Check this online documentation, how to work with application files: http://terminals.codeplex.com/wikipage?title=Backup%20and%20restore%20settings%20files&referringTitle=User%20documentation.
Or try this:
1. back up application files in version 2 directory
2. copy data files from older version into the version 2 directory
3. start the application. During startup the files have to be updated
If it doesn't work:
1. Restore from backup ;-)
2. Start older version and export favorites into an xml file
3. Start latest version and from files menu select import to import from file created in step 2.