Document:

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                                                                EXECUTION COPY

                                 August 11, 2000

Synavant Inc.
3445 Peachtree Road, NE
Suite 1400
Atlanta, GA 30326

Attention: Mr. Matthew Friedman

Gentlemen:

         SunTrust Bank (the "BANK") is pleased to advise Synavant Inc. (the
"COMPANY") that the Bank has approved, subject to the conditions outlined in
this letter (the "AGREEMENT"), a committed revolving credit facility (the
"FACILITY"). The amount borrowed or utilized under the Facility shall not exceed
$20,000,000 at any one time outstanding. The Facility shall terminate on the
earlier of (i) December 31, 2000 and (ii) 90 days after the Effective Date (the
"TERMINATION DATE"); PROVIDED, that if the Effective Date has not occurred on or
before October 2, 2000, the parties hereto agree that this Agreement shall be
cancelled on such date, and the Bank shall have no obligation hereunder.

1.       THE FACILITY

         The Company may from time to time before the Termination Date borrow
Base Rate Loans and Eurodollar Loans (each, "LOAN" and collectively, the
"LOANS") and enter into foreign exchange contracts on a spot and forward basis
(each, a "FX CONTRACT" and collectively, the "FX CONTRACTS"). The aggregate
outstanding amount of the Loans shall not at any time exceed $20,000,000, LESS
the Total FX Risk Exposure, as determined in accordance with Section 1.8 hereof.
The Company may borrow, repay and reborrow Loans in accordance with the terms
hereof.

         1.1      BORROWING PROCEDURES

                  (A) BASE RATE LOANS. Each Base Rate Loan shall be made upon
prior written notice from any Authorized Officer received by the Bank not later
than 11:00 a.m. (New York City time) on the proposed borrowing date. Each such
notice shall specify (i) the borrowing date, which shall be a Banking Day, and
(ii) the amount of such Loan. Each Base Rate Loan shall be in a minimum amount
of $1,000,000 and in an integral multiple of $250,000.

                  (B) EURODOLLAR LOANS. Each Eurodollar Loan shall be made upon
prior written or telephonic notice from any Authorized Officer received by the
Bank (which notice

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shall be irrevocable once given and, if given by telephone, shall be promptly
confirmed in writing) not later than 1:00 p.m. (New York City time) on the third
Banking Day preceding the commencement of an Interest Period for a Eurodollar
Loan or the end of an Interest Period applicable to a Eurodollar Loan. Each such
notice shall specify (i) the borrowing date, which shall be a Banking Day, (ii)
the amount of such Eurodollar Loan, and (iii) the Interest Period for such
Eurodollar Loan. If such Eurodollar Loan is to continue as a Eurodollar Loan,
the Company shall notify the Bank of the new Interest Period selected therefor,
and in the event the Company shall fail to so notify the Bank, such Eurodollar
Loan shall automatically be converted into and added to the Base Rate Loan as of
and on the last day of such Interest Period; PROVIDED, HOWEVER, that anything
contained herein to the contrary notwithstanding, the obligation of the Bank to
create or continue any Eurodollar Loan or to convert any part of the Base Rate
Loan into a Eurodollar Loan shall be conditioned upon the fact that at the time
no Unmatured Event of Default or Event of Default shall have occurred and be
continuing, except that during the existence of an Unmatured Event of Default
(but not an Event of Default) the Company may request the continuation of any
Eurodollar Loan into another Eurodollar Loan with an Interest Period not in
excess of one (1) month. Each Eurodollar Loan shall be in a minimum amount of
$1,000,000 and in an integral multiple of $500,000.

         1.2      INTEREST

                  (A) BASE RATE LOANS. The unpaid principal of each Base Rate
Loan shall bear interest prior to maturity at a rate per annum, equal to the
Base Rate as in effect from time to time. Accrued interest on each Base Rate
Loan shall be payable monthly in arrears on the last Banking Day of each
calendar month, and on the Termination Date.

                  (B) EURODOLLAR LOANS. The unpaid principal amount of each
Eurodollar Loan shall bear interest prior to maturity at a rate per annum equal
to LIBOR as in effect for the Interest Period with respect to such Eurodollar
Loan PLUS 75 basis points. Accrued interest on each Eurodollar Loan shall be
payable on the last Banking Day of the Interest Period applicable to such Loan,
and on the Termination Date.

                  (C) INTEREST AFTER MATURITY. Any principal of any Loan which
is not paid at maturity, whether at the stated maturity, upon acceleration or
otherwise, shall bear interest from and including the date such principal shall
have become due to (but not including) the date of payment thereof in full at a
rate per annum equal to the greater of (i) the Base Rate from time to time in
effect plus 4% per annum, or (ii) 4% per annum in excess of the rate applicable
to such Loan immediately prior to its maturity. After maturity, accrued interest
shall be payable ON DEMAND.

                  (D) MAXIMUM RATE. In no event shall the interest rate
applicable to any amount outstanding hereunder exceed the maximum rate of
interest allowed by applicable law, as amended from time to time. Any payment of
interest or in the nature of interest in excess of such limitation shall be
credited as a payment of principal unless the Company shall request the return
of such amount.

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                  (E) METHOD OF CALCULATING INTEREST AND FEES. Interest on each
Loan and all fees shall be computed on the basis of a year consisting of 360
days and paid for actual days elapsed, except that interest on Base Rate Loans
will be computed on the basis of a year of 365 or 366 days (as the case may be)
for the actual number of days elapsed.

         1.3      DISBURSEMENTS AND PAYMENTS

                  The Bank shall transfer the proceeds of each Loan as directed
  by an Authorized Officer. Each Base Rate Loan shall be payable on the
  Termination Date. Each Eurodollar Loan shall be payable on the earlier of the
  last Banking Day of the Interest Period applicable thereto or the Termination
  Date. All payments to the Bank shall be made at the office of the Bank located
  at 25 Park Place, 21st Floor, Atlanta, GA 30303, or at such other address as
  the Bank shall specify to the Company in writing. Any payment that shall be
  due on a day, which is not a Banking Day, shall be payable on the next
  succeeding Banking Day, subject to the definition of "Interest Period".
  Anything contained herein to the contrary notwithstanding, all payments and
  collections received in respect of the Indebtedness evidenced by the Note, in
  each instance, by the Bank after the occurrence of an Event of Default shall
  be distributed as follows: (i) first, to the payment of any outstanding costs
  and expenses incurred by the Bank in preserving or enforcing fights under the
  Loan Documents and in any event including all costs and expenses of a
  character which the Company has agreed to pay under Section 11.3 hereof; (ii)
  second, to the payment of any outstanding interest or other fees or amounts
  due under the Loan Documents other than for principal; and (iii) third, to the
  payment of the principal of the Note.

         1.4      PREPAYMENT

                  (A) Subject to Section 3.7, the Company may, at any time or
from time to time prepay Base Rate Loans in whole or in part in minimum amounts
of $1,000,000 or any multiple of $250,000 in excess thereof and Eurodollar Rate
Loans in whole or in part in minimum amounts of $5,000,000 or any multiple of
$500,000 in excess thereof. Each prepayment shall be made upon not less than one
Banking Day's irrevocable written notice to the Bank with respect to Base Rate
Loans and not less than three Banking Days' irrevocable written notice to the
Bank with respect to Eurodollar Rate Loans. Such notice of prepayment shall
specify the date and amount of such prepayment and the type(s) of Loans to be
prepaid.

                  (B) The Company shall be required to prepay Loans to the
extent that the outstanding principal amount of all Loans and the Total FX Risk
Exposure exceeds at any time the then outstanding amount of the Facility.

         1.5      NOTE

                  The Company's obligations with respect to the Loans shall be
 evidenced by a note in the form attached as EXHIBIT A (the "NOTE"). The
 amount, the rate of interest for each Loan and the Interest Period (if
 applicable) shall be endorsed by the Bank on the schedule attached to the
 Note, or at the Bank's option, in its records, which schedule or records shall
 be conclusive, absent manifest error.

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         1.6      REDUCTION OF FACILITY

                  The Facility amount is subject to reduction from time to time
pursuant to this Section 1.6.

                  (A) OPTIONAL. The Company may, from time to time on any
  Banking Day, voluntarily cancel or reduce any unused amount of the Facility;
  PROVIDED, HOWEVER, that all such reductions shall require at least five (5)
  Banking Days' prior notice to the Bank and be permanent, and any partial
  reduction of the Facility shall be in an integral multiple of $5,000,000.

                  (B)      MANDATORY.  On the  Termination  Date,  the amount
of the  Facility  shall be reduced to zero.

         1.7       INTENTIONALLY OMITTED

         1.8       FOREIGN EXCHANGE CONTRACTS

                  The Company may use the Facility for FX Contracts on a spot
  and/or forward basis upon terms and conditions negotiated separately with the
  Bank and pursuant to customary documentation acceptable to the Bank; PROVIDED,
  that at no time may the Total FX Risk Exposure exceed the lesser of (i)
  $4,000,000 and (ii) the then outstanding amount of the Facility LESS the
  principal amount of all outstanding Loans. No FX Contract may have a maturity
  date that extends beyond the Termination Date.

2.       FEES

         The Company agrees to pay to the Bank (a) a facility fee of $150,000
payable (i) $75,000 on the Agreement Date, which payment shall be nonrefundable,
and (ii) $75,000 on the Effective Date and (b) a commitment fee on the actual
daily unused amount of the Facility at the rate per annum equal to 50 basis
points (as determined by the Bank and notified to the Company) that begins to
accrue on the Effective Date and is payable on the last Business Day of each
calendar month and on the Termination Date.

3.       ADDITIONAL PROVISIONS RELATING TO LOANS.

         3.1      INCREASED COSTS

         The Company agrees to reimburse the Bank for any increase in the cost
to the Bank of, or any reduction in the amount of any sum receivable by the Bank
in respect of, making or maintaining any Eurodollar Loans relating to the
adoption of any law, rule or regulation or any change therein or any change in
the interpretation of administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof. The additional amount required to compensate the Bank
for such increased cost or

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reduced amount shall be payable by the Company to the Bank within five days of
the Company's receipt of written notice from the Bank specifying such increased
cost or reduced amount and the amount required to compensate the Bank therefor,
which notice shall, in the absence of manifest error, be conclusive and binding
on the Company. In determining such additional amount, the Bank may use
reasonable averaging, attribution and allocation methods.

         3.2      DEPOSITS UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE;
IMPRACTICABILITY

         If the Company has notified the Bank of its intention to borrow a
Eurodollar Loan for an Interest Period and the Bank determines (which
determination shall be conclusive and binding on the Company) that:

                  (A) deposits of the necessary amount for such Interest Period
are not available to the Bank in the London interbank market or, by reason of
circumstances affecting such market, adequate and reasonable means do not exist
for ascertaining LIBOR for such Interest Period; or

                  (B) LIBOR will not adequately and fairly reflect the cost to
the Bank of making or funding a Eurodollar Loan for such Interest Period, or

                  (C) the making or funding of Eurodollar Loans has become
impracticable as a result of any event occurring after the date of this
Agreement which, in the opinion of the Bank, materially and adversely affects
such Loans or the interbank Eurodollar market;

then any notice of a Eurodollar Loan previously given by the Company and not yet
borrowed shall be deemed to be a notice to make a Base Rate Loan.

         3.3      CHANGES IN LAW RENDERING EURODOLLAR LOANS UNLAWFUL

         If at any time due to the adoption of, or change in, any law, rule,
regulation, treaty or directive or in the interpretation or administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof, or for any other reason arising subsequent to the date
hereof, it shall become (or, in the good faith judgment of the Bank, raise a
substantial question as to whether it is) unlawful for the Bank to make or fund
any Eurodollar Loan, Eurodollar Loans shall not be made hereunder for the
duration of such illegality. If any such event shall make it unlawful for the
Bank to continue any Eurodollar Loans previously made by it hereunder, the
Company shall, after being notified by the Bank of the occurrence of such event,
on such date as shall be specified in such notice, either convert such
Eurodollar Loan to a Base Rate Loan or prepay in full such Eurodollar Loan,
together with accrued interest thereon, without any premium or penalty (except
as provided in Section 3.7).

         3.4      DISCRETION OF THE BANK AS TO MANNER OF FUNDING

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         The Bank shall be entitled to fund and maintain its funding of all or
any part of the Loans in any manner it sees fit; it being understood, however,
that for purposes of this Agreement and the Note, all determinations hereunder
and thereunder (including, but not limited to, any determination pursuant to
Section 3.3) shall be made as if the Bank had actually funded and maintained
each Eurodollar Loan during the Interest Period for such Eurodollar Loan through
the purchase of deposits having a term corresponding to such Interest Period and
bearing an interest rate equal to LIBOR for such Interest Period.

         3.5      INTENTIONALLY OMITTED

         3.6      INCREASED CAPITAL COSTS

         If any change in, or the introduction, adoption, effectiveness,
interpretation, reinterpretation or phase-in of, any law or regulation,
directive, guideline, decision or request (whether or not having the force of
law) of any court, central bank, regulator or other Governmental Authority
affects or would affect the amount of capital required or expected to be
maintained by the Bank or any entity controlling the Bank, and the Bank
determines (in its sole and absolute discretion) that the rate of return an its
or such controlling entity's capital as a consequence of the Loans made by the
Bank or the commitment hereunder is reduced to a level below that which the Bank
or such controlling entity could have achieved but for the occurrence of any
such circumstance, then, in any such case, upon notice from time to time by the
Bank to the Company, the Company shall immediately pay directly to the Bank
additional amounts sufficient to compensate the Bank or such controlling entity
for such reduction in rate of return. A statement of the Bank as to any such
additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Company. In determining such amount, the Bank may use reasonable averaging,
attribution and allocation methods.

         3.7      FUNDING LOSSES

         The Company will indemnify the Bank upon demand against any loss or
expense which the Bank may sustain or incur (including, without limitation, any
loss or expense sustained or incurred in obtaining, liquidating or employing
deposits or other funds acquired to effect, fund or maintain any Loan) as a
consequence of (i) any failure of the Company to make any payment when due of
any amount due hereunder, (ii) any failure of the Company to borrow a Loan on a
date specified therefor in a notice thereof, or (iii) any payment (including any
payment upon the Bank's acceleration of the Loans) or prepayment of any
Eurodollar Loan on a date other than the last day of the Interest Period for
such Loan.

4.       CONDITIONS PRECEDENT

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         4.1      INITIAL LOAN OR FX CONTRACT

         The obligation of the Bank to make the initial Loan to, or to enter
into the initial FX Contract with, the Company shall be subject to the prior or
concurrent satisfaction of each of the following conditions precedent:

(A)      PROMISSORY NOTE.   The Bank shall have received the Note duty executed
and delivered by the Company.

(B)      GUARANTEE. The Bank shall have received the Guarantee duly executed and
delivered by the Guarantor.

         (C) SECRETARY'S CERTIFICATES. (1) The Company shall have delivered to
the Bank a certificate dated the Effective Date of its Secretary or Assistant
Secretary as to (i) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of this Agreement,
the Note, and each of the other Loan Documents to which the Company is a party,
(ii) the Company's certificate of incorporation and by-laws, and (iii) the
incumbency and signatures of those of its officers authorized to act with
respect to this Agreement, the Note and each of the Loan Documents executed by
it, upon which certificate the Bank may conclusively rely until it shall have
received a further certificate of the Secretary or Assistant Secretary of the
Company canceling or amending such prior certificate.

                  (2) The Guarantor shall have delivered to the Bank a
certificate dated the Effective Date of its Secretary or Assistant Secretary as
to (i) resolutions of its Board of Directors then in full force and effect
authorizing the execution, delivery and performance of the Guarantee, (ii) the
Guarantor's certificate of incorporation and by-laws that were delivered to the
Bank pursuant to the Existing Loan Agreement are still in full force and effect
and have not been amended or otherwise modified since such date, and (iii) the
incumbency and signatures of those of its officers authorized to act with
respect to the Guarantee, upon which certificate the Bank may conclusively rely
until it shall have received a further certificate of the Secretary or Assistant
Secretary of the Guarantor canceling or amending such prior certificate.

         (D) GOOD STANDING CERTIFICATES. The Bank shall have received good
standing certificates (or their equivalent) issued by the Secretary of State of
(1) with respect to the Company, each of the State of Delaware and the State of
Georgia and (ii) with respect to the Guarantor, each of the State of Delaware
and the State of Connecticut, each dated within 7 days of the Effective Date.

         (E) OPINIONS OF COUNSEL. The Bank shall have received an opinion or
opinions from counsel to each of the Company and the Guarantor, dated the
Effective Date and addressed to the Bank, in form and content acceptable to the
Bank.

          (F)     FEES.       The  Borrower  shall have paid all fees to, and
other costs and expenses of, the Bank then due under Section 2 and Section 11.3
respectively.

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         4.2      EACH LOAN AND FX CONTRACT

         The obligation of the Bank to make any Loan (including the initial
Loan) and to enter into any FX Contract (including the initial FX Contract)
shall be subject to the following statements being true and correct before and
after giving effect to such Loan or FX Contract: (i) the representations and
warranties of the Borrower set forth in SECTION 5 (except those representations
and warranties set forth in SECTION 5.4 but only if such Loan or FX Contract is
made or entered into prior to the time that such financial information is
required to be delivered pursuant to Section 6.1) and of the Guarantor set forth
in Section 8 of the Guarantee shall be true and correct with the same effect as
if then made (unless stated to relate solely to an earlier date, in which case
such representations and warranties shall be true and correct as of such earlier
date), (ii) no Event of Default or Unmatured Event of Default shall have
occurred and be continuing and (iii) there shall have occurred no material
adverse effect on the condition, operation, assets, business, properties or
prospects of either the Company or on the Guarantor and its Subsidiaries since
June 30, 2000.

         Each request for a Loan or a FX Contract shall be deemed a
representation by the Company as to the matters set forth in this Section.

5.       REPRESENTATIONS AND WARRANTIES

         The Company represents and warrants to the Bank (which representations
and warranties shall survive the execution and delivery hereof and of the Note)
that:

         5.1      EXISTENCE

         The Company is a corporation duly formed, validly existing and in good
standing under the laws of its jurisdiction of incorporation, has all requisite
power and authority, and the legal right, to own, operate and lease its
properties and to carry on the business in which it is engaged or presently
proposes to engage, and is duly qualified or licensed under the laws of the
State of Georgia and each other jurisdiction where it is required to be so
qualified or licensed except where the failure to be so qualified would not
cause a material adverse change in the financial condition, operations, assets,
business, properties or prospects of the Company, and is in compliance with all
Requirements of Law except to the extent that failure to comply therewith would
not reasonably be expected, in the aggregate, to cause a material adverse change
in the financial condition, operations, assets, business, properties or
prospects of the Company.

         5.2      POWER AND AUTHORIZATION; ENFORCEABLE OBLIGATIONS

         The Company has all requisite power and authority to execute, deliver
and perform this Agreement and the Note and to borrow hereunder and thereunder.
The Company has taken all necessary corporate and legal action to authorize the
Loans and FX Contracts hereunder and under the Note on the terms and conditions
of this Agreement and the Note and to authorize the execution, delivery and
performance of this Agreement and the Note. This Agreement the Note have been
duly executed and delivered by a duly authorized representative of the Company,
and

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this Agreement and the Note constitute the legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting
creditors' rights generally and except as enforceability may be limited by
general principles of equity and an implied covenant of good faith.

         5.3      NO LEGAL BAR

         The execution, delivery and performance of this Agreement and the Note
by the Company will not violate any provision of any existing law, treaty or
regulation or of any order, judgment, award or decree of any court, arbitrator
or Governmental Authority or of any Requirement of Law or Contractual Obligation
applicable to the Company and will not result in the creation or imposition of
any Lien on any of the material properties or assets of the Company pursuant to
the provisions of any such Requirement of Law or Contractual Obligation.

5.4      FINANCIAL INFORMATION; DISCLOSURE, ETC.

         (A) The unaudited balance sheet of the Company dated as of the
Effective Date delivered pursuant to Section 6.1 hereof presents fairly in all
material respects the financial condition of the Company as at such date and has
been prepared in accordance with GAAP.

         (B) The projections of the Company's balance sheet and statements of
income and cash flows for the fiscal years 2000, 2001 and 2002 delivered
pursuant to Section 6.1 hereof have been based upon good faith estimates and
assumptions, have been prepared on the basis of such estimates and assumptions
and reflect the reasonable estimates of the Company of its results of operations
and other information projected therein.

         5.5      LICENSES; PERMITS, ETC.

         No material authorizations, licenses and permits of any Governmental
Authority are required or necessary for the conduct of the business of the
Company as now conducted or proposed to be conducted by it (such authorizations,
licenses and permits, together with any extensions or renewals thereof, being
herein sometimes referred to collectively as the "LICENSES") except for such
Licenses (i) as have been obtained and are in full force and effect, or (ii) the
failure to have obtained which could not reasonably be expected to result,
either in any case or in the aggregate, in a material adverse change in the
financial condition, operations, assets, business, properties or prospects of
the Company.

         5.6      TAX RETURNS AND PAYMENTS

         The Company has filed all tax returns and information statements
required by law to be filed and has paid all taxes, assessments and other
governmental charges levied upon or in respect of any of its properties, assets,
income, Licenses or franchises, other than those not yet delinquent, those, not
substantial in aggregate amount, being or about to be contested and those the
failure of which to pay could not cause a material adverse change in the
financial condition, operations, assets, business, properties or prospects of
the Company. The charges, accruals and reserves on the books of the Company in
respect of its taxes are adequate in the opinion of the Company, and the

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Company knows of no unpaid assessment for additional taxes material in amount or
of any reasonable basis therefor. No tax liens have been filed, and, to the
knowledge of the Company, no claims are being asserted with respect to any such
taxes, fees or other charges.

         5.7      TITLE TO PROPERTIES; LIENS

         The Company and its Subsidiaries have sufficient title to all of their
material properties and assets for the conduct of their respective business as
presently conducted and proposed to be conducted by them. The Company and its
Subsidiaries enjoy quiet possession under all material real property leases to
which it is a party as lessee, and all of its material leases are valid,
subsisting and in full force and effect.

         5.8      LITIGATION, ETC.

         There is no action, proceeding or investigation pending or to the
knowledge of the Company threatened (or any basis therefor known to the Company)
which questions the validity of this Agreement and the Note or any other Loan
Documents executed in connection herewith, or any action taken or to be taken
pursuant hereto or thereto, or which could reasonably be expected to result,
either in any case or in the aggregate, in a material adverse change in the
financial condition, operations, assets, business, properties or prospects of
the Company.

         5.9      NO DEFAULT

         No Event of Default or Unmatured Event of Default has occurred and is
continuing. Neither the Company nor any of its Subsidiaries is in violation of
any Requirement of Law or any term of any Contractual Obligation applicable to
the Company or such Subsidiary, the violation of which would be likely to cause
a material adverse change in the financial condition, operations, assets,
business, properties of prospects of the Company. Without limiting the scope of
the foregoing, the Company and each Subsidiary is in compliance in all material
respects with a Environmental Laws, the violation of which could be reasonably
expected to cause a material adverse change in the financial condition,
operations, assets, business, properties or prospects of the Company.

         5.10     GOVERNMENTAL AND OTHER CONSENTS

         The Company is not required to obtain any order, consent, approval or
authorization of, or to make any declaration or filing with, any Governmental
Authority or any other Person in connection with the execution and delivery of
any performance under this Agreement and the issuance and delivery of such
Company's Note pursuant hereto, unless the failure to do so would not result in
a material adverse change in the financial condition, operations, assets,
business, properties or prospects of the Company.

         5.11     REGULATION U, ETC.

         None of the proceeds of the Loans will be used, directly or indirectly,
by the Company for the purpose of purchasing or carrying, or for the purpose of
reducing or retiring any indebtedness which was originally incurred to

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purchase or carry, any margin stock or for any other purpose which might
constitute the transactions contemplated hereby a "purpose credit" within the
meaning of said Regulation U, or cause this Agreement to violate Regulation T,
Regulation U, Regulation X, or any other regulation of the Board of Governors of
The Federal Reserve System or the Securities Exchange Act of 1934.

         5.12     INVESTMENT COMPANY ACT; OTHER REGULATIONS

         The Company is not an "investment company" or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended. The Company is not subject to regulation under any Federal or
State statute or regulation which limits its ability to incur Indebtedness.

         5.13     COMPLIANCE WITH ERISA

         Each Plan is in substantial compliance with ERISA and the Code; no
Reportable Event has occurred with respect to a Plan; no Plan is insolvent or in
reorganization; no Plan has an Unfunded Current Liability, no Plan has an
accumulated or waived funding deficiency, has permitted decreases in its funding
standard account or has applied for a waiver of the minimum funding standard or
an extension of any amortization period within the meaning of Section 412 of the
Code; all contributions required to be made with respect to a Plan have been
timely made, neither the Company nor any ERISA Affiliate has incurred any
material liability to or on account of a Plan pursuant to Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section
401(a)(29), 4971, 4975 or 4980 of the Code or reasonably expects to incur any
material liability (including any indirect, contingent or secondary liability)
under any of the foregoing Sections with respect to any Plan (other than
liabilities of any ERISA Affiliate which could not, by operation of law or
otherwise, become a liability of the Company); no proceedings have been
instituted to terminate, or to appoint a trustee to administer, any Plan; no
condition exists which presents a material risk to the Company or any ERISA
Affiliate of incurring a liability to or on account of a Plan pursuant to the
foregoing provisions of ERISA and the Code, using actuarial assumptions and
computation methods consistent with Part I of Subtitle E of Title IV or ERISA,
the aggregate liabilities of the Company and its ERISA Affiliates to all Plans
which are multi-employer plans (as defined in Section 400 1 (a)(3) of ERISA) in
the event of a complete withdrawal therefrom, as of the close of the most recent
Fiscal Year of each such Plan ended prior to the Effective Date would not result
in a Material Adverse Effect; and no lien imposed under the Code or ERISA on the
assets of the Company or any ERISA Affiliate exists or is likely to arise on
account of any Plan.

         5.14     ENVIRONMENTAL MATTERS

         To the best knowledge of the Company, each of the representations and
warranties set for the in paragraphs (A) through (E) of this subsection is true
and correct with respect to each parcel of real property owned or operated
(within the meaning of any Environmental Law) by the Company or any Subsidiary
(the "PROPERTIES"), except to the extent that the facts and circumstances giving
rise to any such failure to be so true and correct could not reasonably be

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expected to cause a material adverse change in the financial condition,
operations, assets, business, properties or prospects of the Company:

         (A) The Properties do not contain, and have not previously contained,
in, on, or under, including, without limitation, the soil and groundwater
thereunder, any Hazardous Materials in violation of any Environmental Laws.

         (B) The Properties and all operations and facilities at the Properties
are in compliance with all Environmental Laws, and there is no Hazardous
Materials contamination or violation of any Environmental Law which could
interfere with the continued operation of any of the Properties or impair the
fair salable value of any thereof.

         (C) Neither the Company nor any Subsidiary has received any complaint,
notice of violation, alleged violation, investigation or advisory action or of
potential liability or of potential responsibility regarding environmental
protection matters or permit compliance with regard to the Properties, nor is
the Company aware that any Governmental Authority is contemplating delivering to
the Company any such notice.

         (D) Hazardous Materials have not been generated, treated, stored,
disposed of, at, on or under any of the Properties, nor have any Hazardous
Materials been transferred from the Properties to any other location in
violation of any Environmental Laws.

         (E) There are no governmental, administrative actions or judicial
proceedings pending or contemplated under any Environmental Laws to which the
Company is or will be named as a party with respect to the Properties, nor arc
there any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to any of the Properties.

         5.15     DISTRIBUTION AGREEMENT

         The Distribution Agreement and all other agreements entered into by the
Company in connection therewith have been duly executed and delivered by all
parties thereto and are in full force and effect and no "default" or "event of
default" (or any other terms with similar meanings) thereunder has occurred and
is continuing, and the "Distribution" (as defined in the Distribution Agreement)
has occurred in accordance with the terms thereof.

         5.16     SOLVENCY

         On the Effective Date, both before and after giving effect to the
transactions contemplated by the Distribution Agreement and this Agreement, the
Company (i) is and will be Solvent (as defined in the following sentence), (ii)
is and will continue to be able to pay its debts as they mature, and (iii) has
and will continue to have capital sufficient (and will not be left with
unreasonably small capital) to conduct its business and all businesses in which
it is engaged. "SOLVENT" means that (x) the Company will have assets with a
present fair saleable value greater than the amount of its total liabilities
(including contingent liabilities), (y) the sum of the

                                       12
<PAGE>

Company's assets at book value exceeds the sum of its debts, and (z) on the
Company's most recent balance sheet, the sum of its assets exceeds the sum of
its liabilities.

6.       AFFIRMATIVE COVENANTS

         From the Agreement Date until the termination of the Facility and until
the Obligations are paid in full, the Company agrees that it will:

6.1      FINANCIAL INFORMATION

         Furnish to the Bank:

                  (A)      The balance  sheet and  projections  referenced  in
Section 5.4 not later than two weeks after the Effective Date;

                  (B) an unaudited income statement of the Company within 20
     days after each month end, certified by the Treasurer or higher ranking
     financial officer of the Company;

                  (C) as soon as available and in any event within 45 days after
the end of the fiscal quarter of the Company ending September 30, 2000, the
Company's Form 10-Q containing the balance sheet of the Company as at the end of
such quarterly fiscal period and statements of earnings and cash flows of the
Company for such period, certified by the Treasurer or higher ranking financial
officer of the Company;

         (D) CONCURRENTLY WITH THE DELIVERY OF THE FINANCIAL STATEMENT DELIVERED
IN SUBSECTION (C), A CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF THE COMPANY
SETTING FORTH THE NET WORTH OF THE COMPANY AS OF THE END OF THE PERIOD COVERED
BY SUCH FINANCIAL STATEMENT AND CERTIFYING THAT THE COMPANY HAS NO INDEBTEDNESS
OTHER THAN THE INDEBTEDNESS HEREUNDER AND UNDER THE NOTE; AND

                  (E) such other information with respect to the condition or
operations, financial or otherwise, of the Company as the Bank may from time to
time reasonably request.

         6.2      USE OF PROCEEDS

         Use the proceeds of Loans for the general corporate purposes of the
Company.

         6.3      PAYMENT OF OBLIGATIONS

                                       13
<PAGE>

         If and to the extent the failure to do so would result in a material
adverse change in the financial condition, operations, assets, business,
properties or prospects of the Company, pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
Indebtedness and other obligations of whatever nature, except where the amount
or validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Company; and cause each of its Subsidiaries so to
do.

         6.4      CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE

         Continue to engage in business of the same general type as now
conducted by it and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
Licenses, privileges and franchises necessary or desirable in the normal conduct
of its business; comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not, in the
aggregate, have a material adverse change in the financial condition,
operations, assets, business, properties or prospects of the Company.

         6.5      INSURANCE

         Maintain, in the name of the Company or each relevant Subsidiary, with
financially sound and reputable insurance companies, insurance with adequate
coverage on all of its properties.

         6.6      BOOKS AND RECORDS

         Keep proper books of records and account in which full, true and
correct entries in conformity with GAAP and all Requirements of Law shall be
made of all dealings and transactions in relation to its business and
activities.

         6.7      NOTICES

         Promptly, upon gaining actual knowledge thereof, give notice to the
Bank of

         (A)      the occurrence of any Unmatured Event of Default or Event of
Default, and

         (B) any material adverse change in the financial condition, operations,
assets, business, properties or prospects of the Company.

Each notice pursuant to this subsection shall be accompanied by a statement of
an Authorized Officer setting forth details of the occurrence referred to
therein and stating what action (if any) the Company proposes to take with
respect thereto.

                                       14
<PAGE>

         6.8      PAYMENT OF TAXES

         If and to the extent the failure to do any of the following would
result in a material adverse change in the financial condition, operations,
assets, business, properties or prospects of the Company, pay and discharge, and
cause each Subsidiary to pay and discharge, prior to their becoming delinquent
all taxes, assessments and other governmental charges or levies imposed upon it
or its income or upon any of its property or assets, or upon any part thereof,
as well as all lawful claims of any kind (including claims for labor, materials
and supplies) which, if unpaid, might by law become a Lien upon its property;
PROVIDED that neither the Company nor any Subsidiary will be required to pay any
such tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall be contested in good faith by appropriate proceedings or
other appropriate actions diligently conducted and if the Company or such
Subsidiary shall have set aside on its books such reserves, if any, with respect
thereto as are required by GAAP and deemed appropriate by the Company and its
independent public accountants.

         6.9      FURTHER ASSURANCES

         From time to time hereafter, execute and deliver, or cause to be
executed and delivered, such additional instruments, certificates or documents,
and will take all such actions, as the Bank may reasonably request, for the
purposes of implementing or effectuating the provisions of the Loan Documents.
Upon the exercise by the Bank of any power, right, privileges or remedy pursuant
to the Loan Documents, which requires any consent, approval, recording,
qualification or authorization of any Governmental Authority, the Company will
execute and deliver, or will cause the execution and delivery of, all
applications, certifications, instruments and other documents and papers that
the Bank may be required to obtain from the Company for such governmental
consent, approval, recording, qualification or authorization.

         6.10     NO DIVIDEND RESTRICTIONS

         The Company is not a party to any agreement prohibiting or restricting
the payment of dividends.

7.       NEGATIVE COVENANTS

         7.1      NEGATIVE PLEDGE

         The Company will not, and will not permit any Subsidiary to, create,
assume, incur or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except for the following (the "PERMITTED LIENS"):

         (A) Liens existing on the Agreement Date which are set forth on
Schedule 7.1 hereof, and renewals, extensions and continuations thereof,
provided that such renewals, extensions, continuations shall not (i) increase
the Indebtedness secured thereby or (ii) extend the coverage thereof beyond the
original coverage of such Liens;

                                       15
<PAGE>

         (B) Liens for taxes, assessments or other governmental charges not yet
delinquent or being contested in good faith and by appropriate proceedings;
Liens in connection with workers' compensation, unemployment insurance or other
social security obligations; Liens securing the performance of bids, tenders,
contracts, surety and appeal bonds, Liens to secure progress or partial payments
and other Liens of like nature arising in the ordinary course of business;
mechanics', workmen's, materialmen's or other like Liens arising in the ordinary
course of business in respect of obligations which are not yet due or which are
being contested in good faith; and other Liens arising in the ordinary course of
business and incidental to the conduct of the business of the Company or such
Subsidiary or to the ownership of its properties or assets, which were not
incurred in connection with the borrowing of money and which do not materially
detract from the value of the properties or assets of the Company or materially
affect the use thereof in the operation of its business;

         (C) Liens in respect of judgments and awards to the extent that such
judgments or awards are being contested in good faith and adequate insurance or
appropriate reserves are maintained with respect thereto on the books of the
Company to the extent required by GAAP and so long as execution is not levied
thereunder;

         (D) Liens on an property acquired after the date hereof which Liens
existed when such property was acquired, and extensions and renewals of such
Liens; provided that no such extension or renewal shall increase the aggregate
amount of Indebtedness secured thereby, nor add to the property subject to such
Lien;

         (E) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, restrictions on the use of property or minor
irregularities of title which do not in the aggregate materially detract from
the value of its property or assets or materially impair the use thereof in the
operations, business or prospects of the Company or its Subsidiaries, and

         (F)      Liens on the property or assets of any Subsidiary in favor of
the Company or any Subsidiary;

PROVIDED THAT NO SUCH LIENS IN SECTION 7.1(B) THROUGH (F) SHALL SECURE ANY
INDEBTEDNESS.

         7.2      DISSOLUTIONS AND MERGERS

         The Company shall not merge into or consolidate with or into any
corporation or entity without the Bank's prior written consent.

         7.3      DISPOSITION OF ASSETS

         The Company shall not, and shall not permit any of its Subsidiaries to,
convey, sell, assign, lease, transfer or dispose all or any portion of its
assets (including accounts receivable and capital stock of Subsidiaries) to any
Person, except (a) sales of inventory in the ordinary course of business and (b)
the sale or other disposition of (i) the common stock of the Gartner Group
(NYSE:IT) and (ii) the Wilton Note.

                                       16
<PAGE>

         7.4      CONDUCT OF BUSINESS

         The Company shall not make or permit to be made any material change in
the character of its business as carried on at the Agreement Date.

         7.5      COMPLIANCE WITH FEDERAL RESERVE REGULATIONS

         The Company shall not use any part of the proceeds of any credit
extended under this Agreement or the Note to purchase or carry, or to reduce or
retire any indebtedness incurred to purchase or carry, any margin stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve System)
or to extend credit to any Person for the purpose of purchasing or carrying any
margin stock.

         7.6      INDEBTEDNESS

         The Company will not at any time incur any Indebtedness, except
Indebtedness owed to the Bank and Indebtedness that is used concurrently with
the incurrence thereof to repay all outstanding Loans and FX Contracts under the
Facility.

7.7      NET WORTH

         The Company will maintain at all times Net Worth of not less than
$175,000,000.

8.       EVENTS OF DEFAULT

         8.1      EVENTS

         Each of the following shall constitute an Event of Default:

                  (A) PAYMENTS. The Company fails to pay when due any principal
of any Loan; or the Company fails to pay when due any interest or any other
amount payable hereunder (except under FX Contracts) or under the Note (and such
payment is not made within two (2) days thereafter);or the Company fails to pay
when due any amount payable under a FX Contract (and such payment is not made
within two (2) days thereafter in the case of Dollar-denominated payments or
within three (3) days thereafter in the case of any foreign currency-denominated
payments);

                  (B)      MISREPRESENTATION.        Any  representation  or
warranty  of  the  Company  or of the Guarantor  made or deemed made under any
Loan  Document or under any other writing or  certificate  furnished by or
on  behalf  of the  Company  or the  Guarantor  to the  Bank for the  purposes
of or in  connection  with any Loan Document is incorrect in any material
respect;

                                       17
<PAGE>

                  (C) COVENANTS WITHOUT NOTICE. The Company defaults in the due
performance or observance of Section 6.2, 6.7 or 7 (other than Section 7.1); or
the Company defaults in the due performance or observance of any other covenant
or agreement contained herein or in any other Loan Document and such default
shall continue for 10 days after written notice thereof shall have been given to
the Company by the Bank;

                  (D) OTHER OBLIGATIONS. The Company or any Subsidiary defaults
in the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any other indebtedness of the Company or any
Subsidiary having a principal amount, individually or in the aggregate, in
excess of $1,000,000; or a default shall occur in the performance or observance
of any obligation or condition with respect to such other indebtedness if the
effect of such default in performance or observance is to accelerate the
maturity of any such indebtedness or to permit the holder or holders of such
indebtedness, or any trustee or agent for such holders, to cause such
indebtedness to become due and payable prior to its expressed maturity;

               (E) JUDGMENTS UNPAID AND UNSTAYED. Any judgment or order for the
payment of money in excess of $ 1,000,000 shall be rendered against the Company
or any Subsidiary (to the extent such liability is not fully covered by
insurance), shall not be paid or otherwise satisfied, and either

               (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order, or

               (ii) there shall be any period of 10 consecutive days during
which a stay of enforcement of such Judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;

               (F) BANKRUPTCY AND INSOLVENCY. The Company or the Guarantor shall

               (i) become insolvent or generally fail to pay, or admit in
writing its inability or unwillingness to pay, debts as they become due;

               (ii) apply for, consent to or acquiesce in the appointment of a
trustee, receiver, sequestrator or other custodian for the Company or the
Guarantor, as the case may be, or any substantial part of the property thereof,
or make a general assignment for the benefit of creditors;

               (iii) in the absence of such application, consent or
acquiescence, permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Company or the Guarantor, as the case
may be, or for a substantial part of the property thereof, and such trustee,
receiver, sequestrator or other custodian shall not be discharged within 60
days;

               (iv) permit to suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or proceeding under
any bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of the Company or the Guarantor, as the case may be, and,
if any such case or proceeding is not commenced by the

                                       18
<PAGE>

Company or the Guarantor, as the case may be, or any such case or proceeding
shall be consented to or acquiesced in by the Company or the Guarantor, as the
case may be, shall result in the entry of an order for relief or shall remain
for 60 days undismissed; or

               (v) take any action authorizing, or in furtherance of, any of the
foregoing.

                  (G) ERISA. (i) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof or a waiver of such
standard or extension of any amortization period is sought or granted under
Section 412 of the Code, any Plan shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan is, shall have been or is likely to
be terminated or the subject of termination proceedings under ERISA, any Plan
shall have an Unfunded Current Liability, a contribution required to be made to
a Plan or a Foreign Pension Plan has not been timely made or the Company, any
Subsidiary or any ERISA Affiliate has incurred or is likely to incur a liability
to or on account of a Plan under Section 409, 502(i), 502(1), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401 (a)(29), 4971, 4975 or
4980 of the Code (ii) there shall result from any such event or events the
imposition of a lien, the granting of a security interest, or a liability or a
material risk of incurring a liability, and (iii) which lien, security interest
or liability, individually and/or in the aggregate, in the opinion of the Bank,
will have a material adverse effect upon the operations, business, properties or
condition (financial or otherwise) of the Company; or

                  (H) CONTROL OF THE COMPANY.   Any Change in Control shall
occur.

                 (I) IMS LOAN AGREEMENT. The occurrence of any "Event of
Default" under the IMS Loan Agreement which has not been cured within any
applicable grace period or waived by the Bank.

                  (J) GUARANTEE AGREEMENT. Any provision of the Guarantee shall
for any reason cease to be in full force and effect and to be valid and binding
on, or enforceable against, the Guarantor, or the Guarantor shall so state in
writing, or the Guarantor shall seek to terminate the Guarantee.

         8.2      REMEDIES

         Upon the occurrence of an Event of Default under Section 8.l(F), the
commitment of the Bank to make Loans and/or enter into any FX Contracts shall be
terminated and all Loans, all FX Contracts and all other obligations hereunder
shall become immediately due and payable in full; and upon the occurrence of any
other Event of Default, the commitment of the Bank to make Loans may be
terminated by the Bank and the Bank may declare the Note and the principal of
and accrued interest on each Loan, and all other amounts payable hereunder
(including all amounts due under outstanding FX Contracts), to be forthwith due
and payable in full.

9.       IMS HEALTH GUARANTEE

                                       19
<PAGE>

         IMS Health Incorporated shall provide the Guarantee substantially in
the form of EXHIBIT B.

10.      DEFINITIONS

         As used in this Agreement:

         "AFFILIATE" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan), A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power:

         (a) to vote 20% or more of the securities (on a fully diluted basis)
         having ordinary voting power for the election of directors or managing
         general partners; or

         (b) to direct or cause the direction of the management and policies of
         such Person whether by contract or otherwise.

         "AGREEMENT" means, on any date, this Agreement as originally in effect
on the Agreement Date and as thereafter from time to time amended, supplemented,
amended and restated or otherwise modified and in effect an such date.

         "AGREEMENT DATE" means the date that the Company agrees to the terms
and conditions set forth in this Agreement as it appears on the signature page
hereof.

         "AUTHORIZED OFFICER" means each officer or employee of the Company who
is authorized to request Loans and/or FX Contracts on behalf of the Company, to
confirm in writing any such request and to agree to rates of interest or
exchange ratio, as the case may be, as set forth on the schedule of Authorized
Officers for the Company most recently delivered by the Company to the Bank.

         "BANKING DAY" means any day other than Saturday, Sunday or other day on
which the Bank is required or permitted to close in New York and, with respect
to Eurodollar Loans on which dealings in Dollars are carried on in the London
interbank market.

         "BASE RATE" means a floating rate of interest equal to the higher
(redetermined daily) of (i) the per annum rate of interest as publicly announced
by the Bank from time to time as its prime commercial rate for Dollar Loans made
in the United States (it being understood that such rate may not be the Bank's
best or lowest rate) with any change in the Base Rate resulting from a change in
said prime commercial rate to be effective as of the date of change in said
prime commercial rate, or (ii) the Federal Funds Rate plus 0.5%.

         "BASE RATE LOAN" means any Loan which bears interest at the Base Rate.

                                       20
<PAGE>

         "CHANGE IN CONTROL" the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
l3d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 35% or more of the outstanding shares of voting stock of the
Company.

         "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.

         "CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.

         "DISTRIBUTION AGREEMENT" means that certain distribution agreement to
be entered into between the Company and the Guarantor in connection with the
distribution of the Company's common stock to the shareholders of the Guarantor,
as it may thereafter be amended, supplemented or otherwise modified.

         "DOLLARS" means lawful money of the United States of America.

         "EFFECTIVE DATE" means the date that the conditions precedent set forth
in SECTIONS 4.1 and 4.2 have been satisfied or the satisfaction of which has
been waived by the Bank.

         "ENVIRONMENTAL LAWS" means any and all Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements of any Governmental Authority regulating, relating to or
imposing liability or standard of conduct concerning environmental protection
matters, including without limitation, Hazardous Materials, as now or may at any
time hereafter be in effect.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and the regulations promulgated and the rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.

         "ERISA AFFILIATE" shaft mean each person (as defined in Section 3(9) of
ERISA) which together with the Company would be deemed to be a "single employee"
(i) within the meaning of Section 414(b), (c), (m) or (o) of the Code or (ii) as
a result of the Company being or having been a general partner of such person.

         "EURODOLLAR LOAN" means any Loan which bears interest based on LIBOR.

         "EVENT OF DEFAULT" means an event described in Section 8.1.

         "FACILITY" has the meaning set forth in the initial paragraph of this
Agreement.

                                       21
<PAGE>

         "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York.

         "GAAP" means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board which are applicable from time to time.

         "GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

         "GUARANTEE" means the Guarantee Agreement dated August 11, 2000 between
the Guarantor and the Bank, as it may thereafter be amended, extended,
supplemented or otherwise modified.

         "HAZARDOUS MATERIALS" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances, petroleum products
(including crude oil or any faction thereof), defined or regulated as such in or
under any Environmental Law.

         "IMS LOAN AGREEMENT" means the letter agreement dated March 2, 2000
between the Guarantor and the Bank pursuant to which the Bank has established a
$75,000,000 revolving credit facility to the Guarantor, as such Agreement may
hereafter be amended, extended, supplemented or otherwise modified.

         "INDEBTEDNESS" means, as to any Person, at a particular time without
duplication, (a) all indebtedness of such Person for borrowed money or on
account of advances made to such person or for the deferred purchase price of
property (excluding accounts payable to trade creditors for goods and services
which are incurred in the ordinary course of business and on customary trade
terms), in respect of which such Person is liable or evidenced by any bond,
debenture, note or other instrument, (b) indebtedness arising under acceptance
facilities and the face amount of all letters of credit issued for the account
of such person and, without duplication, all drafts drawn thereunder, (c) all
liabilities secured by any lien on any property owned by such Person even though
it has not assumed or otherwise become liable for the payment thereof, (d)
obligations under leases which have been, or under GAAP are required to be,
capitalized (e) all indebtedness of others with respect to which such person has
provided a guarantee or otherwise has agreed to become directly or indirectly
liable, and (f) all obligations under any interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap agreements,
currency future or option contracts, commodity agreements and other similar
agreements or arrangements designed to protect against fluctuations in interest
rates, currency values or commodity values.

                                       22
<PAGE>

         "INTEREST PERIOD" means, for any Eurodollar Loan, a time interval of
seven (7) days, one month or three months, as designated by the Company, in each
case commencing on the date of such Loan. Each Interest Period that would
otherwise end on a day which is not a Banking Day shall end on the next
succeeding Banking Day unless such next Banking Day would be the first Banking
Day in the next calendar month, in which case such Interest Period shall end on
the preceding Banking Day. Any Interest Period for a Eurodollar Loan which
begins on the last Banking Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Banking Day of the calendar month at the
end of such Interest Period. No Interest Period shall extend beyond the
Termination Date.

         "LIBOR" means relative to any Interest Period for a Eurodollar Loan,
the rate of interest equal to the average (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the rate per annum at which Dollar deposits in
immediately available funds are offered in the London interbank market at or
about 11:00 a.m. (London time) two Banking Days prior to the beginning of such
Interest Period, which rate appears in the Dow Jones Market Service at Telerate
Page 3750.

         "LICENSES" has the meaning set forth in Section 5.5.

         "LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financial lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in respect of
any of the foregoing).

         "LOAN" has the meaning set forth in Section 1.

         "LOAN DOCUMENTS" means this Agreement, the Note, all FX Contracts, the
Guarantee, and each other agreement, document or instrument delivered in
connection with this Agreement.

         "NET WORTH" means, as of any date, (i) the total assets of the Borrower
and its Subsidiaries that would be reflected on the Borrower's consolidated
balance sheet as of such date prepared in accordance with GAAP, after
eliminating all amounts properly attributable to minority interests, if any, in
the stock and surplus of Subsidiaries, MINUS the sum of (i) the total
liabilities of the Borrower and its Subsidiaries that would be reflected on the
Borrower's consolidated balance sheet as of such date prepared in accordance
with GAAP, (ii) the amount of any write-up in the book value of any assets
resulting from a revaluation thereof or any write-up in excess of the cost of
such assets acquired reflected on the consolidated balance sheet of the Borrower
as of such date prepared in accordance with GAAP.

         "NOTE" has the meaning set forth in Section 1.5.

                                       23
<PAGE>

         "OBLIGATIONS" means an obligations (monetary or otherwise) of the
Company arising under or in connection with this Agreement, the Note and each of
the other Loan Documents.

         "PERMITTED LIENS" has the meaning set forth in Section 7.1.

         "PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.

         "PLAN" means any multi-employer or single-employer plan as defined in
Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) the Company or a Subsidiary of the
Company or an ERISA Affiliate and each plan for the five-year period immediately
following the latest date, on which the Company or a Subsidiary of the Company
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.

         "PROPERTIES" has the meaning set forth in Section 5.14.

         "REPORTABLE EVENT" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan other than those events as to which the 30-day
notice period is waived under subsection. .13, .14, .16, .18, .19 or .20 of PBGC
Regulation Section 2615.

         "REQUIREMENT OF LAW" means, as to any Person, the Certificate of
Incorporation and Bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

         "SUBSIDIARY" means any corporation or other entity of which the Company
owns, directly or indirectly, such number of outstanding shares or other voting
interests as have more than 50% of the ordinary voting power for the election of
directors.

         "TOTAL FX RISK EXPOSURE" shall mean, with respect to all outstanding FX
Contracts, an amount (calculated on the date that each FX Contract is entered
into) equal to 20% of the notional (or face) amount of such FX Contracts (on a
Dollar equivalent basis for any FX Contract that is denominated in a foreign
currency as determined by the Bank, which determination shall be conclusive
absent manifest error) For purposes of clarification only and subject to the
limitations set forth in Section 1.8, the aggregate notional amount of all FX
Contracts may equal up to $20,000,000 (i.e. $4,000,000 divided by 20%).

         "UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if any,
by which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year exceeds the fair market value
of the assets allocable thereto, each determined in accordance with Statement of
Financial Accounting Standards No. 87, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan.

                                       24
<PAGE>

         "UNMATURED EVENT OF DEFAULT" means an event which with notice, the
lapse of time or both would constitute an Event of Default.

         "WILTON NOTE" means that certain promissory note dated June 17, 1997 in
the original principal amount of $3,000,000 from DIV Wildev, LLC to Cognizant
Corporation assigned by allonge dated June 30, 1998 to the Guarantor and further
assigned by allonge dated not later than the Effective Date to the Borrower.

11.      GENERAL

         11.1     INSTRUCTIONS

         The Company hereby authorizes the Bank to rely upon telephonic, written
or facsimile instructions of any person identifying himself or herself as an
Authorized Officer and upon any signature which the Bank believes to be genuine,
and the Company shall be bound thereby in the same manner as if such person were
authorized or such signature were genuine. The Company agrees to indemnify the
Bank from and against all losses and expenses arising out of the Bank's reliance
on said instructions or signatures.

         11.2     PAYMENTS

         Payments hereunder and under any other Loan Document shall be made in
immediately available funds in Dollars.

         11.3     COSTS

         The Company shall pay all reasonable, actual, out-of-pocket costs
(including all reasonable attorneys' fees) of the Bank with respect to the
negotiation, preparation, execution and delivery of this Agreement and the other
Loan Documents, any amendments, waivers, consents or modifications with respect
thereto and of enforcement or collection of every kind, including but not
limited to all reasonable attorneys' fees, court costs and expenses incurred by
the Bank in connection with collection or protection or enforcement of any
rights hereunder whether or not any lawsuit is ever filed.

         11.4     INDEMNIFICATION

         In consideration of the execution and delivery of this Agreement by the
Bank and the extension of credit hereunder, the Company hereby indemnifies,
exonerates and holds the Bank and each of its officers, directors, employees and
agents (collectively, the "INDEMNIFIED PARTIES") free and harmless from and
against any and all actions, causes of action, suits, losses, costs, liabilities
and damages, and expenses incurred in connection therewith (irrespective of
whether such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable attorneys' fees and
disbursements (collectively, the "INDEMNIFIED LIABILITIES"), incurred by the
Indemnified Parties or any of them as a result of, or arising out of,

                                       25
<PAGE>

or relating to this Agreement or any other Loan Document or any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of any Loan or any investigation, litigation or proceeding related to
any environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the release by the Company of any Hazardous
Material, except for any such Indemnified Liabilities arising from the account
of a particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or willful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Company hereby agrees to
make the maximum contribution to the payment in satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.

         11.5     NOTICES

         All notices and other communications provided to any party hereto under
this Agreement or any other Loan Document shall be in writing or by facsimile
and addressed, delivered or transmitted to such party at its address or
facsimile number set forth below its signature hereto or at such other address
or facsimile number as may be designated by such party in a notice to the other
parties, Any notice, if mailed and properly addressed with postage prepaid shall
be deemed given five days after mailed. Any notice sent by courier service shall
be deemed given when received. Any notice, if transmitted by facsimile, shall be
deemed given when transmitted.

         11.6     SURVIVAL

         The obligations of the Company under Sections 2, 3.1, 3.6, 3.7, 11.3
and 11.4 shall survive any payment of the principal of and interest on the Loans
and the termination of this Agreement.

         11.7     EXECUTION IN COUNTERPARTS

         This Agreement may be executed in any number of separate counterparts,
each of which when so executed and delivered shall be an original, and all such
counterparts shall together constitute one and the same instrument.

         11.8     WAIVER

         No modification or waiver with respect to this Agreement or any other
Loan Document shall be effective unless in writing, and any waiver by the Bank
of any rights hereunder or under any other Loan Document shall not constitute a
waiver of any other rights of the Bank from time to time.

         11.9     JURISDICTION

         ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION
WITH, THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE BANK OR THE COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF GEORGIA OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT

                                       26
<PAGE>

OF GEORGIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE BANK'S OPTION, IN THE COURTS
OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF GEORGIAAND OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF GEORGIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH
ABOVE AND IRREVOCABLY CONSENTS TO PERSONAL SERVICE WITHIN OR WITHOUT THE STATE
OF GEORGIA. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE
TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED
TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID Of
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT, THE NOTE AND EACH OTHER LOAN DOCUMENT.

         11.10    WAIVER OF JURY TRIAL

         THE COMPANY AND THE BANK WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE
NOTE OR ANY OTHER LOAN DOCUMENT, AND THE COMPANY AND THE BANK AGREE THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY.

         11.11    APPLICABLE LAW

         This Agreement, the Note and each other Loan Document shall be governed
by the internal laws of the State of Georgia applicable to contracts made and to
be performed entirely within such State.

                                       27
<PAGE>

         Please acknowledge your agreement to the foregoing by signing and
returning a copy of this letter.

                                Very truly yours

                                SUNTRUST BANK

                                By:
                                   ------------------------------------
                                   Title:
                                   ADDRESS:  717 FIFTH AVENUE, 16TH FLOOR

                                        New York, New York 10022
                                        Attn: Ms. Allison Vella
                                        Telecopier Number: (212) 371-9386
                                        Telephone Number: (212) 583-2606

Agreed to this     day of
               ---
August, 2000

SYNAVANT INC.

By:
   ----------------------------------
Title:

By:                                                 [CORPORATE SEAL]
   ----------------------------------
Title:

Address: 3445 Peachtree Road, NE
         Suite 1400
         Atlanta, Georgia 30326
         Attn: Craig Kussman
               Chief Financial Officer
         Telecopier Number: (404) 846-3950
         Telephone Number: (404) 846-3680

                                       28
<PAGE>

                                                                    EXHIBIT "A"
                                      NOTE

$20,000,000                                    [TO BE DATED THE EFFECTIVE DATE]

         FOR VALUE RECEIVED, Synavant Inc., a Delaware corporation (the
"Borrower"), promises to pay to the order of SunTrust Bank (the "Bank") the
principal sum of Twenty Million Dollars ($20,000,000) or, if less, the aggregate
unpaid principal amount of all Loans made by the Bank pursuant to that certain
letter agreement, dated as August 11, 2000 (together with all amendments and
other modifications, if any, from time to time thereafter made thereto, the
"Credit Agreement"), between the Borrower and the Bank payable on the dates
specified in the Credit Agreement.

         The Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.

         Payments of both principal and interest are to be made in lawful money
of the United States of America in same day or immediately available funds.

         This Note is the Note referred to in, and evidences indebtedness
incurred under, the Credit Agreement, to which reference is made for a statement
of the terms and conditions on which the Borrower is permitted and required to
make prepayments and repayments of principal of the indebtedness evidenced by
this Note and on which such indebtedness may be declared to be immediately due
and payable. Unless otherwise defined, terms used herein have the meanings
provided in the Credit Agreement.

         The amount, the rate of interest and the Interest Period, if
applicable, shall be endorsed by the Bank an the schedule attached to this Note,
or at the Bank's option, in the records of the Bank which schedule or records
shall be conclusive, absent manifest error.

         All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of dishonor.
In addition, should legal action or an attorney-at-law be utilized to collect
any amount due hereunder, the Borrower further promises to pay all costs of
collection, including the reasonable attorneys' fees of the Lender.

                                SYNAVANT INC.

                                By:
                                   ----------------------------------------
                                Title:

                                By:
                                   ----------------------------------------
                                Title:

                                      A-1

<PAGE>
<TABLE>
<CAPTION>

                                           LOANS AND PRINCIPAL PAYMENTS

------------------ ----------------- -------------- ------------- ------------------------ ------------------- --------------
Date of Loan or    Amount of         Applicable     Maturity      Amount of Principal      Unpaid Principal    Initials of
Payment            Loan              Interest Rate  Date          Payment                  Balance             Person
                                                                                                               Making
                                                                                                               Notation
<S>                <C>               <C>            <C>           <C>                      <C>                 <C>
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</TABLE>

                                      A-2
<PAGE>

                                       A-3
<PAGE>

                                                                    EXHIBIT "B"

         GUARANTEE AGREEMENT dated as of August 11, 2000 between IMS HEALTH
INCORPORATED, a Delaware corporation (the "GUARANTOR"), and SUNTRUST BANK, a
Georgia banking corporation (the "LENDER").

         Reference is made to that certain letter agreement dated as of August
11, 2000 (as hereafter amended, extended, supplemented or otherwise modified,
the "LOAN AGREEMENT"; all defined terms used herein not otherwise defined herein
shall have the meanings ascribed to them therein) between the Bank and Synavant,
Inc., a Delaware corporation (the "BORROWER") and the Note to be dated as of the
Effective Date attached thereto (as amended, extended, supplemented or otherwise
modified from time to time, the "NOTE"), pursuant to which the Lender has
established a $20,000,000 revolving credit facility (the "FACILITY") to the
Borrower. The Borrower is a former subsidiary of the Guarantor and, as part of
the transactions contemplated under the Distribution Agreement, the Guarantor
has agreed to provide certain credit support to the Borrower in order to effect
the Distribution (as defined in the Distribution Agreement). The obligation of
the Lender to establish the Facility and to make any Loans and/or to enter into
any FX Contracts under the Facility is conditioned on, among other things, the
execution and delivery by the Guarantor of this Guarantee Agreement (as it may
hereafter be amended, extended, supplemented or otherwise modified, the
"GUARANTEE"). As consideration therefor and in order to induce the Lender to
establish the Facility and to make Loans and to enter into FX Contracts
thereunder, the Guarantor is willing to execute this Guarantee.

         Accordingly, the parties hereto agree as follows:

         SECTION 1. GUARANTEE. The Guarantor unconditionally guarantees, as a
primary obligor and not merely as a surety, (a) the due and punctual payment of
(i) the principal of and premium, if any, and interest (including interest
accruing during the pendency of any bankruptcy, insolvency, receivership or
other similar proceeding, regardless of whether allowed or allowable in such
proceeding) on all Loans made pursuant to the Loan Agreement, when and as due,
whether at maturity, by acceleration, upon one or more dates set for prepayment
or otherwise, and (ii) all other monetary obligations, including all amounts due
under any FX Contract and all fees, costs, expenses and indemnities, whether
primary, secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred pursuant to Section 6(b) hereof and/or during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding), of the Borrower
to the Lender under the Loan Agreement and/or any of the other Loan Documents to
which it is a party, and (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrower under or pursuant to
Loan Agreement and/or any of the other Loan Documents to

                                       B-1
<PAGE>

which it is a party (all the monetary and other obligations referred to in the
preceding clauses (a) and (b) being collectively called the "GUARANTEED
OBLIGATIONS").

         SECTION 2. OBLIGATIONS NOT WAIVED. The Guarantor waives presentment to,
demand of payment from and protest to the Borrower of any of the Guaranteed
Obligations, and also waives notice of acceptance of its guarantee and notice of
protest for nonpayment. The obligations of the Guarantor hereunder shall not be
affected by (a) the failure of the Lender to assert any claim or demand or to
enforce or exercise any right or remedy against the Borrower or any other
guarantor under the provisions of the Loan Agreement or the Note or otherwise,
(b) any rescission, waiver, amendment or modification of, or any release from
any of the terms or provisions of, this Guarantee, the Loan Agreement or the
Note, or (c) the failure to perfect any security interest in, or the release of,
any of the security held by or on behalf of the Lender pursuant to the Loan
Agreement or the Note.

         SECTION 3. GUARANTEE OF PAYMENT. Subject to Section 7(b) hereof, the
Guarantor agrees that its guarantee constitutes a guarantee of payment when due
and not of collection, and waives any right to require that any resort be had by
the Lender to any security held for payment of the Guaranteed Obligations or to
any balance of any deposit account or credit on the books of the Lender in favor
of the Borrower or any other person.

         SECTION 4. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE. The obligations
of the Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Guaranteed Obligations), including any claim of waiver,
release, surrender, alteration or compromise of any of the Guaranteed
Obligations, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Guaranteed Obligations or otherwise or the failure to
give any notice to the Guarantor as provided for in Sections 1 and 2 hereof.
Without limiting the generality of the foregoing, the obligations of the
Guarantor hereunder shall not be discharged or impaired or otherwise affected by
the failure of the Lender to assert any claim or demand or to enforce any remedy
under the Loan Agreement or the Note, by any waiver or modification of any
provision of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Guaranteed Obligations, or by any other act
or omission that may or might in any manner or to the extent vary the risk of
the Guarantor or that would otherwise operate as a discharge of the Guarantor as
a matter of law or equity (other than the indefeasible payment in full in cash
of all the Guaranteed Obligations).

                                       B-2
<PAGE>

         SECTION 5. DEFENSES OF BORROWER WAIVED. The Guarantor waives any
defense based on or arising out of any defense of the Borrower or the
unenforceability of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Borrower, other
than the final and indefeasible payment in full in cash of the Guaranteed
Obligations. The Lender may, at its election, foreclose on any security held by
it by one or more judicial or nonjudicial sales, accept an assignment of any
such security in lieu of foreclosure, compromise or adjust any part of the
Guaranteed Obligations, make any other accommodation with the Borrower or any
other guarantor, without affecting or impairing in any way the liability of the
Guarantor hereunder, except to the extent the Guaranteed Obligations have been
fully, finally and indefeasibly paid in cash. The Guarantor waives any defense
arising out of any such election even though such election operates, pursuant to
applicable law, to impair or to extinguish any right of reimbursement or
subrogation or other right or remedy of the Guarantor against the Borrower or
any other guarantor, as the case may be, or any security.

         SECTION 6. AGREEMENT TO PAY; SUBORDINATION. (a) In furtherance of the
foregoing and not in limitation of any other right that the Lender has at law or
in equity against the Guarantor by virtue hereof, upon the failure of the
Borrower to pay any Guaranteed Obligation when and as the same shall become due,
whether at maturity, by acceleration, after notice of prepayment or otherwise,
the Guarantor hereby promises to and will forthwith pay, or cause to be paid, to
the Lender in cash the amount of such unpaid Guaranteed Obligation. Upon payment
by the Guarantor of any sums to the Lender, all rights of the Guarantor against
the Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full in cash of all the Guaranteed Obligations. In addition, any indebtedness of
the Borrower now or hereafter held by the Guarantor is hereby subordinated in
right of payment to the prior indefeasible payment in full in cash of the
Guaranteed Obligations. If any amount shall erroneously be paid to the Guarantor
on account of (i) such subrogation, contribution, reimbursement, indemnity or
similar right or (ii) any such indebtedness of the Borrower, such amount shall
be held in trust for the benefit of the Lender and shall forthwith be paid to
the Lender to be credited against the payment of the Guaranteed Obligations,
whether matured or unmatured, in accordance with the terms of the Loan
Agreement.

                  (b) Notwithstanding the foregoing, if the Borrower shall fail
to pay any Guaranteed Obligation when due and payable, the Lender agrees that,
in lieu of the immediate payment by the Guarantor as contemplated in Section
6(a), the Guarantor shall pay to the Lender an amount equal to such unpaid
Guaranteed Obligations (including without limitation any estimated costs and
expenses (including estimated attorneys' fees) that the Lender may incur in the
enforcement of its rights and remedies under the Loan Agreement and/or any other
Loan Document, which the Guarantor agrees constitute for all purposes hereunder
"Guaranteed Obligations") . All amounts so received by the Lender (and all
investments of such amounts and earnings and proceeds of such investments) shall
be held by the Lender in a cash collateral account in the name of the Lender
entitled "IMS Health/Synavant Cash Collateral Account" (the

                                       B-3
<PAGE>

"CASH COLLATERAL ACCOUNT") as collateral for the prompt payment of such
Guaranteed Obligations. At the Lender's request, the Guarantor hereby agrees to
enter into such agreement or agreements in connection with the establishment of
the Cash Collateral Account and the perfection of the Lender's security interest
therein. The Lender may, but shall be under no obligation to, pursue any rights
and remedies available to the Lender under the Loan Agreement and at law or in
equity against the Borrower as it deems necessary or desirable and only for such
period of time as it shall decide in its sole discretion. If the Borrower has
not paid the full amount of the Guaranteed Obligations to the Lender in cash
within a period of time deemed reasonable by the Lender after demand by the
Lender, the Guarantor hereby authorizes the Lender to apply the proceeds in the
Cash Collateral Account to the repayment of all Guaranteed Obligations. If the
proceeds in the Cash Collateral Account shall be insufficient to repay the
amount of the Guaranteed Obligations in full in cash, the Guarantor hereby
agrees to pay an amount equal to such shortfall to the Lender immediately upon
demand. The Guarantor waives any right or defense to this Guarantee that it may
have as a result of the type of action, if any, that the Lender takes to collect
the Guaranteed Obligations from the Borrower and the determination by the Lender
of how long to proceed against the Borrower before using the proceeds in the
Cash Collateral Account to repay the Guaranteed Obligations, and acknowledges
and agrees that it is estopped from objecting to any such action (or inaction,
as the case may be) on any grounds. The Guarantor further agrees that,
notwithstanding this Section 6(b), this Guarantee remains a guaranty of payment
and not of collection.

         SECTION 7. INFORMATION. The Guarantor assumes all responsibility for
being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Guaranteed Obligations and the nature, scope and extent of the risks that
the Guarantor assumes and incurs hereunder, and agrees that the Lender will not
have any duty to advise it of information known to it regarding such
circumstances or risks.

         SECTION 8.  REPRESENTATIONS  AND WARRANTIES.  The Guarantor  hereby
represents and warrants to the Lender that:

                  (a) The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all requisite power and authority, and the legal right, to
own, operate and lease its properties and to carry on the business in which it
is engaged or presently proposes to engage, and is duly qualified where it is
required to be so qualified or licensed except where a failure to be so
qualified would not cause a material adverse change in financial condition,
operations, assets, business, properties or prospects of the Guarantor, and in
compliance with all Requirements of Law except to the extent that failure to
comply therewith could not, in the aggregate, cause a material adverse change in
the financial condition, operations, assets, business, properties or prospects
of the Guarantor.

                                       B-4
<PAGE>

                  (b) The Guarantor has all requisite power and authority to
execute, deliver and perform this Guarantee. The Guarantor has taken all
necessary corporate and legal action to authorize the execution and delivery and
performance of this Guarantee. This Guarantee has been executed and delivered by
a duly authorized representative of the Guarantor, and this Guarantee
constitutes the legal, valid and binding obligation of the Guarantor,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally and except as enforceability
may be limited by general principles of equity and an implied covenant of good
faith.

                  (c) The execution, delivery and performance of this Guarantee
by the Guarantor (i) do not require any consent or approval of, registration or
filing with, or any action by, any governmental authority, except those as have
been obtained or made and are in full force and effect or where the failure to
do so, individually or in the aggregate, could not reasonably be expected to
have a material adverse effect upon its financial condition, business,
properties or prospects, (ii) will not violate any provision of any existing
law, treaty or regulation or of any order, judgment, award or decree of any
court, arbitrator, Governmental Authority or any Requirement of Law or
Contractual Obligation applicable to the Guarantor and will not result in the
creation or imposition of any Lien on any of the material properties or assets
of the Guarantor pursuant to the provisions of any such Requirement of Law or
Contractual Obligation.

                  (d) On and as of the Effective Date, both before and after
giving effect to the transactions contemplated by the Distribution Agreement and
this Guarantee, the Guarantor (i) is and will be Solvent (as defined in the
following sentence), (ii) is and will continue to be able to pay its debts as
they mature, and (iii) has and will continue to have capital sufficient (and
will not be left with unreasonably small capital) to conduct its business and
all businesses in which it is engaged. "SOLVENT" means that (x) the Guarantor
will have assets with a present fair saleable valuegreater than the amount of
its total liabilities (including contingent liabilities), (y) the sum of the
Guarantor's assets at book value exceeds the sum of its debts, and (z) on the
Guarantor's most recent balance sheet, the sum of its assets exceeds the sum of
its liabilities.

         (e) ALL REPRESENTATIONS AND WARRANTIES IN THE CURRENT LETTER AGREEMENT
DATED MARCH 2, 2000 BETWEEN THE GUARANTOR AND THE LENDER IN CONNECTION WITH THE
$75,000,000 REVOLVING CREDIT FACILITY (THE "EXISTING LOAN AGREEMENT") ARE TRUE
AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE HEREOF (EXCEPT TO THE EXTENT
ANY SUCH REPRESENTATION OR WARRANTY IS EXPRESSLY MADE AS OF A PRIOR DATE).

         (f) NO "EVENT OF DEFAULT" OR "UNMATURED EVENT OF DEFAULT" (EACH AS
DEFINED IN THE EXISTING LOAN AGREEMENT) EXISTS UNDER THE EXISTING LOAN
AGREEMENT.

         SECTION 9. TERMINATION. The guarantees made hereunder (a) shall
terminate when all the Guaranteed Obligations have been paid in full in cash,
and the Lender has no further commitment to lend under the Loan Agreement and
(b) shall continue to be effective or be reinstated, as the case may be, if at
any time payment, or any part thereof, of any Guaranteed

                                       B-5
<PAGE>

Obligation is rescinded or must otherwise be restored by the Lender or the
Guarantor upon the bankruptcy or reorganization of the Borrower, the Guarantor
or otherwise. In connection with the foregoing, the Lender shall execute and
deliver to the Guarantor or the Guarantor's designee, at the Guarantor's
expense, any documents or instruments which the Guarantor shall reasonably
request from time to time to evidence such termination and release.

         SECTION 10. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS. Whenever in
this Guarantee any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Guarantor that are contained in
this Guarantee shall bind and inure to the benefit of each party hereto and
their respective successors and assigns. This Guarantee shall become effective
as to the Guarantor when a counterpart hereof executed on behalf of the
Guarantor shall have been delivered to the Lender, and a counterpart hereof
shall have been executed on behalf of the Lender, and thereafter shall be
binding upon the Guarantor and the Lender and their respective successors and
assigns, and shall inure to the benefit of the Guarantor, the Lender, and their
respective successors and assigns, except that the Guarantor shall not have the
right to assign its rights or obligations hereunder or any interest herein (and
any such attempted assignment shall be void).

         SECTION 11.  WAIVERS; AMENDMENT.

         (a) No failure or delay of the Lender of any in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Lender hereunder are cumulative and are not exclusive of any
rights or remedies that it would otherwise have. No waiver of any provision of
this Guarantee or consent to any departure by the Guarantor therefrom shall in
any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver and consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on the
Guarantor in any case shall entitle the Guarantor to any other or further notice
in similar or other circumstances.

         (b) Neither this Guarantee nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Guarantor and the Lender.

                                       B-6
<PAGE>

         SECTION 12.  GOVERNING  LAW. THIS  GUARANTEE  SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE  WITH, THE OF THE STATE OF GEORGIA (WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW).

         SECTION 13. NOTICES. All communications and notices hereunder shall be
in writing (including telecopier or similar writing, but not e-mail) and shall
be given to such party at its address or telecopier number set forth on the
signature pages hereof or such other address or telecopier number as such party
may hereafter specify for the purpose of notice to such other party. Each such
notice, request or other communication shall be effective (i) if given by
telecopier, when such telecopy is transmitted to the telecopier number specified
in this Section and the information is received, (ii) if given by mail, 3
Domestic Business Days after such communication is deposited in the mail with
first class postage prepaid, addressed as aforesaid or (iii) if given by any
other means, when delivered at the address specified in this Section.

         SECTION 14.  SURVIVAL OF GUARANTEE; SEVERABILITY.

         (a) All covenants, agreements, representations and warranties made by
the Guarantor herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Guarantee shall be considered
to have been relied upon by the Lender and shall survive the making by the
Lender of any Loans or FX Contracts pursuant to the Loan Agreement regardless of
any investigation made by the Lender or on its behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan, any amount due under any FX Contract or any other fee or amount payable
under this Guarantee is outstanding and unpaid and as long as the Facility has
not been terminated.

         (b) In the event one or more of the provisions contained in this
Guarantee, in the Loan Agreement or in any other document related thereto should
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby (it being understood that
the invalidity of a particular provision in a particular jurisdiction shall not
in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.

                                       B-7
<PAGE>

         SECTION 15. COUNTERPARTS. This Guarantee may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. Delivery of an executed
signature page to this Guarantee by facsimile transmission shall be as effective
as delivery of a manually executed counterpart of this Guarantee.

         SECTION 16.  JURISDICTION; CONSENT TO SERVICE OF PROCESS.

         (a) The Guarantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any Georgia state
court or Federal court of the United States of America sitting in Atlanta,
Georgia, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Guarantee or any other documents in
connection therewith, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such Georgia state court or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Guarantee shall affect any right that the Lender may otherwise
have to bring any action or proceeding relating to this Guarantee or the other
documents executed and delivered in connection therewith against the Guarantor
or its properties in the courts of any jurisdiction.

         (b) The Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Guarantee in any Georgia state or Federal
court. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.

         (c) Each party to this Guarantee irrevocably consents to service of
process in the manner provided for notices in Section 13. Nothing in this
Guarantee will affect the right of any party to this Guarantee to serve process
in any other manner permitted by law.

         SECTION 17. WAIVER OF JURY TRIAL. THE GUARANTOR HERBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS GUARANTEE.

                                       B-8
<PAGE>

         SECTION 18. RIGHT OF SETOFF. If an Event of Default shall have occurred
and be continuing, the Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other Indebtedness at any time owing by the Lender to or for the credit
or the account of the Guarantor against any or all the obligations of the
Guarantor now or hereafter existing under this Guarantee held by the Lender,
irrespective of whether or not the Lender shall have made any demand under this
Guarantee or any other Loan Document and although such obligations may be
unmatured. The rights of the Lender under this Section 18 are in addition to
other rights and remedies (including other rights of setoff) which the Lender
may have.

         [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.

                    SIGNATURES APPEAR ON THE FOLLOWING PAGE].

                                       B-9
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Guarantee as of the day and year first above written.

                                        IMS HEALTH INCORPORATED

                                        By:
                                           -----------------------------------

                                           Name:

                                           Title:

                                        200 Nyala Farms

                                        Westport, Connecticut 06880

                                        Attn: Mr. Matthew Friedman

                                        Telecopier Number: (203) 222-4552

                                        Telephone Number: (203) 222-4435

                                        SUNTRUST BANK

                                        By:
                                          ------------------------------------

                                           Name:

                                           Title:

                                        717 Fifth Avenue, 16th Floor

                                        New York, New York 10022

                                        Attn: Ms. Allison Vella

                                        Telecopier Number: (212) 371-9386

                                        Telephone Number: (212) 583-2606

                                       B-10
<PAGE>

                                      B-11<PAGE>
                                                                   EXHIBIT 10.16

                        UPGRADE INTERNATIONAL CORPORATION

                            UPGRADE ACQUISITION INC.

                            THE PATHWAYS GROUP, INC.

                      AGREEMENT AND PLAN OF REORGANIZATION

                          Dated as of September 8, 2000

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      PAGE
<S>                                                                                    <C>
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.......................4
                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
<PAGE>

                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..........................................11
                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............................................13
                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..............................................19
                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.............................................21
                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............................24
                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..............................................25
                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
<PAGE>

                4.1.2    Dividends: Changes in Stock...................................27
                4.1.3    Issuance of Securities........................................27
                4.1.4    Governing Documents...........................................28
                4.1.5    Exclusivity; Acquisition Proposals............................28
                4.1.6    No Acquisitions...............................................29
                4.1.7    No Dispositions...............................................29
                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...............................................................30
         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............................................................31
         4.9    Representations of Stockholders........................................32
         4.10   Employee Benefits Matters..............................................32
                4.10.1   Benefit Plans.................................................32
                4.10.2   Section 16 Approval...........................................32
         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......................33
         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.....................................................35
         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........................................................37
                6.5.1    Filings and Cooperation.......................................37
                6.5.2    Objections....................................................38

                                      iii
<PAGE>

         6.6    Expenses...............................................................38
         6.7    Interim Financing......................................................39
         6.8    Additional Agreements..................................................39
         6.9    Public Announcements...................................................39
         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...........................................................40
                7.1.4    No Restraints.................................................40
                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.....................41
                7.2.2    Performance of Obligations of Company.........................41
                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....................................42
                7.3.1    Representations and Warranties of Upgrade and Sub.............42
                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...........................................................44
         8.4    Amendment..............................................................45
         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...........................................................47
         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...............................................................48
         9.11   Succession and Assignment..............................................49
</TABLE>

                                       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 ("Agreement"), dated as of
September 8, 2000 ("Signing Date"), among Upgrade International Corporation, a
Florida corporation, to be reincorporated as a Washington corporation prior to
the Effective Time ("Upgrade"), Upgrade Acquisition Inc., a Delaware corporation
and a wholly-owned subsidiary of Upgrade ("Sub"), and The Pathways Group, Inc.,
a Delaware corporation ("Company").

                                    RECITALS

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

         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 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 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 "Closing") will take place at the offices
of Ogden Murphy Wallace, PLLC, Seattle, Washington, on a date (the "Closing
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 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 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 "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. 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
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 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 Ratio") of common stock, par value $0.001 per share, of
Upgrade (the "Upgrade Common Stock") (the "Merger 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 "Certificate")
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

                                       3
<PAGE>

reclassification, recapitalization, split-up, stock dividend, stock combination,
exchange of shares or readjustment or similar transaction, the Exchange Ratio
shall be correspondingly adjusted.

                  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 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 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

                                       4
<PAGE>

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.

                  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
any other term of such Company Warrant. Notwithstanding anything in

                                       7
<PAGE>

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 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)
on the Business Condition (as hereinafter defined) of Company. As used in this
Agreement,

                                       8
<PAGE>

"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
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 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
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
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
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

                                       9
<PAGE>

which have the right to vote (or convertible or exercisable into securities
having the right to vote) with holders of Company Common Stock on any matter
("Voting 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 "Violation") 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
"Consents"), any court, administrative agency or commission or other
governmental authority or instrumentality, whether domestic or foreign (each a
"Governmental 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 Act"), (ii) any filings with the Securities and Exchange
Commission (the "SEC") including such reports and information as may be required
under the Securities Exchange Act of 1934, as amended (the "Exchange 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,

                                       10
<PAGE>

(iii) such filings, authorizations, orders and approvals as may be required
under foreign laws, state securities laws and the NASD Bylaws or "blue 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 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 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 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 ("GAAP")
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 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-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 Statement" and, together with the prospectus
included in the S-4, the "Proxy Statement/Prospectus") will, in the case of the
Proxy Statement and any amendment or

                                       11
<PAGE>

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") 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

                                       13
<PAGE>

to any director, employee or 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 ("Plan") covering active, former or
retired employees of Company and any of the Company Subsidiaries that is subject
to U.S. law ("U.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.
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 ("ERISA"), 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 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 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 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

                                       14
<PAGE>

amendments to, written interpretation of, or announcement (whether or not
written) by Company relating to, or change in employee participation or 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 "tax" and "taxes" 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 ("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. 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

                                       15
<PAGE>

threatened. Company and the Company Subsidiaries are not subject to any ongoing
tax audit or examination nor, to the 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 Property" and Company
         Intellectual Property described in clause (ii) above is referred to
         herein as "Company 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

                                       17
<PAGE>

carry out Company's 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

                                       19
<PAGE>

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 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

                                       21
<PAGE>

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 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
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

                                       22
<PAGE>

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

                                       24
<PAGE>

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.

                  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

         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.

                                       25
<PAGE>

                  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

                                       27
<PAGE>

in 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 agreement with
confidentiality

                                       28
<PAGE>

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

                                       30
<PAGE>

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.

         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

                                       31
<PAGE>

faith. All such Returns shall be 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

                                       32
<PAGE>

profit liability rules of Section 16(b) of the Exchange Act pursuant to Rule
16b-3 promulgated thereunder.

         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.

                                       33
<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

                                       35
<PAGE>

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 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
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,

                                       36
<PAGE>

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

                                       37
<PAGE>

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 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

                                       38
<PAGE>

incurring such expense, except that if the Merger is not 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

                                       39
<PAGE>

herein shall prevent either 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

                                       40
<PAGE>

competent jurisdiction which enjoins or prohibits the consummation of the Merger
and shall be in effect.

                  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

                                       41
<PAGE>

Liabilities, current liabilities and current assets, as of the Closing Date and
certifying compliance with the financial condition covenant in Section 4.11.

                  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
Dollars ($638,000) in immediately available funds or (y) by the issuance by
Company of

                                       44
<PAGE>

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

                                       45
<PAGE>

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.

         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

                                 /s/ Daniel Bland
                                 -----------------------------------------
                                 By:  Daniel Bland
                                 Its:  President

                                UPGRADE ACQUISITION INC.

                                 /s/ Daniel Bland
                                 -----------------------------------------
                                 By:  Daniel Bland
                                 Its:  President

                                 THE PATHWAYS GROUP, INC.

                                 /s/ Carey F. Daly, II
                                 -----------------------------------------
                                 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

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