutes a valid and binding  obligation of
Company  enforceable  against Company in accordance with its terms,  except that
such enforceability may be subject to (a) bankruptcy, insolvency, reorganization
or other similar laws relating to enforcement of creditors' rights generally and
(b) general equitable principles.  Subject to the satisfaction of the conditions
set forth in Sections 7.1 and 7.3, the execution and delivery of this  Agreement
do not, and the consummation of the transactions  contemplated  hereby will not,
conflict with or result in any violation of, or default (with or without  notice
or lapse  of  time,  or both)  under,  or give  rise to a right of  termination,
cancellation or acceleration of any obligation or to loss of a material  benefit
under, or result in the creation of a lien, pledge, security interest, charge or
other encumbrance on assets (any such conflict,  violation, default, right, loss
or creation being referred to herein as a "ViolationViolation")  pursuant to (x)
any provision of the  Certificate of  Incorporation  or Bylaws of Company or the
comparable  governing  instruments of any of the Company Subsidiaries or (y) any
loan or credit agreement, note, bond, mortgage,  indenture,  contract, lease, or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Company
or any of the Company  Subsidiaries  or their  respective  properties or assets,
other than, in the case of (y), any such Violation which  individually or in the
aggregate would not have a Material Adverse Effect on the Business  Condition of
Company.   No  consent,   approval,   waiver,   order  or  authorization  of  or
registration,   declaration  or  filing  with  or  exemption  by   (collectively
"ConsentsConsents"),  any court,  administrative  agency or  commission or other
governmental  authority or instrumentality,  whether domestic or foreign (each a
"Governmental  EntityGovernmental  Entity"),  is required by or with  respect to
Company in connection  with the execution and delivery of this  Agreement or the
consummation  by Company of the  transactions  contemplated  hereby,  except for
Consents, if any, relating to (i) the filing of a premerger  notification report
and all other required  documents by Upgrade and Company,  and the expiration of
all  applicable   waiting  periods,   under  the   Hart-Scott-Rodino   Antitrust
Improvements  Act of 1976, as amended (the "HSR ActHSR  Act"),  (ii) any filings
with the  Securities  and Exchange  Commission  (the  "SECSEC")  including  such
reports and information as may be required under the Securities  Exchange Act of
1934, as amended (the "Exchange  ActExchange  Act"),  the Securities Act and the
rules and  regulations  promulgated  by the SEC under  the  Exchange  Act or the
Securities Act and the declaration of the  effectiveness  of the S-4 (as defined
in Section 3.1.6)  by  the  SEC, (iii)  such filings, authorizations, orders and


                                       10
<PAGE>
approvals  as  may be required under foreign laws, state securities laws and the
NASD  Bylaws  or  "blue  skyblue  sky"  laws,  and (iv) the filing of the Merger
Documents  with  the  Secretary  of State of Delaware (the filings and approvals
referred  to  in  clauses  (i) through (iii) are collectively referred to as the
"Company  Required Statutory ApprovalsCompany Required Statutory Approvals") and
except  for  such  other Consents which if not obtained or made would not have a
Material  Adverse  Effect  on  the  Business Condition of Company or the Company
Business.

          3.1.4     SEC  Documents  and  Financial  Statements

     Company  has filed all forms, reports and documents required to be filed by
it  with  the  SEC  since  April  29,  1998  through  the date of this Agreement
(collectively,  the  "Company SEC DocumentsCompany SEC Documents").  As of their
respective  filing  dates,  the  Company  SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as the
case  may  be, and the rules and regulations of the SEC thereunder applicable to
such  Company SEC Documents, and none of the Company SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to  be  stated  therein or necessary in order to make the statements therein, in
light  of  the  circumstances under which they were made, not misleading.  As of
their  respective  filing dates, the financial statements of Company included in
the  Company  SEC  Documents (the "Company Financial StatementsCompany Financial
Statements")  complied  as  to form in all material respects with all applicable
accounting  requirements and with the published rules and regulations of the SEC
with  respect  thereto  and  were prepared in accordance with generally accepted
accounting  principles  ("GAAPGAAP")  consistently  applied  (except  as  may be
indicated  in the notes thereto) and fairly presented, in all material respects,
the  consolidated  financial position of Company and the Company Subsidiaries as
at  the dates thereof and the results of their operations and cash flows for the
periods  then  ended  (subject,  in the case of unaudited statements, to normal,
recurring audit adjustments not material in scope or amount).  There has been no
change  in  Company's  accounting  policies  or the methods of making accounting
estimates  or  changes  in  estimates  that  are  material  to Company Financial
Statements,  except  as  described  in  the  notes  thereto.

          3.1.5     Nasdaq  Exchange

     Company  has  made  all filings required to be made of it and complied with
all  rules  related  to  Company's  listing on Nasdaq SmallCap Stock Market (the
"Nasdaq ExchangeNasdaq Exchange") since its stock was listed on Nasdaq Exchange.

          3.1.6     Information  Supplied

     None of the  information  supplied  or to be  supplied  by  Company  or the
Company  Subsidiaries,   auditors,   attorneys,   financial  advisors  or  other
consultants or advisors for inclusion in (i) the registration  statement on Form
S-4, and any amendment  thereto,  to be filed under the  Securities Act with the
SEC by Upgrade in connection with the issuance of the Upgrade Common Stock in or
as a result of the Merger (the  "S-4S-4"),  or (ii) the proxy  statement and any
amendment or supplement  thereto to be distributed in connection  with Company's
meetings  of  stockholders  to vote upon  this  Agreement  and the  transactions
contemplated hereby (the "Proxy StatementProxy Statement" and, together with the
prospectus  included  in  the  S-4,  the  "Proxy   Statement/ProspectusProxy


                                       11
<PAGE>
Statement/Prospectus")  will,  in  the  case  of  the  Proxy  Statement  and any
amendment  or  supplement  thereto,  at  the  time  of  the mailing of the Proxy
Statement  and  any  amendment  or  supplement  thereto,  and at the time of the
meeting  of  stockholders  of  Company  to  vote  upon  this  Agreement  and the
transactions  contemplated  hereby,  or,  in  the case of the S-4, as amended or
supplemented,  at  the  time  it  becomes  effective  and  at  the  time  of any
post-effective  amendment thereto and at the time of the meeting of stockholders
of Company, contain any untrue statement of a material fact or omit to state any
material  fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading or
necessary  to  correct  any statement in any earlier filing with the SEC of such
Proxy Statement/Prospectus or any amendment or supplement thereto or any earlier
communication  (including  the  Proxy  Statement/Prospectus)  to stockholders of
Company  with  respect  to  the  transactions  contemplated  by  this Agreement.

          3.1.7     No  Defaults

     Neither  Company  nor  any  of the Company Subsidiaries is, or has received
notice that it would be with the passage of time, in default or violation of any
term,  condition  or provision of (i) the Certificate of Incorporation or Bylaws
of  Company  or  any  comparable  governing  instrument  of  any  of the Company
Subsidiaries, (ii) any judgment, decree or order applicable to Company or any of
the  Company  Subsidiaries  or  (iii)  any loan or credit agreement, note, bond,
mortgage,  indenture, contract, agreement, lease, license or other instrument to
which  Company  or any of the Company Subsidiaries is now a party or by which it
or  any  of  its  properties  or  assets  may  be bound, except for defaults and
violations  which,  individually  or in the aggregate, would not have a Material
Adverse  Effect  on  the  Business  Condition  of  Company.

          3.1.8     Litigation

     There  is no claim, action, suit or proceeding pending or, to the knowledge
of Company, threatened, which would, if adversely determined, individually or in
the  aggregate,  have  a  Material  Adverse  Effect on the Business Condition of
Company,  nor  is  there  any judgment, decree, injunction, rule or order of any
Governmental  Entity  or  arbitrator  outstanding  against Company or any of the
Company Subsidiaries having, or which, insofar as reasonably can be foreseen, in
the  future would have, any Material Adverse Effect on the Business Condition of
Company.  There  is  no  investigation  pending or, to the knowledge of Company,
threatened  against  Company  or  any  of  the  Company Subsidiaries, before any
foreign, federal, state, municipal or other governmental department, commission,
board,  bureau,  agency,  instrumentality or other Government Entity which would
have  a  Material  Adverse  Effect  on  the  Business Condition of Company.  The
Company  Disclosure  Schedule  sets  forth,  with respect to any pending action,
suit, proceeding, or, to the Company's knowledge, investigation to which Company
or  any  of  the Company Subsidiaries is a party (other than (i) cases involving
the  collection  of monies owed to Company or in the ordinary course of business
or  (ii) trademark infringement or anti-piracy actions in the ordinary course of
business in which Company is the plaintiff), the forum, the parties thereto, the
subject  matter  thereof,  and  the  amount  of  damages  claimed.


                                       12
<PAGE>
          3.1.9     No  Material  Adverse  Change

     Since  March  31,  2000  through  the  date hereof, Company and the Company
Subsidiaries  have  conducted their respective businesses in the ordinary course
and  there  has  not  been:  (i)  any  Material  Adverse  Effect on the Business
Condition  of Company or any development or combination of developments of which
management of Company has knowledge which is reasonably likely to result in such
an  effect;  (ii)  any  damage,  destruction  or loss, whether or not covered by
insurance,  having  a  Material  Adverse  Effect  on  the  Business Condition of
Company;  (iii)  any  declaration,  setting  aside or payment of any dividend or
other  distribution  (whether  in  cash,  stock or property) with respect to the
capital  stock  of  Company;  (iv)  any  material  increase  or  change  in  the
compensation  or  benefits  payable  or  to become payable by Company or any the
Company Subsidiaries to their employees in the aggregate, except in the ordinary
course of business consistent with past practice; (v) any acquisition or sale of
a  material  amount  of  property of Company or any of the Company Subsidiaries,
except  in  the  ordinary course of business and which would not have a Material
Adverse  Effect on the Business Condition of Company; (vi) any material increase
or modification in any bonus, pension, insurance or other employee benefit plan,
payment  or arrangement made to, for, or with its employees in the aggregate; or
(vii)  the  granting  of  stock options, restricted stock awards, stock bonuses,
stock  appreciation rights and similar equity based awards other than consistent
with Company's past practices and which will not result in a compensation charge
against  earnings  or  the  loss  of  deductions for federal or state income tax
purposes.

          3.1.10     Absence  of  Undisclosed  Liabilities

     Company and the Company Subsidiaries, taken as a whole, have no liabilities
or  obligations   (whether  absolute,   accrued  or  contingent)   ("Liabilities
Liabilities")  except (i)  liabilities,  obligations or  contingencies  that are
accrued or  reserved  against in the  unaudited  consolidated  balance  sheet of
Company and the Company  Subsidiaries  as of June 30, 2000 or  reflected  in the
notes  thereto or disclosed in the  financial  statements  of Company filed as a
part of the  Company  SEC  Documents,  (ii)  Liabilities  that  would not have a
Material  Adverse  Effect  on  the  Business  Condition  of  Company,  or  (iii)
additional Liabilities reserved against since June 30, 2000 that (x) have arisen
in the ordinary  course of business  and (y) are accrued or reserved  against on
the books and records of Company and the Company Subsidiaries.


          3.1.11     No  Violations

     The  businesses  of  Company  and the  Company  Subsidiaries  are not being
conducted in violation of, or in a manner which could cause  liability under any
applicable  law,  rule  or  regulation,   judgment,   decree  or  order  of  any
Governmental Entity, except for any violations or practices, which, individually
or in the aggregate, have not had and will not have a Material Adverse Effect on
the Business Condition of Company.

          3.1.12     Certain  Agreements

     Neither  the  execution and delivery of this Agreement nor the consummation
of  the  transactions  contemplated  hereby  will  (i)  result  in  any  payment
(including,  without limitation, severance, unemployment compensation, parachute
payment,  bonus  or  otherwise)  becoming  due  to  any  director,  employee  or


                                       13
<PAGE>
independent  contractor  of Company or the Company Subsidiaries, from Company or
any  of  the  Company  Subsidiaries  under  any  Plan  (as hereinafter defined),
agreement  or otherwise, (ii) materially increase any benefits otherwise payable
under  any Plan or agreement, or (iii) result in the acceleration of the time of
payment  or  vesting  of  any  such  benefits.

          3.1.13     Collective  Bargaining  Agreements

     Company  and the Company Subsidiaries are not parties to or obligated under
any  collective  bargaining  agreements.

          3.1.14     Employee  Benefit  Plans

     Each material employee benefit plan ("PlanPlan") covering active, former or
retired employees of Company and any of the Company Subsidiaries that is subject
to U.S.  law  ("U.S.  PlansU.S.  Plans")  is  listed in the  Company  Disclosure
Schedule. With respect to each U.S. Plan, Company has provided to Upgrade a copy
of each such Plan, and where applicable, any related trust agreement, annuity or
insurance  contract and, where applicable,  all annual reports (Form 5500) filed
with  the IRS.  With  respect  to each  Plan  that is not  subject  to U.S.  law
("Non-U.S.  PlansNon-U.S.  Plans"),  Company  shall provide to Upgrade a copy of
such Plan and,  where  applicable,  any  related  trust  agreement,  annuity  or
insurance contract,  as soon as practicable after the date hereof. To the extent
applicable,   each  U.S.  Plan  complies  in  all  material  respects  with  the
requirements of the Employee  Retirement Income Security Act of 1974, as amended
("ERISAERISA"),  and the Code, and any U.S. Plan intended to be qualified  under
Section 401(a) of the Code has been determined by the IRS to be so qualified and
has remained  tax-qualified to this date and its related trust is tax-exempt and
has been so since its creation.  No U.S. Plan is covered by Title IV of ERISA or
Section  412  of  the  Code.  No  material   "prohibited   transactionprohibited
transaction,"  as defined in ERISA Section 406 or Code Section 4975 has occurred
with  respect  to any  U.S.  Plan.  Each  U.S.  Plan  has  been  maintained  and
administered in all material  respects in compliance with its terms and with the
requirements prescribed by any and all statutes,  orders, rules and regulations,
including  but not limited to ERISA and the Code,  which are  applicable to such
U.S.  Plans.  There are no pending or  reasonably  anticipated  material  claims
against or  otherwise  involving  any of the U.S.  Plans and no suit,  action or
other litigation  (excluding claims for benefits incurred in the ordinary course
of Plan  activities)  has been brought against or with respect to any U.S. Plan.
All material contributions,  reserves or premium payments to U.S. Plans, accrued
to the date hereof have been made or provided for.  Company has not incurred any
material  liability  under  Subtitle C or D of Title IV of ERISA with respect to
any  "single-employer  plansingle-employer  plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by Company, or any entity
which is  considered  one  employer  with Company  under  Section 4001 of ERISA.
Company  has not  incurred,  and will not incur as a result of the  transactions
contemplated  by this  Agreement,  any withdrawal  liability under Subtitle E of
Title IV of ERISA with respect to any  "multiemployer  planmultiemployer  plan,"
within the meaning of Section 4001(a)(3) of ERISA. Company has no obligation for
retiree  health and life  benefits  under any U.S.  Plan,  except as required to
avoid excise taxes under Section 4980(B) of the Code.  There are no restrictions
on the rights of Company to amend or terminate any U.S.  Plan without  incurring
any  liability  thereunder  (other  than  any  liability  for  accrued  benefits
thereunder).  Company has not  engaged  in, nor is it a successor  to, an entity
that has engaged in, a transaction  described in ERISA Section 4069.  There have
been no amendments to, written  interpretation  of, or announcement  (whether or
not written)  by  Company  relating  to, or  change in employee participation or


                                       14
<PAGE>
coverage  under,  any U.S. Plan that would  increase  materially  the expense of
maintaining such Plan above the level of expense incurred in respect thereof for
the  year  ended  December  31,  1998.  Neither  Company  nor  any of its  ERISA
affiliates have any current or projected liability in respect of post-employment
or post-retirement  welfare benefits for retired or former employees of Company.
No tax under  Section 4980B of the Code has been incurred in respect of any U.S.
Plan that is a group health plan, as defined in Section  5000(b)(1) of the Code.
Each Non-U.S. Plan has been maintained and administered in all material respects
in compliance with its terms and with the requirements prescribed by any and all
statutes,  orders,  rules and  regulations  that are applicable to such Non-U.S.
Plan. Each Non-U.S.  Plan that is required by contract or under applicable local
law to be funded has been funded to the extent required and if and to the extent
any Non-U.S.  Plan is not funded,  the unfunded  obligations under such Non-U.S.
Plan are reflected on the books and records of the entity maintaining the plan.

          3.1.15     Major  Contracts

     As  of the date of this Agreement, all of Company's "material contracts" as
such term is defined under Item 601 of Regulation S-K, have been filed under the
Exchange  Act.  Except  to the extent that such agreements have expired by their
own terms, each agreement disclosed by Company under the Exchange Act is in full
force  and effect, except where the failure to be in full force and effect would
not  have  a Material Adverse Effect on the Business Condition of Company.  None
of  the  parties  to  any  of  such agreements have terminated, except when such
agreements  have  expired under their own terms, or, to the Company's knowledge,
in  any way expressed an intent to terminate or otherwise materially modify such
agreements  in  the future.  Company has provided to Upgrade lease documents for
any  real  or  personal property in which the amount of payments that Company is
required to make on an annual basis exceeds Fifty Thousand Dollars ($50,000) and
that  have  not  been  filed  as  an  exhibit  to  any  Company  SEC  Documents.

          3.1.16     Taxes

     For the purposes of this  Agreement,  the terms  "taxtax" and  "taxestaxes"
shall include all federal, state, local and foreign taxes, assessments,  duties,
tariffs,  registration  fees, and other  governmental  charges including without
limitation all income,  franchise,  property,  production,  sales, use, payroll,
license, windfall profits,  severance,  withholding,  excise, gross receipts and
other taxes, as well as any interest,  additions or penalties  relating  thereto
and any interest in respect of such additions or penalties.  Company and each of
the Company  Subsidiaries has timely filed (or caused to be filed),  taking into
account all  extensions,  all  material  federal,  state,  local and foreign tax
returns,  reports and information statements  ("ReturnsReturns")  required to be
filed by each of them, which returns,  reports and statements are true,  correct
and complete in all material  respects,  and paid or accrued all material  taxes
shown as due on such returns,  reports and  statements.  Company and each of the
Company  Subsidiaries  has fully  accrued in  accordance  with GAAP all material
unpaid  taxes in respect of all  periods  (or the  portion of any such  periods)
subsequent  to the periods  covered by such  returns).  Company has  received no
written notice of any claimed,  proposed or assessed  material  deficiencies  or
adjustments for any tax, nor to the best of Company's  knowledge,  have any such
deficiencies   or  adjustments   been   threatened.   Company  and  the  Company
Subsidiaries are not subject to any ongoing tax audit or examination nor, to the


                                       15
<PAGE>
best  of  Company's  knowledge,  are  such  audits  or  examinations  pending or
threatened,  and Company has not waived or entered into any other agreement with
respect  to any statute of limitation with respect to the assessment of any tax.
Company  has  made  available  to  Upgrade  true  and correct copies of all U.S.
Returns  for  the  fiscal  years  1996,  1997,  and 1998 reasonably requested by
Upgrade.  Company covenants to provide to Upgrade at its reasonable request true
and  correct  copies  of  all of Company's or Company Subsidiaries' tax returns,
information,  statements,  reports,  work  papers  and other tax data as soon as
practicable  after the date hereof.  No consent or agreement has been made under
Section  341  of the Code by or on behalf of Company or any predecessor thereof.
Company  has  no  interests  in  real  estate  in  any  state,  the  transfer or
disposition  of  which  would  give  rise  to  state  real  estate  excise  tax.

     Company has withheld all taxes required to be withheld in respect of wages,
salaries  and other payments to all employees, officers and directors and timely
paid  all  such  amounts  withheld  to the proper taxing authority.  Neither the
Company  nor  the Company Subsidiaries are parties to any tax sharing agreements
and neither the Company nor any of the Company Subsidiaries have been members of
any affiliated group for federal income tax purposes other than the one of which
they  are  currently  a  member.  The  Company does not have an "overall foreign
loss" as defined in Section 904(f) of the Code.  Prior to the Merger, the use of
any  net operating loss carryover, net capital loss carryover, unused investment
credit or other credit carryover of the Company is not subject to any limitation
pursuant  to  Section  382  of  the  Code or otherwise, but the Company makes no
representation or warranty as to the availability of any such net operating loss
carryover,  net capital loss carryover, unused investment credit or other credit
carryover  of the Company after giving effect to the Merger.  The Company is not
and  has  never  been  a real property holding corporation within the meaning of
Section  897  of  the Code.  Neither Company nor any of the Company Subsidiaries
has  participated  in,  or  cooperated with, an international boycott within the
meaning  of Section 999 of the Code.  There are no material liens for taxes upon
the  assets of Company or the Company Subsidiaries except for taxes that are not
yet  payable.  The  Company Disclosure Schedule contains a list of all states or
foreign  jurisdictions  where  the  Company  believes  it  or any of the Company
Subsidiaries  is  required  to  file  Returns.

     Neither  Company  nor  any  of  the  Company Subsidiaries is a party to any
agreement,  contract,  or  arrangement  that  would result in the payment of any
"excess parachute payment" within the meaning of Section 280G of the Code.  None
of  Company  or any the Company Subsidiaries is "tax exempt use property" within
the  meaning of Section 168(h) of the Code.  None of the assets of Company or of
any  of  the  Company Subsidiaries secures any debt the interest on which is tax
exempt  under  Section  103  of  the  Code.

     To  the  knowledge of Company, there are no facts or circumstances relating
to  the  Company including any covenants or undertakings of the Company pursuant
to  this  Agreement,  that would prevent counsel for Company from delivering the
opinion  referred  to  in  Section  7.1.5  as  of  the  date  hereof.


                                       16
<PAGE>
          3.1.17     Interests  of  Officers

     None  of  Company's  officers  or  directors  has,  nor to the knowledge of
Company  does  any  officer or director of any of the Company Subsidiaries have,
any  material  interest,  directly  or  indirectly,  in  any  property,  real or
personal,  tangible  or intangible, including inventions, copyrights, trademarks
or  trade names, used in or pertaining to the business of Company or that of the
Company Subsidiaries, or any supplier, distributor or customer of Company or the
Company Subsidiaries, except, in the case of Company, for the normal rights of a
stockholder,  and  except  for  rights  under  existing  employee benefit plans.

          3.1.18     Technology  and  Intellectual  Property  Rights

     (a)     "Company  Intellectual Property" shall mean:

          (i) all patents, trademarks, trade names, service marks, domain names,
     copyrights and any renewal rights,  applications and  registrations for any
     of the  foregoing,  and all  trade  dress,  schematics,  technology,  trade
     secrets,   know-how,   moral  rights  and  computer  software  programs  or
     applications (in both source and object code form) owned by Company; and



          (ii) all  license  rights in any third  party  intellectual  property,
     proprietary or personal  rights,  documentation,  or tangible or intangible
     property,  including without limitation the types of intellectual  property
     and tangible and intangible proprietary information described in (i) above;
     that  are  being,  and/or  have  been,  used  in,  or are  currently  under
     development  for use in, and are material to, the business of Company as it
     has  been,  is  currently  or is  currently  anticipated  to be  (up to the
     Closing),  conducted. Company Intellectual Property described in clause (i)
     above is referred to herein as "Company Owned Intellectual  PropertyCompany
     Owned Intellectual Property" and Company Intellectual Property described in
     clause (ii) above is referred to herein as "Company  Licensed  Intellectual
     PropertyCompany  Licensed Intellectual  Property".  Unless otherwise noted,
     all  references  to "Company  Intellectual  Property"  shall  include  both
     Company  Owned  Intellectual  Property  and Company  Licensed  Intellectual
     Property.

     (b)     The  Company Disclosure Schedule lists: (i) all patents, registered
copyrights, trademarks, and service marks and any applications and registrations
for  any  of  the foregoing, that are included in the Company Owned Intellectual
Property;  (ii) all software products and services that are currently published,
offered,  or  under  development  by  Company; (iii) licenses and sublicenses of
Company Owned Intellectual Property that are material to the business of Company
as  it  has  been,  is  currently  or  is currently anticipated to be (up to the
Closing), conducted; (iv) all Company Licensed Intellectual Property (other than
license  agreements  for  standard "shrink wrapped, off the shelf," commercially
available, third party products used by the Company); and (v) any obligations of
exclusivity,  non-competition,  non-solicitation,  or first negotiation to which
Company is subject under any agreement, other than those agreements described in
(iii)  above  and  filed  with  the  SEC  or  (iv)  above.

     (c)     Each item of the Company Intellectual Property is either: (i) owned
by  Company,  (ii)  in  the  public  domain, or (iii) rightfully used by Company
pursuant  to  a valid license or other agreement.  Company has all rights in the
Company  Intellectual  Property  reasonably  necessary  to  carry  out Company's


                                       17
<PAGE>
current,  and  anticipated  future (up to the Closing) activities and has or had
during  the  relevant  period  all  rights  in the Company Intellectual Property
reasonably necessary to carry out Company's former activities.  All software and
firmware  listings  that are part of the Company Owned Intellectual Property are
commented  in  accordance  with  a  reasonable  developer  standard.

     (d)     Company  is  not,  nor  as a result of the execution or delivery of
this  Agreement, or performance of Company's obligations hereunder, will Company
be,  in  violation of any license, sublicense or other agreement relating to the
Company  Intellectual  Property  or  of  any  non-disclosure  agreement to which
Company is a party or otherwise bound, except for any such violations that would
not  have  a  Material  Adverse  Effect  on  the  Business Condition of Company.

     (e)     Except  pursuant  to  the  terms  of  the  agreements listed in the
Company  Disclosure  Schedule, Company is not obligated to provide any financial
consideration  or  other  material  consideration to any third party, nor is any
third  party otherwise entitled to any financial consideration or other material
consideration,  with  respect  to  any  exercise  of  rights  by  Company or its
successors  in  the Company Intellectual Property contained in Company's current
products  as  listed  on  the  Company  Disclosure  Schedule  or  in the Company
Intellectual  Property  contained  in  any  Company  web  site.

     (f)     The  use,  reproduction,  modification,   distribution,  licensing,
sublicensing,  sale,  or  any  other  exercise  of  rights  in any Company Owned
Intellectual  Property  by  Company  or  its  licensees,  does  not infringe any
copyright, patent, trade secret, trademark, service mark, trade name, firm name,
logo,  trade  dress,  moral  right,  other intellectual property right, right of
privacy,  right  of  publicity or right in personal or other data of any person,
except  for any such violations that would not have a Material Adverse Effect on
the  Business  Condition  of Company.  Further, to the knowledge of Company, the
use, reproduction, modification, distribution, licensing, sublicensing, sale, or
any  other  exercise  of rights in any Company Licensed Intellectual Property or
any  other  authorized  exercise  of  rights  in  or  to  the  Company  Licensed
Intellectual  Property  by  Company  or  its  licensees  does  not  infringe any
copyright, patent, trade secret, trademark, service mark, trade name, firm name,
logo,  trade  dress,  moral  right,  other intellectual property right, right of
privacy,  right  of  publicity or right in personal or other data of any person,
except  for any such violations that would not have a Material Adverse Effect on
the  Business  Condition  of  Company.  No  claims (i) challenging the validity,
enforceability, or ownership by Company of any of the Company Owned Intellectual
Property  or  (ii)  to  the  effect  that  the  use, reproduction, modification,
manufacturing, distribution, licensing, sublicensing, sale or any other exercise
of rights in any Company Owned Intellectual Property by Company or its licensees
infringes  any  intellectual  property or other proprietary or personal right of
any  person,  have been asserted or, to the knowledge of Company, are threatened
by  any  person.  To  the  knowledge  of  Company, there is no unauthorized use,
infringement  or  misappropriation  of  any  of  the  Company Owned Intellectual
Property  by  any  third  party,  employee  or  former  employee.

     (g)     No  parties  other  than  Company possess any current or contingent
rights  to  any  source  code  that  is  part  of the Company Owned Intellectual
Property  (including,  without  limitation,  through  any  escrow  account).


                                       18
<PAGE>
     (h)     Company's  standard practice is to secure from all parties who have
created any material portion of, or otherwise have any material rights in or to,
the  Company  Owned Intellectual Property written assignments or licenses of any
such  work  or  other  rights  to  Company.

     (i)     Company  has  provided  Upgrade  with  a  copy  of or access to all
material  support  and  maintenance  agreements  relating  to  Company  Owned
Intellectual  Property  or  to  which  Company is a party as to Company Licensed
Intellectual  Property.

     (j)     To  the  knowledge  of  Company,  Company  has  obtained  written
agreements  from  all  employees  and third parties with whom Company has shared
confidential  information  (i)  of  Company,  or (ii) received from others which
Company  is  obligated  to  treat as confidential, which agreements require such
employees  and  third  parties  to  keep  such  information  confidential.

     (k)     Company's  practices  regarding  the collection and use of consumer
personal  information  are in accordance in all material respects with Company's
privacy  policy  as  published  on  its  website.

          3.1.19     Vote  Required

     The affirmative vote of the holders of a majority of the outstanding shares
of  Company Common Stock and the holders of Company Warrants, voting together as
one  class, is the only vote of the holders of Company's securities necessary to
approve  this  Agreement  and  the consummation of the transactions contemplated
hereby.

          3.1.20     Brokers  and  Finders

     Neither  Company  nor  any  of  the  Company  Subsidiaries, or any of their
respective directors, officers or employees has employed any broker or finder or
incurred  any  liability  for  any  financial  advisory  fees,  brokerage  fees,
commissions or similar payments in connection with the transactions contemplated
by  this  Agreement.

          3.1.21     Change  of  Control

     With  regard  to any options, stock, restricted stock, stock bonus or other
awards  granted under the Company Incentive and Stock Option Plans which are not
exercisable  or  vested  prior  to the Effective Time, Company has not taken any
action  to  make  such  options or awards exercisable or vested by reason of the
Merger.  Prior  to  the  Effective Time, Company shall take all action necessary
relating  to  the  Company  Incentive and Stock Option Plans to provide that the
occurrence  of the transactions contemplated by this Agreement shall not entitle
participants  under  such  plans  to a cash-out of the stock options, restricted
stock,  stock  bonus  or  other  awards  granted  to  them  thereunder.

          3.1.22     Leases  in  Effect

     All  real  property  leases and subleases as to which Company or any of the
Company  Subsidiaries  is  a  party  and any amendments or modifications thereof
which  have been filed as exhibits to the Company SEC Documents or are listed on
the  Company Disclosure Schedule (each a "Lease" and collectively, the "Leases")
are  valid,  in  full  force  and effect, enforceable, and there are no existing
defaults  on  the  part  of  Company,  and  Company  has  not  received  nor


                                       19
<PAGE>
given  notice  of  default  or claimed default with respect to any Lease, nor is
there  any  event that with notice or lapse of time, or both, would constitute a
default  thereunder,  except  for defaults, claimed defaults or events that with
notice  or lapse of time, or both, would constitute a default that have not had,
and  would not have, individually or in the aggregate, a Material Adverse Effect
on  the  Business  Condition  of  Company. No consent is required from any party
under  any  Lease  in  connection  with  the  completion  of  the  transactions
contemplated  by  this  Agreement,  and Company has not received notice that any
party  to any Lease intends to cancel, terminate, or refuse to renew the same or
to  exercise  any  option or other right thereunder, except where the failure to
receive  such consent, or where such cancellation, termination or refusal, would
not  have  a  Material  Adverse  Effect  on  Company's  Business  Condition.

          3.1.23     Environmental

     (a)     There  has  not been a discharge or release on any real property at
the  time  it  was  owned  or  leased  by  Company  (the "Real Property") of any
Hazardous  Material  (as  defined  below),  including  without  limitation
contamination  of  soil,  groundwater  or the environment, generation, handling,
storage,  transportation  or  disposal  of  Hazardous  Materials  or exposure to
Hazardous  Materials,  except  for  those that would not, individually or in the
aggregate  have  a Material Adverse Effect on the Business Condition of Company;

     (b)     No  Hazardous Material has been used by Company in the operation of
Company's  business in amounts or in a manner that would have a Material Adverse
Effect  on  the  Business  Condition  of  Company;  and

     (c)     Company  has  not  received  from  any Governmental Entity or third
party  any  written  request for information, notice of claim, demand letter, or
other  notification, notice or information that Company is or may be potentially
subject to or responsible for any investigation or clean-up or other remediation
of  Hazardous  Material  present  on any Real Property or at any other location.

     "Hazardous  Material"  means  (a) "hazardous waste" as defined by the Solid
Waste  Disposal Act, as amended by the Resource Conservation and Recovery Act of
1976 (42 U.S.C.  Section 6901 et seq.), including any future amendments thereto,
and  regulations promulgated thereunder; (b) "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42  U.S.C.  Section 9601 et seq.), including any future amendments thereto, and
regulations promulgated thereunder; (c) asbestos; (d) polychlorinated biphenyls;
(e)  underground storage tanks, whether empty or filled or partially filled with
any  substance; (f) any substance the presence of which is or becomes prohibited
by any federal, state, or local law, ordinance, rule, or regulation; and (g) any
hazardous or toxic substance, material, or waste which under any federal, state,
or  local  law,  ordinance,  rule,  or  regulation  requires special handling or
notification  in  its  collection,  storage,  treatment  or  disposal.


                                       20
<PAGE>
          3.1.24     Certain  Payments

     To the knowledge of Company, neither Company nor any person or other entity
acting  on  behalf  of Company has, directly or indirectly, on behalf of or with
respect  to Company: (i) made an unreported political contribution, (ii) made or
received  any  payment  which was not legal to make or receive, (iii) engaged in
any  transaction or made or received any payment which was not properly recorded
on  the  books  of  Company,  (iv)  created  or used any "off-book" bank or cash
account  or "slush fund", or (v) engaged in any conduct constituting a violation
of  the  Foreign  Corrupt  Practices  Act  of  1977.

          3.1.25     Reliance

     The  foregoing  representations and warranties are made by Company with the
knowledge  and  expectation  that  Upgrade and Sub are placing reliance thereon.

     3.2     Representations  and  Warranties  of  Upgrade  and  Sub

     Except  as  disclosed  in a Disclosure Schedule which identifies by section
number  the  section and subsection to which such disclosure relates (unless the
applicability  of  such  disclosure  to  any section or subsection is reasonably
apparent  in  light  of  the circumstances under which made) and is delivered by
Upgrade  to  Company  concurrently  with  the  execution  of this Agreement (the
"Upgrade  Disclosure  Schedule"),  Upgrade  and  Sub,  jointly  and  severally,
represent  and  warrant  to  Company  as  follows:

          3.2.1     Organization;  Standing  and  Power

     Each  of  Upgrade and Sub is a corporation duly organized, validly existing
under  the  laws  of  its jurisdiction of incorporation or organization, has all
requisite  power  and  authority to own, lease and operate its properties and to
carry  on  its  businesses  as now being conducted, and is duly qualified and in
good  standing  to  do business in each jurisdiction in which it owns, leases or
operates  its  properties  or  conducts  its  businesses  so  as to require such
qualification,  except where the failure to be so organized, existing, qualified
or  in  good  standing  or  to have such corporate or other applicable power and
authority  have  not  had,  and would not have, a Material Adverse Effect on the
Business  Condition of Upgrade.  "Upgrade Business" means, through its ownership
interests  in the Upgrade Subsidiaries, the development and commercialization of
a  patented,  data  storage technology and accompanying systems and applications
that  Upgrade  believes  will constitute the next generation of so-called "smart
card"  technology,  with the specific aims of increasing the volume and security
of  the  information and transactions that a portable wallet-size card can store
and  process.

          3.2.2     Capital  Structure

     The  authorized  capital  stock of Upgrade consists of 50,000,000 shares of
Upgrade Common Stock of which 19,236,717 are outstanding as of July 11, 2000 and
there  are  no  shares  of  preferred  stock,  and no shares are held by Upgrade
Subsidiaries  (as  defined  below).  In addition, as of July 11, 2000, 2,200,000
shares  of  Upgrade  Common Stock are reserved for issuance upon the exercise of
outstanding  stock  options  ("Upgrade Options") under the Upgrade International
Corporation  Amended  1999 Combined Incentive and Nonqualified Stock Option Plan
and  the Upgrade International Corporation 2000 Stock Option Plan (collectively,
the "Upgrade Stock Option Plans").  The number of shares of Upgrade Common Stock
authorized  to  be  issued under the Upgrade Stock Option Plans is sufficient to
accommodate  the  conversion  of  Company  Options  into  Upgrade  Options  as
contemplated  and  required  by this Agreement.  The authorized capital stock of
Sub  consists  of 1000 shares of common stock, par value $.01, per share.  As of
August  29, 2000, 100 shares of Sub's common stock are outstanding, all of which
are  duly  authorized,  validly issued, fully paid and nonassessable and free of
any  preemptive rights in respect thereof and all of which are owned by Upgrade.
The  shares  of  Upgrade  Common  Stock  to  be issued pursuant to the Merger in
accordance  with Section 2.1.3(i) will be duly authorized, validly issued, fully


                                       21
<PAGE>
paid  and nonassessable and not subject to preemptive rights created by statute,
Upgrade's  Articles of Incorporation or Bylaws or any agreement to which Upgrade
is  a  party  or  is  bound  and (ii) will, when issued, be registered under the
Securities  Act  and the Exchange Act and registered or exempt from registration
under  applicable  blue sky laws.  In this Agreement, the "Upgrade Subsidiaries"
shall  mean  an  entity  of  which  an amount of the voting securities, or other
voting ownership or voting partnership interests of which is sufficient to elect
a  majority  of its board of directors or other governing body (or, if there are
no  such  interests,  50%  or  more  of  the equity interests of which) is owned
directly  or  indirectly  by  Company.

          3.2.3     Authority

     Upgrade and Sub have all requisite  corporate  power and authority to enter
into this  Agreement,  and subject to the  procurement  of the Upgrade  Required
Statutory   Approvals  (as  defined  below),   to  consummate  the  transactions
contemplated  hereby.  The  execution  and  delivery  by Upgrade and Sub of this
Agreement and the consummation of the transactions contemplated hereby have been
duly  authorized  by all necessary  corporate  action on the part of Upgrade and
Sub,  respectively.  This  Agreement  has been duly  executed  and  delivered by
Upgrade and Sub and assuming the due  authorization,  execution  and delivery by
Company,  constitutes  a  valid  and  binding  obligation  of  Upgrade  and  Sub
enforceable  in  accordance  with its  terms.  Subject  to  satisfaction  of the
conditions set forth in Sections 7.1 and 7.2, the execution and delivery of this
Agreement do not, and the consummation of the transactions  contemplated  hereby
will not,  conflict  with or result in any Violation of (i) any provision of the
Articles of Incorporation or Bylaws of Upgrade, the Certificate of Incorporation
or Bylaws of Sub, or the comparable governing  instruments of any of the Upgrade
Subsidiaries  or (ii)  any  loan  or  credit  agreement  note,  bond,  mortgage,
indenture,   contract,   lease,  or  other  agreement  or  instrument,   permit,
concession,   franchise,   license,   judgment,  order,  decree,  statute,  law,
ordinance,  rule or regulation  applicable to Upgrade, Sub or any of the Upgrade
Subsidiaries or their respective  properties or assets,  other than, in the case
of (ii), any such  Violation,  which  individually or in the aggregate would not
have a Material Adverse Effect on the Business Condition of Upgrade.  No Consent
is  required  by or with  respect  to  Upgrade  or Sub in  connection  with  the
execution and delivery of this  Agreement by Upgrade or Sub or the  consummation
by Upgrade and Sub of the transactions  contemplated hereby,  except for (i) the
filing, if any, of a premerger  notification report by Upgrade and Company under
the HSR Act,  (ii) the  filing  of  the  Proxy Statement/Prospectus with the SEC


                                       22
<PAGE>
pursuant  to  the Exchange Act and the Securities Act and the declaration of the
effectiveness thereof by the SEC and compliance with various state securities or
blue  sky  laws, and (iii) the filing of the Merger Documents with the Secretary
of  State  of  Delaware  (the  filings  and approvals referred to in clauses (i)
through  (iii)  are  collectively referred to as the "Upgrade Required Statutory
Approvals"  and  together  with  the  Company  Required Statutory Approvals, the
"Required  Statutory Approvals") and except for such other Consents which if not
obtained  or  made  would not have a Material Adverse Effect on the value of the
Upgrade  Common  Stock,  the  Business  Condition  of  Upgrade or on the Upgrade
Business.

          3.2.4     SEC  Documents  and  Financial  Statements

     Upgrade  has filed all forms, reports and documents required to be filed by
it  with  the  SEC  since  April  6,  2000  through  the  date of this Agreement
(collectively,  the  "Upgrade  SEC  Documents").  As  of their respective filing
dates,  the  Upgrade  SEC  Documents  complied in all material respects with the
requirements  of the Exchange Act or the Securities Act, as the case may be, and
the  rules  and regulations of the SEC thereunder applicable to such Upgrade SEC
Documents,  and none of the Upgrade SEC Documents contained any untrue statement
of  a  material  fact  or omitted to state a material fact required to be stated
therein  or  necessary in order to make the statements made therein, in light of
the  circumstances  under  which  they  were  made, not misleading.  As of their
respective  filing  dates,  the  financial statements of Upgrade included in the
Upgrade  SEC Documents (the "Upgrade Financial Statements ") complied as to form
in  all  material  respects with all applicable accounting requirements and with
the  published  rules  and  regulations of the SEC with respect thereto and were
prepared  in  accordance  with  GAAP  consistently  applied  (except  as  may be
indicated  in the notes thereto) and fairly presented, in all material respects,
the  consolidated  financial position of Upgrade and the Upgrade Subsidiaries as
at  the dates thereof and the results of their operations and cash flows for the
periods  then  ended  (subject,  in the case of unaudited statements, to normal,
recurring audit adjustments not material in scope or amount).  There has been no
change  in  Upgrade's  accounting  policies  or the methods of making accounting
estimates  or  changes  in  estimates  that  are  material  to Upgrade Financial
Statements  or  estimates  except  as  described  in  the  notes  thereto.

          3.2.5     Information  Supplied

     None of the  information  supplied  or to be  supplied  by  Upgrade  or the
Upgrade Subsidiaries, auditors, attorneys, financial advisors, other consultants
or advisors or Sub for  inclusion in the S-4 or the Proxy  Statement/Prospectus,
will,  in the  case of the  Proxy  Statement  and any  amendment  or  supplement
thereto,  at the time of the mailing of the Proxy Statement and any amendment or
supplement thereto, and at the time of any meeting of stockholders of Company to
vote upon this Agreement and the  transactions  contemplated  hereby,  or in the
case of the S-4, as amended or  supplemented,  at the time it becomes  effective
and at the time of any  post-effective  amendment thereto and at the time of the
meeting of stockholders of Company,  contain any untrue  statement of a material
fact or omit to state  any  material  fact  required  to be  stated  therein  or
necessary to make the statements therein, in light of the circumstances in which
they are made,  not  misleading  or  necessary  to correct any  statement in any
earlier filing with the SEC of such Proxy  Statement/Prospectus or any amendment
or  supplement  thereto  or  any  earlier  communication  (including  the  Proxy
Statement/Prospectus)   to   stockholders   of  Company   with  respect  to  the
transactions contemplated by this Agreement.


                                       23
<PAGE>
          3.2.6     No  Defaults

     Neither  Upgrade  nor Sub has received any notice that it would be with the
passage  of time, in default or violation of any term, condition or provision of
(i)  the  Articles  of  Incorporation  or  Bylaws  of  Upgrade or Certificate of
Incorporation or Bylaws of Sub; (ii) any judgment, decree or order applicable to
Upgrade  or  Sub;  or  (iii) any loan or credit agreement, note, bond, mortgage,
indenture,  contract,  agreement,  lease,  license  or other instrument to which
Upgrade or Sub is now a party or by which it or any of its respective properties
or  assets  may be bound, except for defaults and violations which, individually
or  in  the  aggregate, would not have a Material Adverse Effect on the Business
Condition  of  Upgrade.

          3.2.7     Absence  of  Certain  Changes  or  Events

     Since  March  31,  2000  through  the  date  of  this  Agreement, except as
contemplated  by  or as disclosed in this Agreement, as set forth in the Upgrade
Disclosure  Schedule  or  as  disclosed in any Upgrade SEC Documents filed since
April  6,  2000 and prior to the date of this Agreement, Upgrade and the Upgrade
Subsidiaries  have conducted their businesses only in the ordinary course and in
a  manner consistent with past practice and, since such date, there has not been
any  Material  Adverse  Effect  on  the  Business  Condition  of  Upgrade.

          3.2.8     Litigation

     There  is no claim, action, suit or proceeding pending or, to the knowledge
of Upgrade, threatened, which would, if adversely determined, individually or in
the  aggregate,  have  a  Material  Adverse  Effect on the Business Condition of
Upgrade,  nor  is  there  any judgment, decree, injunction, rule or order of any
Governmental  Entity  or  arbitrator  outstanding  against Upgrade or any of the
Upgrade Subsidiaries having, or which, insofar as reasonably can be foreseen, in
the  future would have, any Material Adverse Effect on the Business Condition of
Upgrade.  There  is  no  investigation  pending or, to the knowledge of Upgrade,
threatened  against  Upgrade  or  the  Upgrade Subsidiaries, before any foreign,
federal,  state,  municipal or other governmental department, commission, board,
bureau,  agency,  instrumentality  or other Government Entity which would have a
Material  Adverse  Effect  on  the  Business  Condition of Upgrade.  The Upgrade
Disclosure  Schedule  sets  forth,  with  respect  to  any pending action, suit,
proceeding, or, to Upgrade's knowledge, investigation to which Upgrade or any of
the  Upgrade  Subsidiaries  is  a  party  (other  than  (i)  cases involving the
collection  of  monies  owed to Upgrade or in the ordinary course of business or
(ii)  trademark  infringement  or  anti-piracy actions in the ordinary course of
business in which Upgrade is the plaintiff), the forum, the parties thereto, the
subject  matter  thereof,  and  the  amount  of  damages  claimed.

          3.2.9     Absence  of  Undisclosed  Liabilities

     Upgrade and the Upgrade Subsidiaries, taken as a whole, have no liabilities
or  obligations (whether absolute, accrued or contingent) except (i) Liabilities
that are accrued or reserved against in the unaudited consolidated balance sheet
of Upgrade and the Upgrade Subsidiaries as of March 31, 2000 or reflected in the
notes  thereto  or  disclosed in the financial statements filed as a part of the
Upgrade  SEC  Documents, (ii) Liabilities that would not have a Material Adverse
Effect  on  the  Business  Condition of Upgrade, or (iii) additional Liabilities
reserved  against  since  March  31,  2000  that (x) have arisen in the ordinary
course  of  business;  and  (y) are accrued or reserved against on the books and
records  of  Upgrade  and  the  Upgrade  Subsidiaries.


                                       24
<PAGE>
          3.2.10     No  Violations

     The businesses of Upgrade,  Sub and the Upgrade  Subsidiaries are not being
conducted in violation of, or in a manner which could cause  liability under any
applicable  law,  rule  or  regulation,   judgment,   decree  or  order  of  any
Governmental Entity, except for any violations or practices, which, individually
or in the aggregate, have not had and will not have a Material Adverse Effect on
the Business Condition of Upgrade.

          3.2.11     Employee  Benefit  Plans

     Upgrade  has  no  Plans.

          3.2.12     Major  Contracts

     As  of the date of this Agreement, all of Upgrade's "material contracts" as
such term is defined under Item 601 of Regulation S-K, have been filed under the
Exchange  Act.  Except  to the extent that such agreements have expired by their
own terms, each agreement disclosed by Upgrade under the Exchange Act is in full
force  and effect, except where the failure to be in full force and effect would
not  have  a  Material  Adverse  Effect  on  the  Business Condition of Upgrade.

          3.2.13     Taxes

     Upgrade and each of the Upgrade Subsidiaries has timely filed (or caused to
be  filed), taking into account all extensions, all material Returns required to
be  filed  by  each  of  them,  which  returns, reports and statements are true,
correct  and complete in all material respects, and paid or accrued all material
taxes  shown  as  due  on such returns, reports and statements, except where the
failure  to  file  or accurately complete such actions would not have a Material
Adverse  Effect  on  the  Business  Condition  of  Upgrade.

          3.2.14     Interest  of  Officers

     None  of  Upgrade's  officers  or  directors  has,  nor to the knowledge of
Upgrade  does  any officer or directory of any of the Upgrade Subsidiaries have,
any  material  interest,  directly  or  indirectly,  in  any  property,  real or
personal,  tangible  or intangible, including inventions, copyrights, trademarks
or  trade  names, used in or pertaining to the business of Upgrade or any of the
Upgrade Subsidiaries, or any supplier, distributor or customer of Upgrade or any
of  the  Upgrade  Subsidiaries.

          3.2.15     No  Vote  Required


                                       25
<PAGE>
     No  vote  of  the  shareholders  of  Upgrade  is required by law, Upgrade's
Articles of Incorporation or Bylaws or otherwise in order for Upgrade and Sub to
consummate  the  Merger  and  the  transactions  contemplated  hereby.

          3.2.16     Brokers  and  Finders

     None  of  Upgrade  or Sub or any of their respective directors, officers or
employees  has  employed  any broker or finder or incurred any liability for any
financial  advisory  fees,  brokerage  fees,  commissions or similar payments in
connection  with  the  transactions  contemplated  by  this  Agreement.

           3.2.17     Interim  Operation  of  Sub

     Sub  is a direct, wholly owned subsidiary of Upgrade, was formed solely for
the  purpose of engaging in the transactions contemplated hereby, has engaged in
no  other  business  activities  and  has  conducted  its  operations  only  as
contemplated  hereby.  Sub  has no liabilities as of the date of this Agreement,
and  except  for  its  obligations  pursuant  to  this  Agreement,  will have no
liabilities  as  of  the  Closing  Date.

          3.2.18     Reliance

     The  foregoing  representations and warranties are made by Upgrade with the
knowledge  and  expectation  that  Company  is  placing  reliance  thereon.

                        ARTICLE IV:  COVENANTS OF COMPANY

     During  the period from the date of this Agreement and continuing until the
earlier  of  the  termination  of  this Agreement or the Effective Time, Company
agrees  (except  as  expressly  contemplated  by  this  Agreement)  that:

     4.1     Conduct  of  Business

          4.1.1     Ordinary  Course

     Except  as  set  forth  in the Company Disclosure Schedule, Company and the
Company  Subsidiaries  shall  carry on their respective businesses in the usual,
regular  and  ordinary  course  in  substantially  the same manner as heretofore
conducted and, to the extent consistent with such businesses, use all reasonable
efforts  consistent  with  past  practice  and policies to preserve intact their
present  business  organizations,  keep  available the services of their present
officers,  consultants,  and  employees  and  preserve  their relationships with
customers,  suppliers,  distributors  and  others  having business dealings with
them.  Company  shall  promptly  notify  Upgrade  of  any event or occurrence or
emergency  not  in  the  ordinary  course of business, of Company or the Company
Subsidiaries,  and  material  and  adverse to the Business Condition of Company.
Except  as set forth in the Company Disclosure Schedule, neither Company nor any
of  the  Company  Subsidiaries  shall:

     (a)     accelerate, amend or change the period of exercisability or vesting
of  options,  restricted  stock,  stock  bonus or other awards granted under the
Company   Incentive  and  Stock  Option  Plans   (including  any   discretionary
acceleration of the exercise  periods by Company's Board of Directors  permitted
under such  plans) or  authorize  cash  payments in  exchange  for any  options,
restricted stock, stock bonus or other awards granted under any of such plans;


                                       26
<PAGE>
     (b)     except  in  the  ordinary  course  of business consistent with past
practices,  grant any severance or termination pay to any officer or director or
to  any  employee  of  Company  or  any  of  the  Company  Subsidiaries;

     (c)     except  in  the  ordinary  course  of business consistent with past
practices  and  other  than  transfers  between  or among Company and any of its
wholly  owned  Company Subsidiaries, transfer to any person or entity any rights
to  the  Company  Intellectual  Property  Rights;

     (d)     enter  into  or  amend  any  agreements pursuant to which any other
party  is  granted  exclusive  marketing  or manufacturing rights of any type or
scope with respect to any hardware or software products of Company or any of the
Company  Subsidiaries;

     (e)     except  in  the  ordinary  course  of business consistent with past
practices,  commence  a  lawsuit  other  than: (i) for the routine collection of
bills; (ii) for software piracy; (iii) in such cases where Company in good faith
determines  that  failure to commence suit would result in a material impairment
of  a  valuable  aspect  of  Company's  business, provided Company consults with
Upgrade  prior  to  filing  such  suit;  or (iv) for a breach of this Agreement;

     (f)     enter  into one or more leases which extend for a period of two (2)
years  beyond  the  date  of  this  Agreement  and which obligate Company to pay
aggregate  gross  rent  in  excess  of  Fifty  Thousand  Dollars  ($50,000); and

     (g)     extend  an  offer  of  employment  to  a candidate for an executive
officer  position  without  prior  consultation  with  Upgrade.

          4.1.2     Dividends:  Changes  in  Stock

     Except  as set forth in Section 4.1.2 of Company's Disclosure Schedule, and
other  than  transfers  between  or  among  Company  and any of its wholly owned
Company Subsidiaries, Company shall not, and shall not permit any of the Company
Subsidiaries to: (i) declare or pay any dividends on or make other distributions
(whether  in  cash,  stock  or property) in respect of any of its capital stock;
(ii) split, combine or reclassify any of its capital stock or issue or authorize
the  issuance  of  any  other  securities  in  respect  of,  in  lieu  of  or in
substitution  for  shares  of  capital  stock  of  Company;  (iii) repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock other
than  repurchase  of  vested stock from former employees; or (iv) propose any of
the  foregoing.

          4.1.3     Issuance  of  Securities

     Except  as  set  forth  in  Section 4.1.3 of Company's Disclosure Schedule,
Company  shall  not,  and  shall  not permit the Company Subsidiaries to, issue,
deliver,  or sell, or authorize, propose or agree to, or commit to the issuance,
delivery,  or  sale  of any shares of its capital stock of any class, any Voting
Debt  or  any  securities convertible into its capital stock or Voting Debt, any
options, warrants, calls, conversion rights, commitments, agreements, contracts,
understandings, restrictions, arrangements or rights of any character obligating
it  or  any of the Company Subsidiaries to issue any such shares, Voting Debt or
other  convertible  securities  other than any securities that may be granted to
Upgrade  and/or  Sub  pursuant  to  this  Agreement  and/or  the  transactions
contemplated  hereunder.  Any transaction causing Company to issue securities in


                                       27
<PAGE>
excess  of the aggregate authorized, issued and outstanding amounts described in
Section  3.1.2  (as modified by the Company's Disclosure Schedule) shall require
the  prior  written approval of Upgrade unless any such transaction set forth in
Section  4.1.3  of Company's Disclosure Schedule is identified as permitting the
Company  to  exceed  the  aggregate  limits  in  Section  3.1.2.

          4.1.4     Governing  Documents

     Company  shall  not,  nor  shall  it  cause  or  permit  any of the Company
Subsidiaries  to,  amend its Articles or Certificate of Incorporation or Bylaws.

          4.1.5     Exclusivity;  Acquisition  Proposals

     (a)     Unless  and  until  this  Agreement  shall  have been terminated by
either party pursuant to Section 8.1 hereof, Company shall not (and it shall use
its  commercially  reasonable  best efforts to ensure that none of its officers,
directors, agents, representatives or affiliates) take or cause or permit any of
the  Company  Subsidiaries to take, directly or indirectly, any of the following
actions  with  any  party  other  than  Upgrade  and its designees: (i) solicit,
knowingly  encourage,  initiate or participate in any negotiations, inquiries or
discussions  with  respect  to  any  offer  or  proposal  to  acquire all or any
significant  part  of  its business, assets or capital shares whether by merger,
consolidation,  other  business  combination,  purchase  of  assets,  tender  or
exchange  offer  or  otherwise  (each  of  the  foregoing,  an  "Acquisition
Transaction"); (ii) disclose, in connection with an Acquisition Transaction, any
information  not  customarily  disclosed to any person other than Upgrade or its
representatives  concerning  Company's  business  or properties or afford to any
person  other  than  Upgrade  or  its  representatives  or  entity access to its
properties,  books  or records, except in the ordinary course of business and as
required  by  law  or  pursuant to a governmental request for information; (iii)
enter  into  or execute any agreement relating to an Acquisition Transaction; or
(iv)  make  or authorize any public statement, recommendation or solicitation in
support  of  any Acquisition Transaction or any offer or proposal relating to an
Acquisition  Transaction  other  than  with  respect  to  the  Merger; provided,
however,  that  the  Board  of  Directors  of  Company  may  recommend  that the
stockholders of Company tender their shares in connection with a tender offer to
the  extent  the  Board of Directors of Company by a majority vote determines in
its  good  faith  judgment that such a recommendation is required to comply with
the  fiduciary duties of the Board of Directors of Company to stockholders under
applicable  Delaware  law,  after receiving the advice of outside legal counsel.
In  the  event  Company  shall  receive  any  offer  or  proposal,  directly  or
indirectly,  of  the  type  referred  to in clause (i) above, or any request for
disclosure  or  access  with  respect  to information of the type referred to in
clause  (ii)  above,  it  shall  immediately,  and prior to taking any action in
response  thereto  inform  Upgrade as to the existence of such offer or proposal
and  generally  describe  the material facts concerning any such offer including
the identity of the third party making such offer, proposal or request, and will
thereafter  cooperate  with  Upgrade by informing Upgrade of additional material
facts  as  they  arise  and  furnishing to Upgrade any additional information it
furnished  to  any  third  party making such proposal or requesting information.
Nothing  contained  in  this  Agreement  shall prevent the Board of Directors of
Company  from  (i) furnishing information to, or answering questions of, a third
party  which  the  Board  of Directors of Company reasonably believes has made a
bona fide proposal with respect to an Acquisition Transaction that is a Superior
Proposal  (as  defined  below)  not  solicited  in  violation of this Agreement,
provided  that  prior  to  providing  information,  such third party executes an


                                       28
<PAGE>
agreement  with  confidentiality  provisions  substantially  similar  to  those
contained  in  Section  6.2.2  and provided further that Upgrade is notified one
business  day prior to Company's providing of such information to a third party,
or  (ii)  subject  to  compliance  with  the  other terms of this Section 4.1.5,
considering  a  proposal  with  respect to an Acquisition Transaction, which the
Board  of  Directors  of Company reasonably believes to be a bona fide proposal,
that  is  a Superior Proposal not solicited in violation of this Agreement.  For
purposes  of  this Agreement, a "Superior Proposal" means any proposal made by a
third  party to acquire, directly or indirectly, for consideration consisting of
cash  and/or  securities,  substantially all of the equity securities of Company
entitled  to  vote  generally  in  the election of directors, on terms which the
Board of Directors of Company reasonably believes (x) (after consultation with a
financial advisor of nationally recognized reputation) to be more favorable from
a  financial  point  of  view  to  its  stockholders  than  the  Merger  and the
transactions  contemplated  by this Agreement taking into account at the time of
determination  any  changes to the financial terms of this Agreement proposed in
writing  by Upgrade and (y) to be more favorable to Company and its stockholders
than the Merger and the transactions contemplated by this Agreement after taking
into  account all pertinent factors deemed relevant by the Board of Directors of
Company  under  the  laws  of  the  State of Delaware; provided, however, that a
Superior  Proposal  may  be  subject  to  a due diligence review of confidential
information  and  to  other  customary  conditions.

     (b)     Nothing contained in this Section 4.1.5 shall prohibit Company from
taking  and  disclosing to its stockholders a position required by Rule 14d-9 or
14e-2(a) promulgated under the Exchange Act or from making any disclosure to its
stockholders  required by applicable law, rule or regulation; provided, however,
the  Board  of  Directors  of Company shall only recommend that its stockholders
tender  their  shares  in  connection with a tender offer to the extent that the
Board  of  Directors  of Company by a majority vote determines in its good faith
judgment  that  such  a  recommendation is required to comply with the fiduciary
duties  of  the  Board  of Directors of Company to stockholders under applicable
Delaware  law,  after  receiving  the  advice  of  outside  legal  counsel.

          4.1.6     No  Acquisitions

     Except  as set forth in the Company Disclosure Schedule, Company shall not,
and  shall  not  permit  any of the Company Subsidiaries to, acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial portion
of  the  assets  of,  or  by  any other manner, any business or any corporation,
partnership,  association  or other business organization or division thereof or
otherwise  acquire  or  agree  to  acquire  any  assets  which  are  material,
individually  or  in  the  aggregate,  to  the  Business  Condition  of Company.

          4.1.7     No  Dispositions

     Company shall not, and shall not permit any of the Company Subsidiaries to,
sell,  lease,  license, transfer, mortgage, encumber or otherwise dispose of any
of  their assets or cancel, release, or assign any indebtedness or claim, except
in  the  ordinary  course  of  business  or  in  amounts which are not material,
individually  or  in  the  aggregate,  to  the  Business  Condition  of Company.


                                       29
<PAGE>
          4.1.8     Indebtedness

     Company shall not, and shall not permit any of the Company Subsidiaries to,
incur  any  indebtedness  for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or otherwise
in amounts which are material, individually or in the aggregate, to the Business
Condition  of  Company, except as otherwise permitted by or contemplated in this
Agreement.   Subject  to  Upgrade  complying  with  its financing commitments to
Company,  Company  shall  not, and shall not permit any Company Subsidiaries to,
incur  indebtedness  pursuant  to  the Financing Agreement, dated as of June 30,
2000,  as  amended,  between  the  Company,  Carey  F.  Daly II, Jolson Merchant
Partners  Group  LLC  and  Harvest  Opportunity  Partners L.P., other than funds
advanced  by  Upgrade  or  Sub  pursuant  to  Section  6.7.

          4.1.9     Plans

     Except  as set forth in the Company Disclosure Schedule, Company shall not,
and  shall  not permit any of the Company Subsidiaries to, adopt or amend in any
material  respect  any  Plan,  or  pay  any  pension or retirement allowance not
required  by  any  existing  Plan.  Except  in  the  ordinary course of business
consistent  with  past practices, Company shall not and shall not permit any the
Company  Subsidiaries  to,  enter into any employment contracts, pay any special
bonuses  or  special  remuneration  to  officers,  directors,  or  employees, or
increase  the  salaries,  wage  rates  or  fringe  benefits  of  its officers or
employees.

          4.1.10     Claims

     Company shall not, and shall not permit any of the Company Subsidiaries to,
settle  any  claim,  action  or  proceeding,  except  in  the ordinary course of
business or in amounts which are not material, individually or in the aggregate,
to  the  Business  Condition  of  Company.

          4.1.11     Agreement

     Company shall not, and shall not permit any of the Company Subsidiaries to,
agree  to  take  any  of  the  actions  prohibited  by  this  Section  4.1.

     4.2     Breach  of  Representations  and  Warranties

     Company  will not knowingly take any action which would cause or constitute
a  breach  of any of the representations and warranties set forth in Section 3.1
or which would cause any of such representations and warranties to be inaccurate
in any material respect.  In the event of, and promptly after becoming aware of,
the  occurrence  of  or  the pending or threatened occurrence of any event which
would  cause  or  constitute any breach or inaccuracy of the representations and
warranties  set forth in Section 3.1 Company will give written notice thereof to
Upgrade  and  will  use  its  commercially reasonable best efforts to prevent or
promptly  remedy  such  breach  or  inaccuracy.

     4.3     Consents

     Company will promptly apply for or otherwise seek, and use its commercially
reasonable  best  efforts  to  obtain  all  Consents  (whether  or  not  from  a
Governmental Entity), and make all filings, required with respect to Company for
the  consummation  of  the  Merger,  except such Consents as Upgrade and Company
agree  Company  shall  not  seek  to  obtain.


                                       30
<PAGE>
     4.4     Nasdaq  Requirements

     Company  shall use its commercially reasonable best efforts to maintain its
listing  on  the  Nasdaq  SmallCap  Market  and comply with all applicable rules
related  thereto,  provided,  however, that the Company's failure to comply with
the  continued listing requirements of Nasdaq SmallCap Market as a result of the
market  price  of  the  Company's  Common  Stock,  the issuance by the Company's
auditors  of a "going concern" opinion as of December 31, 1999, or the Company's
accumulated  operating  deficit  shall  not constitute a failure to abide by the
covenant  contained  in  this  Section  4.4.

     4.5     Commercially  Reasonable  Best  Efforts

     Company will use its commercially reasonable best efforts to effectuate the
transactions  contemplated  hereby  and to fulfill and cause to be fulfilled the
conditions  to  closing  under  this Agreement provided that Company shall in no
event  be required to agree to the imposition of, or comply with, any condition,
obligation  or  restriction  on Company or any of the Company Subsidiaries or on
the  Surviving  Corporation  described  in  Section  7.1.6  hereof.

     4.6     Information  for  Prospectus/Proxy  Statement

     Company  will as promptly as practicable provide to Upgrade and its counsel
for  inclusion  within  the  Proxy  Statement/Prospectus  and  the S-4 in a form
reasonably  satisfactory to Upgrade and its counsel, such information concerning
Company,  its  operations, capitalization, technology, share ownership and other
information  as  Upgrade  or  its  counsel  may  reasonably  request.

     4.7     Stockholder  Approval

     Company will call a special Stockholders Meeting as soon as practicable but
in  no  event  later  than  forty  five (45) days after the Form S-4 is declared
effective  by  the  SEC to submit this Agreement, the Merger and related matters
for  the  consideration  and  approval  of  Company's  Stockholders  ("Company
Stockholders Meeting").  Such approval will be recommended by Company's Board of
Directors,  subject to the fiduciary obligations of its directors.  Such meeting
will  be  called,  held  and  conducted,  and  any proxies will be solicited, in
compliance  with  applicable  law.  Concurrently  with  the  execution  of  this
Agreement,  all  officers  and  directors  of Company shall have executed Voting
Agreements  in  the form of Exhibit 4.7 agreeing, among other things, to vote in
favor of the Merger and against any competing proposals; provided, however, that
any director of Company shall not be prevented from exercising his/her fiduciary
obligations  as  a  director  of  Company.

     4.8     Tax  Returns

     Company  shall properly and timely file all Returns with respect to Company
and  any  of  the Company Subsidiaries required to be filed prior to the Closing
Date  and  shall  pay  all  taxes required to be paid prior to the Closing Date,
except  for those taxes being contested in good faith. All such Returns shall be


                                       31
<PAGE>
prepared  consistent  with  past  practice.  Company shall (i) notify Upgrade as
promptly  as  practicable if it receives notice of any tax audit, the assessment
of  any tax, the assertion of any tax lien, or any request, notice or demand for
taxes  by  any  taxing authority, (ii) provide Upgrade a description of any such
matter  in reasonable detail (including a copy of any written materials received
from the taxing authority), and (iii) take no action with respect to such matter
without  the  consent  of Upgrade.  Company shall not (x) make or revoke any tax
election  which  may  affect  Company, (y) execute any waiver of restrictions on
assessment  of  any  tax  without the approval of Upgrade, or (z) enter into any
agreement  or settlement with respect to any tax without the approval of Upgrade
which  shall  not  be  unreasonably  withheld.

     4.9     Representations  of  Stockholders

     Company  will use its commercially reasonable best efforts to cause (i) all
officers  and  directors  of Company, and (ii) beneficial owners of five percent
(5%)  or  more  of  the  outstanding  Company  Common  Stock  (collectively, the
"Company's  Principal  Stockholders")  to  cooperate with counsel to Company and
Upgrade to assist them in providing the tax opinions called for by Section 7.1.5
hereof; provided, however, that the failure of Company to obtain the cooperation
of  any of the Company's Principal Stockholders, other than Carey Daly II, shall
not,  in  and  of  itself, constitute a default by Company under this Agreement.

     4.10     Employee  Benefits  Matters

          4.10.1     Benefit  Plans

     Surviving  Corporation  shall  continue  all  of Company's employee benefit
plans  in  existence as of the Effective Time upon the same terms and conditions
then  in  effect.  Notwithstanding the above, and without the loss of any vested
benefits  but  without  accelerating  any unvested rights (except as required by
law),  at  the request of Upgrade Company shall terminate or modify the Plans as
may  be  directed  by Upgrade immediately prior to the Effective Time; provided,
however,  that  any such modification, termination or merger shall be contingent
upon  the  occurrence of the Effective Time; and provided further, that any such
action  by Company requested by Upgrade which results in an additional liability
of  Company  shall  be  excluded  from  the determination of Company's financial
condition pursuant to Section 4.11 below but only to the extent greater than any
liability to be incurred a result of the Merger without such change requested by
Upgrade.

          4.10.2     Section  16  Approval

     On  or  after  the  date  hereof  and  prior to the Effective Time, each of
Upgrade  and  Company shall take all necessary action such that, with respect to
(i)  any  Company Employee who as of the date hereof is subject to Section 16 of
the  Exchange Act and (ii) any member of the Company's Board of Directors (each,
a  "Company Section 16 Insider"), the acquisition by any such Company Section 16
Insider  of Upgrade Common Stock or Upgrade stock options and the disposition by
any  such  Company Section 16 Insider of Company Common Stock or Company Options
pursuant  to  the  transactions  contemplated  herein  shall  be exempt from the
short-swing profit liability rules of Section 16(b) of the Exchange Act pursuant
to  Rule  16b-3  promulgated  thereunder.


                                       32
<PAGE>
     4.11     Financial  Condition

     At  the  Effective Time, exclusive of Company's current liabilities and the
software  license  fee payable of Seven Hundred Thousand Dollars ($700,000), the
Company's  Liabilities  shall  be  no  more  than  Six Million Two Hundred Fifty
Thousand  Dollars  ($6,250,000).

     4.12     Opinion  of  Financial  Advisor

     Company  will  engage  a  recognized  financial  advisor  that  meets  with
Upgrade's  approval,  such  approval  to  be  secured  in writing, and not to be
unreasonably  withheld, to issue its opinion with respect to the fairness of the
Exchange Ratio, from a financial point of view, to Company's stockholders, prior
to the Company's filing of Form S-4 with the SEC.  Company will promptly provide
a  copy  of  the  opinion  to  Upgrade.

     4.13     Consent  of  Series  A  Secured  Note  Holders.

     Company  will promptly seek, and use its reasonable best efforts to obtain,
the  consent  of  each  holder  of  the  Company's Series A Secured Notes to the
transactions  contemplated  by  this  Agreement.

                        ARTICLE V:  COVENANTS OF UPGRADE

     During  the period from the date of this Agreement and continuing until the
earlier  of  the  termination  of  this Agreement or the Effective Time, Upgrade
agrees  (except  as  expressly  contemplated  by  this  Agreement)  that:

     5.1     Breach  of  Representations  and  Warranties

     Upgrade  will not knowingly take any action which would cause or constitute
a  breach  of any of the representations and warranties set forth in Section 3.2
or which would cause any of such representations and warranties to be inaccurate
in any material respect.  In the event of, and promptly after becoming aware of,
the  occurrence  of  or  the pending or threatened occurrence of any event which
would  cause  or  constitute any breach or inaccuracy of the representations and
warranties set forth in Section 3.2, Upgrade will give notice thereof to Company
and  will  use  its  commercially reasonable best efforts to prevent or promptly
remedy  such  breach  or  inaccuracy.

     5.2     Conduct  of  Business  by  Upgrade  Pending  the  Merger

     Upgrade  shall  promptly  notify Company of any event or occurrence that is
material  and  adverse  to the Business Condition of Upgrade; provided, however,
that  the disclosure of such event or occurrence in a Upgrade SEC Document shall
satisfy  such requirement so long as such Upgrade SEC Document is filed within a
reasonable  period  of  time  after  Upgrade  becomes  aware  of  such  event or
occurrence  and  in  any event prior to the Closing Date, or if the Closing Date
has  occurred,  prior  to  the  Effective  Time.


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<PAGE>
     5.3     Consents

     Each  of  Upgrade  and  Sub,  as  applicable,  will  promptly  apply for or
otherwise  seek,  and use its commercially reasonable best efforts to obtain all
Upgrade  Required  Statutory  Approvals,  and  make all filings, and obtain such
other  Consents that if not obtained would have a Material Adverse Effect on the
Business  Condition  of  Upgrade  or  on the ability of either Upgrade or Sub to
consummate  the  Merger.

     5.4     Commercially  Reasonable  Best  Efforts

     Each  of  Upgrade and Sub will use its commercially reasonable best efforts
to  effectuate  the transactions contemplated hereby and to fulfill and cause to
be  fulfilled  the  conditions  to  closing  under  this Agreement provided that
neither  Upgrade  nor  Sub  shall  be required to agree to the imposition of, or
comply  with,  any condition, obligation or restriction on Upgrade or any of the
Upgrade  Subsidiaries or on the Surviving Corporation described in Section 7.1.6
hereof.

     5.5     Representations  of  Shareholders

     Upgrade  will use its commercially reasonable best efforts to cause each of
its  principal  shareholders who is the beneficial owner of five percent (5%) or
more  of  the  outstanding  Upgrade  Common  Stock  to cooperate with counsel to
Upgrade  and  Company to assist them in providing the tax opinions called for by
Section  7.1.5.  Upgrade shall provide to Company and its counsel such customary
representations  as such persons shall reasonably request in connection with the
opinions  contemplated in Section 7.1.5.  To the knowledge of Upgrade, there are
no  facts  or  circumstances  relating  to  Upgrade,  including any covenants or
undertakings  of  Upgrade pursuant to this Agreement, that would prevent counsel
for  Company  from delivering the opinion referred to in Section 7.1.5 as of the
date  hereof.

     5.6     Tax  Free  Reorganization

     Upgrade  has  no present plan or intention following the Merger to take any
of  the  following  actions:

     (a)     Cause  Company to issue additional shares of its capital stock that
would  result in Upgrade losing control of Company within the meaning of Section
368(c)  of  the  Code;

     (b)     Merge  Company  with  or  into  another  corporation,  or  sell  or
otherwise  dispose of the capital stock of Company (except for transfers of such
stock  to  corporations controlled by Upgrade within the meaning of Code Section
368(a)(2)(C)  and  except  for  any  cash offering of the Company's stock to the
public)  so  long  as such offering does not disqualify the Merger as a tax-free
reorganization  within  the  meaning  of  Code  Section  368(a);

     (c)     Reacquire  any  shares  of  its capital stock issued in the Merger,
other  than possible purchases in the ordinary course of business of shares held
by  Company  employees  in  connection  with  termination  of employment of such
employees  and  open  market  repurchases  in  connection  with its normal share
repurchase  program;


                                       34
<PAGE>
     (d)     Cause Company to fail to hold at least 90% of the fair market value
of  the  Company's  net  assets and at least 70% of the fair market value of its
gross  assets, and at least 90% of the fair market value of Sub's net assets and
at  least  70%  of  its gross assets held immediately prior to the Merger, other
than  pursuant  to a transfer of rights or assets by means of a sale, license or
merger permitted under subsection (b), provided that Company receives reasonable
arms-length  consideration  for  any  sale  or  license of its assets.  For this
purpose,  amounts  paid  by  Company  or  Sub  to dissenters or stockholders who
receive  cash  or  other  property,  to  pay  reorganization  expenses,  and  in
connection  with  redemptions  and  distributions  (except  for  regular, normal
distributions)  will  be  treated as assets of the Company or Sub, respectively,
held  immediately  prior  to  the  Merger;  and

     (e)     Fail  to  cause  Company  (or  a  transferee  of Company's stock or
business  to  which  the  stock  or  assets  of  Company  are  transferred  in a
transaction  described  in  Section 368(a)(2)(C) of the Code) either to continue
Company's  historic business or use a significant portion of its business assets
in  a  business.

     5.7     Stock  Exchange  Listing

     Upgrade  will use its commercially reasonable best efforts (i) to cause the
shares  of Upgrade Common Stock to be issued in the Merger to be quoted upon the
Effective  Time  on the OTC Bulletin Board or listed on such national securities
exchange  as  Upgrade  Common  Stock  is  listed and (ii) to cause the shares of
Upgrade  Common  Stock  issued  upon the exercise of assumed Company Options and
Company  Warrants to be quoted upon issuance on the OTC Bulletin Board or listed
on  such  national  securities  exchange  as  shares of Upgrade Common Stock are
listed.

     5.8     Payment  of  Liabilities

     Attached hereto as Section 5.8 of the Company Disclosure Schedule is a list
of  liabilities  of  Company  as  of  August  31, 2000.  After the Signing Date,
Company  shall  cooperate  with Upgrade to limit those liabilities to be paid at
Closing.  At  the  Closing,  Upgrade  shall  pay  liabilities  of  no  more than
$6,250,000.

                       ARTICLE VI:  ADDITIONAL AGREEMENTS

     In  addition  to  the foregoing, Upgrade and Company each agree to take the
following  actions  after  the  execution  of  this  Agreement.

     6.1     Preparation  of  S-4

     As promptly as practicable after the date hereof, Upgrade and Company shall
prepare  and  file  with  the  SEC  the  Proxy Statement and any other documents
required  by  the  Exchange Act in connection with the Merger, and Upgrade shall
prepare  and  file  with  the  SEC the S-4, in which the Proxy Statement will be
included  as a part of the prospectus. Each of Upgrade and Company shall use its
commercially  reasonable  best  efforts to have the S-4 declared effective under
the  Securities  Act as promptly as practicable after such filing.  Prior to the
effective  date  of  the  S-4, Upgrade shall also take any action required to be
taken  under  any  applicable  federal  or  state securities or blue sky laws in
connection with the issuance of the Upgrade Common Stock in the Merger.  Company
agrees  that  the  Proxy  Statement/Prospectus  will  comply  as  to form in all
material  respects  with  the  provisions  of all applicable laws, including the


                                       35
<PAGE>
provisions  of  the  Exchange  Act  and  the  rules  and  regulations of the SEC
thereunder,  except  that  no  representation is made by Company with respect to
information  supplied  by  Upgrade  specifically for inclusion therein.  Upgrade
agrees that the S-4 and the Proxy Statement/Prospectus will comply as to form in
all  material  respects with the provisions of all applicable laws including the
provisions  of  the  Securities  Act  and  the  Exchange  Act  and the rules and
regulations  of  the  SEC  thereunder,  except that no representation is made by
Upgrade  with  respect  to  information  supplied  by  Company  specifically for
inclusion  therein.

     6.2     Access  to  Information;  Confidentiality

          6.2.1     Access

     Subject to appropriate  restrictions on access to information which Company
determines in good faith to be proprietary or competitively  sensitive,  Company
and Upgrade  shall,  subject to applicable  law, each afford the other and their
respective  accountants,  counsel and other  representatives,  reasonable access
during normal  business  hours during the period prior to the Effective  Time to
(i) all of  their,  the  Company  Subsidiaries'  and the  Upgrade  Subsidiaries'
properties,  books,  contracts,  commitments  and  records,  and (ii) all  other
information  concerning  the business,  properties  and personnel of Company and
Upgrade and the Company Subsidiaries and the Upgrade Subsidiaries,  as the other
party may reasonably  request which is necessary to complete the transaction and
prepare  for an orderly  transition  to  operations  after the  Effective  Time.
Company  and  Upgrade  agree  to  provide  to the  other  and  their  respective
accountants, counsel and representatives copies of internal financial statements
promptly upon the request therefor.  No information or knowledge obtained in any
investigation  pursuant to this  Section 6.2 shall affect or be deemed to modify
any  representation  or  warranty  contained  herein  or the  conditions  to the
obligations of the parties to consummate the Merger.

          6.2.2     Confidentiality

     For purposes of this Agreement,  the term "Confidential  Information" shall
mean  information  exchanged  between the parties  which is not  publicly  known
relating to the business  activities and  operations of Company and/or  Upgrade,
including  the  Company  Subsidiaries  and the Upgrade  Subsidiaries,  and shall
include all  information  exchanged by the parties except  information  which is
either (a) expressly  designated  as  non-confidential  by either party,  or (b)
information now in the public domain,  or that becomes part of the public domain
through no fault of the disclosing party prior to the date of any disclosure.

     Company  and  Upgrade  will  exchange  such  information  concerning  their
respective  operations as outlined in Section 6.2.1 and elsewhere throughout the
Agreement.  Confidential Information may only be used for purposes of developing
and  implementing  the Merger and may not be used for any other purpose.  If the
Merger  and/or  this  Agreement  is  terminated,  all  originals  and  copies of
Confidential  Information, whether in written, magnetic, or other form, shall be
either returned to the party who produced it, or destroyed in such fashion as to


                                       36
<PAGE>
render  the  information  unusable by any party.  Confidential Information shall
not  be conveyed or disseminated by the party to whom it was conveyed, except to
those  officers,  directors,  trustees, employees, consultants, or agents of the
party  who  have  a  legitimate  need  for  the  information  for the purpose of
evaluating, planning or executing the Merger or this Agreement, or by order of a
court  or  administrative  agency  with  applicable jurisdiction, but only after
supplying  the  other  party  notice  in  time to permit it to seek a protective
order.  The obligations contained in Section 6.2.2 shall survive the termination
of  this  Agreement.

     6.3     Legal  Conditions  to  the  Merger

     Each of Upgrade, Sub and Company will take all reasonable actions necessary
to  comply  promptly  with all legal requirements which may be imposed on any of
them  with  respect  to  the Merger and will promptly cooperate with and furnish
information  to each other in connection with any such requirements imposed upon
the  other.  Each  of  Upgrade,  Sub  and  Company will take, and will cause the
Company  Subsidiaries  and  the  Upgrade  Subsidiaries  to  take, all reasonable
actions  to  obtain  (and  to cooperate with the other parties in obtaining) any
consent,  approval,  order  or  authorization  of,  or  any  exemption  by,  any
Governmental  Entity,  or  other third party, required to be obtained or made by
Company  or  Upgrade  or the Company Subsidiaries or the Upgrade Subsidiaries in
connection  with  the Merger or the taking of any action contemplated thereby or
by  this  Agreement.  The  foregoing shall not require any party to agree to the
imposition  of,  or  to comply with, any condition, obligation or restriction on
Upgrade  or  any  of  the  Upgrade  Subsidiaries or on the Surviving Corporation
described  in  Section  7.1.6  hereof.

     6.4     Affiliates

     Upon  the execution of this Agreement, the Company shall use its reasonable
best  efforts  to  obtain an executed affiliate letter substantially in the form
attached  as  Exhibit  6.4 (the "Affiliate Letters") from each person that is an
executive  officer, director or beneficial owner of five percent (5%) or more of
the  outstanding  Company Common Stock (the "Named Persons") (other than Allen &
Co.  Incorporated); provided, however, that the Company's failure, following its
reasonable  best  efforts, to obtain Affiliate Letters from beneficial owners of
five  percent  (5%)  or more of the outstanding Company Common Stock who are not
officers  or  directors  of the Company shall not constitute a failure to comply
with  the  condition  precedent contained in this Section 6.4.  Upgrade shall be
entitled  to  place appropriate legends on the certificate evidencing any shares
of  Upgrade  Common  Stock  to  be received by the Named Persons pursuant to the
terms  of  this Agreement and to issue appropriate stop transfer instructions to
the  transfer agent for shares of Upgrade Common Stock consistent with the terms
of  the  Affiliate  Letters.

     6.5     HSR  Act  Filings

          6.5.1     Filings  and  Cooperation

     Each  of  Upgrade  and Company shall take all reasonable steps to determine
whether  a HSR Act filing is necessary and, if so, (i) promptly to make or cause
to  be  made  the filings required of such party or any of its Affiliates or the
Company  Subsidiaries or the Upgrade Subsidiaries under the HSR Act with respect
to the Merger and the other transactions provided for in this Agreement, (ii) to
comply  in  a  timely  manner  with any request under the HSR Act for additional
information,  documents,  or other material received by such party or any of its
Affiliates  or  the  Company  Subsidiaries  or the Upgrade Subsidiaries from the
Federal  Trade  Commission  or  the  Department of Justice or other Governmental
Entity  in  respect of such filings, the Merger, or such other transactions, and
(iii)  to  cooperate with the other party in connection with any such filing and


                                       37
<PAGE>
in  connection  with  resolving  any  investigation or other inquiry of any such
agency  or  other  Governmental  Entity  under any Antitrust Laws (as defined in
Section  6.5.2)  with  respect to any such filing, the Merger, or any such other
transaction.  Each  party  shall promptly inform the other party of any material
communication  with,  and  any proposed understanding, undertaking, or agreement
with,  any  Governmental  Entity  regarding any such filings, the Merger, or any
such  other  transactions.  Neither  party shall participate in any meeting with
any  Governmental Entity in respect of any such filings, investigation, or other
inquiry  without giving the other party notice of the meeting and, to the extent
permitted  by  such  Governmental  Entity,  the  opportunity  to  attend  and
participate.

          6.5.2     Objections

     Each of Upgrade and Company shall take all reasonable steps to resolve such
objections,  if  any, as may be asserted by any Governmental Entity with respect
to the Merger or any other transactions provided for in this Agreement under the
HSR  Act,  the Sherman Act, as amended, the Clayton Act, as amended, the Federal
Trade  Commission  Act,  as  amended,  and  any  other federal, state or foreign
statutes,  rules, regulations, orders, or decrees that are designed to prohibit,
restrict  or  regulate actions having the purpose or effect of monopolization or
restraint  of  trade (collectively, "Antitrust Laws").  In connection therewith,
if  any  administrative  or  judicial  action  or  proceeding  is instituted (or
threatened  to  be  instituted)  challenging  the  Merger  as  violative  of any
Antitrust  Law,  and,  if  by  mutual agreement, Upgrade and Company decide that
litigation  is  in  their  best  interests,  each  of  Upgrade and Company shall
cooperate  to vigorously contest and resist any such action or proceeding and to
have  vacated, lifted, reversed, or overturned any decree, judgment, injunction,
or  other order, whether temporary, preliminary, or permanent (each an "Order"),
that is in effect and that prohibits, prevents, or restricts consummation of the
Merger.  Each of Upgrade and Company shall take such reasonable action as may be
required  to  cause  the  expiration  of the notice periods under the HSR Act or
other  Antitrust  Laws with respect to the Merger and such other transactions as
promptly  as  possible  after  the execution of this Agreement.  Notwithstanding
anything  to the contrary in this Section 6.5.2 or in Section 6.5.1, (x) neither
Upgrade  nor  any of the Upgrade Subsidiaries shall be required to divest any of
their  respective  businesses,  product lines, or assets, or to take or agree to
take  any  other  action  or  agree to any limitation that would have a Material
Adverse  Effect  on  the  portable data storage device applications and services
business  of  Upgrade  and  the Upgrade Subsidiaries combined with the Surviving
Corporation  after  Closing,  (y)  neither  Company nor the Company Subsidiaries
shall  be  required to divest any of their respective businesses, product lines,
or  assets,  or  to  take  or  agree  to  take  any other action or agree to any
limitation  that  would have a Material Adverse Effect on the Business Condition
of  Company  and  (z)  neither  Upgrade  nor  Company  (nor  any  of the Company
Subsidiaries  or  the  Upgrade  Subsidiaries)  shall  be required to continue to
contest  or  resist any action or proceeding brought by a Governmental Entity if
it  concludes  that  such  action  is  no  longer  in  its  best  interest.

     6.6     Expenses

     Whether  or  not the Merger is consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be  paid  by  the party incurring such expense, except that if the Merger is not


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<PAGE>
consummated  expenses  incurred  in  connection with printing and mailing of the
documents  distributed  or  to be distributed to stockholders of Company and the
filing  fee  with  respect  to  the  S-4  shall be shared equally by Upgrade and
Company.

     6.7     Interim  Financing

     (a)     As  soon  as  practicable  after the Signing Date, Upgrade, Sub and
Company shall implement the interim financing plan for Company, set forth in the
Upgrade Disclosure Schedule based on the budget prepared by Company and approved
by Upgrade ("Interim Financing").  The funds advanced by Upgrade or Sub pursuant
to  this  Section  6.7 shall be advanced pursuant to amendments to the Company's
Financing  Agreement  with  Jolson  Merchant  Partners  Group LLC ("Jolson") and
Harvest  Opportunity Partners LP ("Harvest") (the "Amended Financing Agreement")
that  increases  the  Line of Credit under the Amended Financing Agreement to an
amount  sufficient to cover all of the Interim Financing.  The Interim Financing
shall  be  secured through related amendments to the Jolson and Harvest Security
Agreement,  Series  A Senior Secured Note, and by providing Upgrade a Warrant to
Purchase  Common  Stock (collectively, the "Amended Security Agreements "), with
Upgrade  and/or  Sub  participating  pari  passu  with Jolson and Harvest in the
Amended  Financing Agreement and Amended Security Agreements.  Proposed versions
of  the  Amended  Financing Agreement and Amended Security Agreements, including
Upgrade's  and  Sub's  right  to  convert  all  or  any  portion of such Interim
Financing  to  Company  Common  Stock are attached hereto as Exhibits 6.7 A - E,
respectively.

     (b)     Should  the  Merger be completed, Upgrade's and Sub's participation
in  the  Amended  Financing  Agreement  and Amended Security Agreements shall be
terminated  in  consideration of the following adjustment to the Exchange Ratio:
For  each One Hundred Thousand Dollars ($100,000) advanced to Company during the
period  commencing  July  11,  2000 and continuing up to the Effective Time (the
"Interim  Period"),  the  Exchange  Ratio  shall  be  increased  by 0.313%.  For
example,  if  Upgrade and Sub provide Interim Financing of Five Hundred Thousand
Dollars  ($500,000)  to  Company  during  the Interim Period, the Exchange Ratio
would  be  adjusted  as  follows:

     [($500,000/$100,000)  *  .00313  *  14.3]  +  14.3  =  14.524

     6.8     Additional  Agreements

     In  case  at  any  time  after  the  Effective  Time  any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement or
to  vest  the  Surviving  Corporation with full title to all properties, assets,
rights,  approvals,  immunities  and  franchises  of  either  of the Constituent
Corporations,  the  proper officers and directors of each corporation which is a
party  to  this  Agreement  shall  take  all  such  necessary  action.

     6.9     Public  Announcements

     Upgrade  and  Company  shall  cooperate  with  each  other  in  releasing
information  concerning this Agreement and the transactions contemplated herein.
Where  practicable  each of the parties shall furnish to the other drafts of all
releases  prior  to  publication.  Nothing contained herein shall prevent either


                                       39
<PAGE>
party  at any time from furnishing any information to any governmental agency or
from  issuing  any  release  when  it  believes it is legally required to do so.

     6.10     State  Takeover  Laws

     Company,  and the Board of Directors of Company, shall grant such approvals
and  take  all  necessary  steps to exempt the transactions contemplated by this
Agreement  from,  or  if  necessary  challenge the validity or applicability of,
Delaware  takeover  laws  to  the  Merger.

     6.11     State  Securities  Laws

     Upgrade  shall  use  all reasonable efforts to obtain, in a timely fashion,
all  necessary  permits,  consents  and  approvals required under the applicable
state securities laws to permit the distribution of the shares of Upgrade Common
Stock  to  be  issued  in  accordance  with  the  provisions  of this Agreement.

                       ARTICLE VII:  CONDITIONS PRECEDENT

     7.1     Conditions  to  Each  Party's  Obligation  to  Effect  the  Merger

     The  respective  obligation  of  each  party  to effect the Merger shall be
subject  to  the  satisfaction  prior  to  the  Closing  Date  of  the following
conditions:

          7.1.1     Stockholder  Approval

     This  Agreement  and  the  transactions contemplated hereby shall have been
approved and adopted by the required vote of holders of Company Common Stock and
of  other  securities  voting together with the holders of Company Common Stock.

          7.1.2     Consents

     Other  than  the filing of the Merger Documents with the Secretary of State
of  Delaware,  all  Consents legally required for the consummation of the Merger
and  the  transactions  contemplated  by  this  Agreement shall have been filed,
occurred,  or  been  obtained, other than such Consents, the failure of which to
obtain  would  not  have  a  Material  Adverse Effect on the consummation of the
Merger  or  the  other  transactions  contemplated  hereby  or  on  the Business
Condition  of  Upgrade  or  Company.

          7.1.3     S-4

     The  S-4 shall have become effective under the Securities Act and shall not
be  the  subject  of  any stop order or proceedings seeking a stop order and the
Proxy  Statement  shall  not be at the Effective Time subject to any proceedings
commenced  or  threatened  by  the  SEC.

          7.1.4     No  Restraints

     No  statute,  rule, regulation, executive order, decree or injunction shall
have  been  enacted, entered, promulgated or enforced by any United States court
or  Governmental Entity of competent jurisdiction which enjoins or prohibits the
consummation  of  the  Merger  and  shall  be  in  effect.


                                       40
<PAGE>
          7.1.5     Tax-Free  Reorganization

     Each  of  Company  and  Upgrade  shall have received a written opinion from
their  respective  counsel  to  the  effect  that  the  Merger will constitute a
reorganization  within the meaning of Section 368 of the Code, and that Upgrade,
Sub  and  Company  will  each  be  a party to that reorganization.  In preparing
Company and Upgrade tax opinions, counsel may rely on reasonable representations
related  thereto.

          7.1.6     No  Burdensome  Condition

     There  shall  not  be any action taken, or any statute, rule, regulation or
order  enacted,  entered,  enforced  or  deemed  applicable to the Merger by any
Governmental  Entity  which,  in  connection  with  the  grant  of  any Required
Statutory  Approval,  imposes  any  restriction,  condition  or  obligation upon
Upgrade,  Company  or  the Surviving Corporation which would (i) have a Material
Adverse Effect on the Business Condition of Company or (ii) materially adversely
impact  the  economic  or  business benefits of the transactions contemplated by
this  Agreement.

          7.1.7     No  Prohibition

     No  law,  regulation,  order,  decree  or  injunction binding on any of the
parties  hereto  shall then be in effect which would prevent consummation of the
Merger  or make it illegal, the violation of which would have a Material Adverse
Effect  on  the  Company  or Upgrade.  The Proxy Statement/Prospectus shall have
become  effective  under the Securities Act, and shall not be the subject of any
stop  order  or  proceedings  seeking  a  stop  order.

     7.2     Conditions  of  Obligations  of  Upgrade  and  Sub

     The  obligations of Upgrade and Sub to effect the Merger are subject to the
satisfaction  of  the  following  conditions  unless  waived by Upgrade and Sub:

          7.2.1     Representations  and  Warranties  of  Company

     The  representations  and warranties of Company set forth in this Agreement
shall be true and correct as of the date of this Agreement and as of the Closing
Date  as though made on and as of the Closing Date.  Upgrade shall have received
a  certificate signed on behalf of Company by the chief executive officer or the
chief  financial  officer  of  Company  to  such  effect  on  the  Closing Date.

          7.2.2     Performance  of  Obligations  of  Company

     Company  shall  have  performed all agreements and covenants required to be
performed  by  it under this Agreement prior to the Closing Date.  Upgrade shall
have  received  a certificate signed on behalf of Company by the chief executive
officer or the chief financial officer of Company to such effect.  Additionally,
Company  shall have provided Upgrade a pro forma balance sheet, certified by the
chief  financial  officer  of  Company, setting forth the Company's Liabilities,
current  liabilities  and  current assets, as of the Closing Date and certifying
compliance  with  the  financial  condition  covenant  in  Section  4.11.


                                       41
<PAGE>
          7.2.3     Affiliates

     Upgrade  shall  have  received from each person or entity who may be deemed
pursuant  to  Section 6.4 hereof to be a Named Person of Company a duly executed
Affiliate  Letter  substantially  in  the  form  attached hereto as Exhibit 6.4,
except  as  otherwise  provided  in  Section  6.4.

          7.2.4     Opinion  of  Company's  Counsel

     Upgrade  shall  have  received  an opinion dated the Closing Date of Salans
Hertzfeld  Heilbronn  Christy  &  Viener,  counsel  to  Company,  customary  for
transactions  of  this  type,  in  form and substance reasonably satisfactory to
Upgrade's  counsel.

          7.2.5     Approval  of  Company's  Stockholders

     No  more  than  seven  and  one-half  percent  (7.5%) of outstanding voting
securities  of Company eligible to vote on the approval of the Merger shall have
been  cast  against  the approval of Merger in the vote required by Section 4.7;
the  parties  hereby  agree  that  abstentions shall not be deemed to have voted
against  the  Merger.

          7.2.6     Company's  Pending  Acquisitions

     Company  shall  have  consummated its pending acquisition transactions with
Smart  Card  Solutions,  Inc.  and MS Digital, Inc. prior to the Effective Time.

          7.2.7     Company  Warrant  and  Series  A Secured Note Holder Consent

     Company  shall  have  received  all  necessary Consents, if necessary, from
those  holders  of  Company Warrants.  Company shall have received all necessary
consents  of  holders  of  the  Company's  Series  A  Senior  Secured  Notes

     7.3     Conditions  of  Obligation  of  Company

     The  obligation  of  Company  to  effect  the  Merger  is  subject  to  the
satisfaction  of  the  following  conditions  unless  waived  by  Company:

          7.3.1     Representations  and  Warranties  of  Upgrade  and  Sub

     The  representations  and  warranties  of Upgrade and Sub set forth in this
Agreement  shall  be true and correct as of the date of this Agreement and as of
the  Closing  Date  as though made on and as of the Closing Date.  Company shall
have  received  a  certificate  signed  on  behalf  of  Upgrade by an authorized
executive  officer  of  Upgrade  to  such  effect  on  the  Closing  Date.


                                       42
<PAGE>
          7.3.2     Performance  of  Obligations  of  Upgrade  and  Sub

     Upgrade  and Sub shall have performed all agreements and covenants required
to be performed by them under this Agreement prior to the Closing Date.  Company
shall  have  received a certificate signed on behalf of Upgrade by an authorized
executive  officer  of  Upgrade  to  such  effect.

          7.3.3     Opinion  of  Upgrade's  Counsel

     Company  shall  have  received  an  opinion dated the Closing Date of Ogden
Murphy  Wallace,  PLLC,  counsel  to Upgrade, customary for transactions of this
type,  in  form  and  substance  reasonably  satisfactory  to Company's counsel.

                    ARTICLE VIII:  DUE DILIGENCE TERMINATION,
                               AMENDMENT AND WAIVER

     8.1     Termination

     This  Agreement  may be terminated at any time prior to the Effective Time,
whether  before  or  after  approval of matters presented in connection with the
Merger  by  the  stockholders  of  Company:

     (a)     by  mutual  consent  of  Upgrade  and  Company;

     (b)     by  either  Upgrade or Company (provided that the terminating party
is  not  then  in  material  breach of any representation, warranty, covenant or
agreement  contained  in  this Agreement) if there has been a material breach of
any  representation, warranty, covenant or agreement contained in this Agreement
and  such breach has not been cured, or commercially reasonable best efforts are
not  being  employed  to  cure such breach, within twenty (20) days after notice
thereof  is  given  to  the  party  committing  such  breach;

     (c)     by  either  Upgrade  or  Company  if the Merger shall not have been
consummated  before December 29, 2000, or such other date as determined pursuant
to  Section  1.2;  provided,  however  if  the  parties  have  agreed  to pursue
litigation  pursuant  to  Section 6.5.2, such date shall be extended to June 30,
2001  and provided further, that if the S-4 has been declared effective prior to
December  29,  2000, such date shall be extended until the date which is 50 days
after  the  date  on  which  the  S-4  is declared effective, in accordance with
Section  1.2  hereof;

     (d)     by either Upgrade or Company if the approval of the stockholders of
Company  shall  not  have  been  obtained by reason of the failure to obtain the
required  vote  upon  a  vote  taken  at any Company Stockholders Meeting or any
adjournment  thereof;

     (e)     by  either  Upgrade or Company if any permanent injunction or other
order  of  a court or other competent authority preventing the Merger shall have
become  final  and  not  subject  to  appeal;


                                       43
<PAGE>
     (f)     by  Upgrade  if  the  Board  of  Directors  of  Company  shall have
withdrawn  or  modified  in  a  manner  adverse  to  Upgrade  its  approval  or
recommendation  of  the  Merger, this Agreement or the transactions contemplated
hereby;

     (g)     by  Upgrade  if  Company  or  any  of the other persons or entities
described  in  Section  4.1.5  shall  take  any  of  the  actions  that would be
proscribed  by  Section  4.1.5  other  than  actions  in  exercise  of Company's
fiduciary  duties and satisfying all conditions of Section 4.1.5 in all material
respects;

     (h)     by  Upgrade  if, within ten (10) days from the Signing Date Upgrade
provides  notice  to  Company  that Upgrade is not reasonably satisfied with the
result  of  its  due  diligence  investigation;

     (i)     by  Company  if  the fairness opinion which it receives pursuant to
Section  4.12  is  unfavorable;

     (j)     by  Company,  if the matter In Re Upgrade International Corporation
                                         ---------------------------------------
Securities  Litigation,  U.S.  District Court, Western District of Washington at
---------------------
Seattle,  c/a #C00-0298, currently pending against Upgrade results in a judgment
against  Upgrade,  and such judgment would have a Material Adverse Effect on the
Business  Condition  of  Upgrade;  or

     (k)     by  Upgrade  if  Company  is  unable  to secure the consent of each
holder  of the Company's Series A Secured Notes to the transactions contemplated
by  this  Agreement.

     Where  action is taken to terminate this Agreement pursuant to this Section
8.1,  it  shall  be  sufficient for such action to be authorized by the Board of
Directors of the party taking such action without any requirement to submit such
action  to  the  shareholders  or  stockholders  of  such  party.

     8.2     Effect  of  Termination

     In  the event of termination of this Agreement by either Company or Upgrade
as  provided in Section 8.1, this Agreement shall forthwith become void and have
no effect, and there shall be no liability or obligation on the part of Upgrade,
Sub or Company or their respective officers or directors, except that (i) all of
Sections 6.2.2, 6.6, 8.2, 8.3, and ARTICLE IX shall survive any such termination
and  abandonment,  and  (ii)  no  party  shall  be released or relieved from any
liability  arising  from the breach by such party of any of its representations,
warranties,  covenants  or  agreements  as set forth in this Agreement except as
provided  in  Section  8.3(b).

     8.3     Break-up  Fee

     (a)     If Upgrade terminates this Agreement pursuant to (i) Section 8.1(g)
or  (ii)  Section  8.1(f)  as  a result of Company's agreement to an Acquisition
Transaction  that would result in a change in the beneficial owners of more than
fifty percent (50%) of the voting power of the capital stock of Company with any
person  (other  than  Upgrade  or  any  of  its  affiliates), then Company shall
promptly  pay  to  Upgrade  a  break-up fee which shall be payable, at Upgrade's
election, (x) in an amount equal to the sum of Six Hundred Thirty-Eight Thousand


                                       44
<PAGE>
Dollars  ($638,000)  in  immediately  available  funds or (y) by the issuance by
Company of 850,667 shares of Company Common Stock; provided, that Upgrade is not
then  in  material breach of any representation, warranty, covenant or agreement
contained  in  this  Agreement.  Upgrade  shall  provide  written  notice of its
election  to receive the cash funds or Company Common Stock, as set forth above,
within  ten  (10)  days  of  providing written notice of termination to Company.
Upon  issuance  of  Company  Common  Stock  to  Upgrade pursuant to this Section
8.3(a),  such  shares  shall  be  validly  issued, fully paid and nonassessable.

     (b)     If  Company  terminates  this Agreement pursuant to Section 8.1(i),
company  shall promptly issue to Upgrade 850,667 shares of Company Common Stock;
provided,  that  Upgrade  is  not  in  material  breach  of  any representation,
warranty,  consent  or  agreement contained in this Agreement.  Upon issuance of
Company  Common  Stock  to  Upgrade pursuant to this Section 8.3(b), such shares
shall  be  validly  issued,  fully  paid  and  nonassessable.

     (c)     The  number and kind of shares of Company Common Stock to be issued
to  Upgrade  pursuant  to  Sections  8.3(a)  and  (b)  above  shall  be adjusted
appropriately  for any stock dividend, combination, division or reclassification
of  Company  Common  Stock, or for any merger, consolidation, or other corporate
action,  between  the  Signing Date and the date Upgrade receives such shares of
Company Common Stock, so that Upgrade receives the same number, kind or class of
Common  Stock,  or other securities and property as Upgrade would be entitled to
had  it owned the shares of Company Common Stock prior to the record date (or in
the  absence  of  a  record  date, immediately prior to the undertaking) of such
action.  Any shares of Company Common Stock issuable pursuant to Sections 8.3(a)
and  (b)  above, whether or not adjusted by this Section 8.3(c) shall be treated
as "Registrable Shares" pursuant to the terms of the Amended Financing Agreement

     (d)     The  right  to the payment of the fees and Company Common Stock set
forth  in  this Section 8.3 shall be the exclusive remedy at law or in equity in
respect  of  this Agreement to which Upgrade may be entitled upon termination of
this  Agreement  under  the  conditions  set  forth  in Sections 8.3(a) and (b).
Nothing  herein  shall  be deemed to abridge any rights Upgrade and Sub may have
pursuant  to  the terms of the Amended Financing Agreement and related documents
in  connection  with the Interim Financing.  Each of Upgrade and Sub acknowledge
that,  when  issued, (i) any shares of Common Stock that it receives pursuant to
this  Section  8.3  will  not  be  registered  under  the  Securities Act or the
securities  laws  of  any  state in the United States, in reliance on exemptions
from  such  registration  and  (ii)  a  restrictive  legend  consistent with the
foregoing has been or will be placed on the certificates evidencing such shares.

     8.4     Amendment

     This  Agreement  may  be  amended by the parties hereto, by action taken by
their  respective  Board  of  Directors, at any time before or after approval of
matters  presented in connection with the Merger by the stockholders of Company,
but after any such stockholder approval, no amendment shall be made which by law
requires  the  further  approval  of stockholders without obtaining such further
approval.  This  Agreement may not be amended except by an instrument in writing
signed  on  behalf  of  each  of  the  parties  hereto.


                                       45
<PAGE>
     8.5     Extension,  Waiver

     At  any time prior to the Effective Time, any party hereto, by action taken
by  its  Board  of  Directors may, to the extent legally allowed, (i) extend the
time  for  the  performance of any of the obligations or other acts of the other
parties  hereto,  (ii)  waive  any  inaccuracies  in  the  representations  and
warranties  made  to  such  party  contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements, covenants
or  conditions for the benefit of such party contained herein.  Any agreement on
the  part  of a party hereto to any such extension or waiver shall be valid only
if  set  forth  in  an  instrument  in  writing  signed on behalf of such party.

                         ARTICLE IX:  GENERAL PROVISIONS

     9.1     Nonsurvival  of  Representations,  Warranties  and  Agreements

     All representations, warranties, covenants and agreements of the parties in
this Agreement, the Company Disclosure Schedule, the Upgrade Disclosure Schedule
or  in any instrument delivered pursuant to this Agreement shall be deemed to be
conditions  to  the  Merger and shall not survive the Effective Time, except for
the  covenants  and  or  agreements contained in ARTICLE II and in Sections 1.4,
4.10,  5.8,  6.2.2,  6.5,  6.6,  6.7,  6.8,  6.9,  6.11,  9.2 and the agreements
delivered  pursuant  to  this Agreement.  Notwithstanding the foregoing, nothing
contained  in this Section 9.1 shall limit any covenant or agreement that by its
own  terms  contemplates  performance  after  the  Effective  Time.

     9.2     Notices

     All  notices,  requests, demands or other communications which are required
or  may be given pursuant to the terms of this Agreement shall be in writing and
shall  be  deemed  to  have  been  duly  given:  (i)  on the date of delivery if
personally  delivered  by  hand,  (ii)  upon  the third day after such notice is
deposited  in the United States mail, if mailed by registered or certified mail,
postage prepaid, return receipt requested, (iii) on the date of delivery if sent
by  a  nationally  recognized  overnight  express  courier, or (iv) upon written
confirmation  of  receipt  by  the  recipient  of  such  notice if by facsimile:

     (a)     If  to  Upgrade  or  Sub:

             Upgrade  International  Corporation
             1411  Fourth  Avenue,  Suite  629
             Seattle,  WA  98101
             Attention:  President
             Telephone  No.:  (206)  903-3116
             Facsimile  No.:  (206)  903-3117


                                       46
<PAGE>
     with  copies  to:

             Ogden  Murphy  Wallace,  PLLC
             1601  Fifth  Avenue,  Suite  2100
             Seattle,  Washington  98101
             Attention:  Shea  Wilson
             Facsimile  No.:  (206)  447-0215

     (b)     if  to  Company,  to:

             The  Pathways  Group,  Inc.
             1221  North  Dutton  Avenue
             Santa  Rosa,  CA  95401
             Attention:  President  and  Chief  Executive  Officer
             Telephone  No.:  (707)  546-3010
             Facsimile  No.:  (707)  546-0741

     with  a  copy  to:

             Salans  Hertzfeld  Heilbronn  Christy  &  Viener
             620  Fifth  Avenue
             New  York,  New  York  10020
             Attention:  Steven  R.  Berger
             Facsimile  No.:  (212)  307-3308

     9.3     Interpretation

     When  a  reference  is made in this Agreement to Sections or Exhibits, such
reference  shall  be  to a section or exhibit to this Agreement unless otherwise
indicated.  The  words  "include," "includes," and "including" when used therein
shall  be  deemed in each case to be followed by the words "without limitation."
The table of contents and headings contained in this Agreement are for reference
purposes  only  and shall not affect in any way the meaning or interpretation of
this  Agreement.  The  "knowledge  of,"  "the  best  of  knowledge of," or other
derivations  of  "know"  with respect to Upgrade or Company will mean the actual
knowledge of the executive officers and directors of Upgrade or Company, in each
case  assuming  the  exercise  of  reasonable  inquiry.  This Agreement has been
negotiated by the respective parties hereto and their attorneys and the language
hereof  will  not  be  construed  for  or  against  either  party.

     9.4     Counterparts

     This  Agreement  may  be executed in two or more counterparts, all of which
shall  be  considered one and the same agreement and shall become effective when
one  or  more counterparts have been signed by each of the parties and delivered
to each of the other parties, it being understood that all parties need not sign
the same counterpart.  Signatures transmitted by facsimile shall be deemed valid
execution  of  this  Agreement,  binding  on  the  parties


                                       47
<PAGE>
     9.5     Entire  Agreement;  No  Third  Party  Beneficiaries

     This  Agreement  and  the  documents  referred to herein (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede  all prior agreements and understandings, both written and oral, among
the  parties  with  respect to the subject matter hereof; (b) is not intended to
confer  upon  any  other  person  any  rights  or  remedies hereunder (except as
otherwise  expressly  provided herein and except that Sections 2.3.1, 2.3.2, and
4.10  are  for  the  benefit  of  holders of Company Stock Options and the other
employees  of  Company  and  said Sections are intended to confer rights on such
persons);  and (c) shall not be assigned by operation of law or otherwise except
as  otherwise  specifically  provided.

     9.6     No  Joint  Venture

     Nothing contained in this Agreement will be deemed or construed as creating
a joint venture or partnership between any of the parties hereto. No party is by
virtue  of  this   Agreement   authorized   as  an  agent,   employee  or  legal
representative  of any other party.  No party will have the power to control the
activities  and  operations  of any other and their status is, and at all times,
will continue to be, that of independent contractors with respect to each other.
No party will have any power or authority to bind or commit any other.  No party
will hold itself out as having any authority or relationship in contravention of
this Section.

     9.7     Governing  Law

     This  Agreement  shall  be  governed  in  all respects, including validity,
interpretation  and  effect,  by  the  laws  of the State of Washington, without
regard  to  the conflicts of laws provisions of such law; provided, however that
Company's and Sub's actions related to corporate governance shall be governed by
applicable  Delaware law.  Company and Upgrade consent to jurisdiction and venue
in  the  state  and  federal  courts  in  King  County,  Washington.

     9.8     Specific  Performance

     The  parties  hereto agree that irreparable damage would occur in the event
that  any  provision of this Agreement were not performed in accordance with the
terms  hereof  and that the parties shall be entitled to specific performance of
the  terms  hereof,  in  addition  to  any  other  remedy  at  law or in equity.

     9.9     Severability

     Any term or provision of this Agreement that is invalid or unenforceable in
any   situation   in  any   jurisdiction   shall  not  affect  the  validity  or
enforceability  of the remaining terms and provisions  hereof or the validity or
enforceability  of the offending term or provision in any other  situation or in
any other jurisdiction.

     9.10     Headings

     The  section  headings   contained  in  this  Agreement  are  inserted  for
convenience  only and shall not affect in any way the meaning or  interpretation
of this Agreement.


                                       48
<PAGE>
     9.11     Succession  and  Assignment

     This  Agreement  shall  be  binding  upon  and  inure to the benefit of the
parties  named herein and their respective successors and permitted assigns.  No
party  may  assign  either  this  Agreement  or any of its rights, interests, or
obligations  hereunder  without the prior written approval of the other parties.

     IN  WITNESS WHEREOF, Upgrade, Sub and Company have caused this Agreement to
be signed by their respective officers thereunder duly authorized, all as of the
date  first  written  above.

                                    UPGRADE  INTERNATIONAL  CORPORATION



                                    _______________________________________
                                    By:  Daniel  Bland
                                    Its:  President
                                    UPGRADE  ACQUISITION  INC.




                                    _______________________________________
                                    By:____________________________________
                                    Its:  President

                                    THE  PATHWAYS  GROUP,  INC.



                                    _______________________________________
                                    By:  Carey  F.  Daly,  II
                                    Its:  President, Chief Executive Officer
                                    and  Chairman


                                       49
<PAGE>
LIST  OF  SCHEDULES:

Company  Disclosure  Schedule
Upgrade  Disclosure  Schedule

LIST  OF  EXHIBITS:

Exhibit  4.7 -   Voting  Agreement
Exhibit  6.4 -   Affiliate  Letter
Exhibit  6.7     A     Amended  Financing  Agreement
                 B     Amended  Security  Agreement
                 C     Form  of  Series  A  Secured  Note
                 D     Form  of  Warrant  to  Purchase  Common  Stock
                 E     Conversion  Agreement


                                       1
<PAGE>