Document:

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                                                                     EXHIBIT 4.1

                              eLoyalty Corporation

                                       and

                    ChaseMellon Shareholder Services, L.L.C.

                                  Rights Agent

                                Rights Agreement

                           Dated as of March 17, 2000

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                                Table of Contents

Section                                                                     Page

     Section 1.   Certain Definitions.........................................1
     Section 2.   Appointment of Rights Agent.................................4
     Section 3.   Issue of Rights Certificates................................5
     Section 4.   Form of Rights Certificates.................................6
     Section 5.   Countersignature and Registration...........................7
     Section 6.   Transfer, Split Up, Combination and Exchange of
                  Rights Certificates; Mutilated, Destroyed,
                  Lost or Stolen Rights Certificates..........................8
     Section 7.   Exercise of Rights; Purchase Price; Expiration
                  Date of Rights..............................................9
     Section 8.   Cancellation and Destruction of Rights Certificates........10
     Section 9.   Reservation and Availability of Capital Stock..............11
     Section 10.  Preferred Stock Record Date................................12
     Section 11.  Adjustment of Purchase Price, Number and Kind of
                  Shares or Number of Rights.................................13
     Section 12.  Certificate of Adjusted Purchase Price or Number
                  of Shares..................................................20
     Section 13.  Consolidation, Merger or Sale or Transfer of Assets
                  or Earning Power...........................................20
     Section 14.  Fractional Rights and Fractional Shares....................22
     Section 15.  Rights of Action...........................................24
     Section 16.  Agreement of Rights Holders................................24
     Section 17.  Rights Certificate Holder Not Deemed a Stockholder.........25
     Section 18.  Concerning the Rights Agent................................25
     Section 19.  Merger or Consolidation or Change of Name of
                  Rights Agent...............................................26
     Section 20.  Duties of Rights Agent.....................................26
     Section 21.  Change of Rights Agent.....................................29
     Section 22.  Issuance of New Rights Certificates........................29
     Section 23.  Redemption and Termination.................................30
     Section 24.  Exchange...................................................30
     Section 25.  Notice of Certain Events...................................32
     Section 26.  Notices....................................................32
     Section 27.  Supplements and Amendments.................................33
     Section 28.  Successors.................................................34
     Section 29.  Determination and Actions by the Board of
                  Directors, etc.............................................34
     Section 30.  Benefits of this Agreement.................................34
     Section 31.  Severability...............................................34
     Section 32.  Governing Law..............................................35
     Section 33.  Counterparts...............................................35
     Section 34.  Descriptive Headings.......................................35

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                                RIGHTS AGREEMENT

          RIGHTS AGREEMENT, dated as of March 17, 2000 (the "Agreement"),
between eLoyalty Corporation, a Delaware corporation (the "Company"), and
ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company
(the "Rights Agent").

                              W I T N E S S E T H:

          WHEREAS, on March 17, 2000 (the "Rights Dividend Declaration Date"), a
duly authorized committee of the Board of Directors of the Company authorized
and declared a dividend distribution of one Right (as hereinafter defined) for
each share of Common Stock (as hereinafter defined) of the Company outstanding
at the Close of Business on March 31, 2000 (the "Record Date"), each Right
initially representing the right to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock of the Company having the rights,
powers and preferences set forth in the form of Certificate of Designations
attached hereto as Exhibit A, upon the terms and subject to the conditions
hereinafter set forth (the "Rights"), and has further authorized the issuance of
one Right (as such number may hereinafter be adjusted pursuant to the provisions
of Section 11(p) hereof) for each share of Common Stock of the Company issued
between the Record Date and the earlier of the Distribution Date and the
Expiration Date (as such terms are hereinafter defined) or, in certain
circumstances provided in Section 22 hereof, after the Distribution Date;

          NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:

Certain Definitions.

          For purposes of this Agreement, the following terms have the meanings
indicated:

          (a) "Acquiring Person" shall mean any Person who or which, together
     with all Affiliates and Associates of such Person, shall be the Beneficial
     Owner of 15% or more of the shares of Common Stock then outstanding, but
     shall not include the Company, any Subsidiary of the Company, any employee
     benefit plan of the Company or of any Subsidiary of the Company, or any
     Person organized, appointed or established by the Company for or pursuant
     to the terms of any such plan. Notwithstanding the foregoing, no Person
     shall become an "Acquiring Person" as the result of an acquisition of
     shares of Common Stock by the Company which, by reducing the number of
     shares outstanding, increases the proportionate number of shares
     beneficially owned by such Person to 15% or more of the shares of Common
     Stock then outstanding; provided, however, that if a Person shall become
     the Beneficial Owner of 15% or more of the shares of Common Stock then
     outstanding by reason of share purchases by the Company and shall, after
     such share purchases by the Company, become the Beneficial Owner of any
     additional shares of Common Stock (other than pursuant to a dividend or
     distribution paid or made by the Company on the outstanding Common Stock or
     pursuant to a split or subdivision of the outstanding Common

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     Stock), then such Person shall be deemed to be an "Acquiring Person".
     Notwithstanding the foregoing, if the Board of Directors of the Company
     determines in good faith that a Person who would otherwise be an "Acquiring
     Person" (as defined pursuant to the foregoing provisions of this paragraph
     (a)) has become such inadvertently, and such Person divests as promptly as
     practicable a sufficient number of shares of Common Stock so that such
     Person would no longer be an "Acquiring Person" (as defined pursuant to the
     foregoing provisions of this paragraph (a)), then such Person shall not be
     deemed to be an "Acquiring Person" for any purposes of this Agreement.

          (b) "Act" shall mean the Securities Act of 1933, as amended.

          (c) "Affiliate" and "Associate" shall have the respective meanings
     ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
     under the Securities Exchange Act of 1934, as amended and in effect on the
     date of this Agreement (the "Exchange Act").

          (d) A Person shall be deemed the "Beneficial Owner" of, and shall be
     deemed to "beneficially own," any securities:

               (i) which such Person or any of such Person's Affiliates or
          Associates, directly or indirectly, has the right to acquire (whether
          such right is exercisable immediately or only after the passage of
          time) pursuant to any agreement, arrangement or understanding (whether
          or not in writing) or upon the exercise of conversion rights, exchange
          rights, rights, warrants or options, or otherwise; provided, however,
          that a Person shall not be deemed the "Beneficial Owner" of, or to
          "beneficially own," (A) securities tendered pursuant to a tender or
          exchange offer made by such Person or any of such Person's Affiliates
          or Associates until such tendered securities are accepted for purchase
          or exchange, or (B) securities issuable upon exercise of Rights at any
          time prior to the occurrence of a Triggering Event, or (C) securities
          issuable upon exercise of Rights from and after the occurrence of a
          Triggering Event which Rights were acquired by such Person or any such
          Person's Affiliates or Associates prior to the Distribution Date or
          pursuant to Section 3(a) or Section 22 hereof (the "Original Rights")
          or pursuant to Section 11(i) hereof in connection with an adjustment
          made with respect to any Original Rights;

               (ii) which such Person or any of such Person's Affiliates or
          Associates, directly or indirectly, has the right to vote or dispose
          of or has "beneficial ownership" of (as determined pursuant to Rule
          13d-3 of the General Rules and Regulations under the Exchange Act),
          including pursuant to any agreement, arrangement or understanding,
          whether or not in writing; provided, however, that a Person shall not
          be deemed the "Beneficial Owner" of, or to "beneficially own," any
          security under this subparagraph (ii) as a result of an agreement,
          arrangement or

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          understanding to vote such security if such agreement, arrangement or
          understanding: (A) arises solely from a revocable proxy given in
          response to a public proxy or consent solicitation made pursuant to,
          and in accordance with, the applicable provisions of the General Rules
          and Regulations under the Exchange Act, and (B) is not also then
          reportable by such Person on Schedule 13D under the Exchange Act (or
          any comparable or successor report); or

               (iii) which are beneficially owned, directly or indirectly, by
          any other Person (or any Affiliate or Associate thereof) with which
          such Person (or any of such Person's Affiliates or Associates) has any
          agreement, arrangement or understanding (whether or not in writing),
          for the purpose of acquiring, holding, voting (except pursuant to a
          revocable proxy as described in the proviso to subparagraph (ii) of
          this paragraph (d)) or disposing of any voting securities of the
          Company;

     provided, however, that nothing in this paragraph (d) shall cause a Person
     engaged in business as an underwriter of securities to be the "Beneficial
     Owner" of, or to "beneficially own," any securities acquired through such
     Person's participation in good faith in a firm commitment underwriting
     until the expiration of forty days after the date of such acquisition.

          (e) "Business Day" shall mean any day other than a Saturday, Sunday or
     a day on which banking institutions in the State of Illinois are authorized
     or obligated by law or executive order to close.

          (f) "Close of Business" on any given date shall mean 5:00 P.M.,
     Chicago time, on such date, provided, however, that if such date is not a
     Business Day it shall mean 5:00 P.M., Chicago time, on the next succeeding
     Business Day.

          (g) "Common Stock" shall mean the common stock, par value $.01 per
     share, of the Company, except that "Common Stock" when used with reference
     to any Person other than the Company shall mean the capital stock of such
     Person with the greatest voting power, or the equity securities or other
     equity interest having power to control or direct the management, of such
     Person.

          (h) "Person" shall mean any individual, firm, limited liability
     company, corporation, partnership or other entity and shall include any
     successor (by merger or otherwise) of such entity.

          (i) "Preferred Stock" shall mean shares of Series A Junior
     Participating Preferred Stock, par value $.01 per share, of the Company,
     and, to the extent that there is not a sufficient number of shares of
     Series A Junior Participating Preferred Stock authorized to permit the full
     exercise of the Rights, any other series of preferred stock, par value $.01
     per share, of the Company designated for such purpose containing terms
     substantially similar to the terms of the Series A Junior

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     Participating Preferred Stock.

          (j) "Section 11(a)(ii) Event" shall mean the event described in
     Section 11(a)(ii) hereof.

          (k) "Section 13 Event" shall have the meaning set forth in Section
     13(a) hereof.

          (l) "Stock Acquisition Date" shall mean the first date of public
     announcement (which, for purposes of this definition, shall include,
     without limitation, a report filed pursuant to Section 13(d) under the
     Exchange Act) by the Company or an Acquiring Person that an Acquiring
     Person has become such.

          (m) "Subsidiary" shall mean, with reference to any Person, any
     corporation or other entity of which an amount of voting securities
     sufficient to elect at least a majority of the directors of such
     corporation or other entity is beneficially owned, directly or indirectly,
     by such Person, or otherwise controlled by such Person.

          (n) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
     Section 13 Event.

          In addition, for purposes of this Agreement, the following terms have
the meanings indicated in specified sections of this Agreement: (i) "Adjustment
Shares" shall have the meaning set forth in Section 11(a)(ii) hereof; (ii)
"common stock equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof; (iii) "current market price" shall have the meaning set forth
in Section 11(d) hereof; (iv) "Current Value" shall have the meaning set forth
in Section 11(a)(iii) hereof; (v) "Distribution Date" shall have the meaning set
forth in Section 3(a) hereof; (vi) "equivalent preferred stock" shall have the
meaning set forth in Section 11(b) hereof; (vii) "Exchange Ratio" shall have the
meaning set forth in Section 24(a) hereof; (viii) "Expiration Date" shall have
the meaning set forth in Section 7(a) hereof; (ix) "Final Expiration Date" shall
have the meaning set forth in Section 7(a) hereof; (x) "Nasdaq" shall have the
meaning set forth in Section 11(d)(i) hereof; (xi) "Principal Party" shall have
the meaning set forth in Section 13(b) hereof; (xii) "Purchase Price" shall have
the meaning set forth in Section 4(a) hereof; (xiii) "Record Date" shall have
the meaning set forth in the recitals hereof; (xiv) "Redemption Price" shall
have the meaning set forth in Section 23(a) hereof; (xv) "Rights" shall have the
meaning set forth in the recitals hereof; (xvi) "Rights Certificates" shall have
the meaning set forth in Section 3(a) hereof; (xvii) "Section 11(a)(ii) Trigger
Date" shall have the meaning set forth in Section 11(a)(iii) hereof; (xviii)
"Spread" shall have the meaning set forth in Section 11(a)(iii) hereof; (xix)
"Substitution Period" shall have the meaning set forth in Section 11(a)(iii)
hereof; (xx) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof and (xxi) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.

Appointment of Rights Agent.

          The Company hereby appoints the Rights Agent to act as agent for the
Company

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in accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable. The Rights Agent shall
have no duty to supervise, and in no event shall be liable for, the acts or
omissions of any such co-Rights Agent.

Issue of Rights Certificates.

          (a) Until the earlier of (i) the Close of Business on the tenth day
after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the Close of Business on the
Record Date) or (ii) the Close of Business on the tenth Business Day (or such
later date as may be determined by action of the Board of Directors of the
Company prior to such time as any Person becomes an Acquiring Person) after the
date that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person organized, appointed or established by
the Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if upon consummation thereof, such Person
would be the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding (the earlier of (i) and (ii) being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates and (y) the Rights will be transferable
only in connection with the transfer of the underlying shares of Common Stock
(including a transfer to the Company). As soon as practicable after the
Distribution Date, the Rights Agent (to the extent provided with all necessary
information) will send by first-class, insured, postage prepaid mail, to each
record holder of the Common Stock as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the
Company, one or more Rights certificates, in substantially the form of Exhibit B
hereto (the "Rights Certificates"), evidencing one Right for each share of
Common Stock so held, subject to adjustment as provided herein. In the event
that an adjustment in the number of Rights per share of Common Stock has been
made pursuant to Section 11(p) hereof, at the time of distribution of the Rights
Certificates, the Company shall make the necessary and appropriate rounding
adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Distribution Date,
the Rights will be evidenced solely by such Rights Certificates.

          (b) As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights"),
by postage prepaid mail, to each record holder of the Common Stock as of the
Close of Business on the Record Date, at the address of such holder shown on the
records of the Company. With respect to certificates for the Common Stock
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto. Until the
earlier of the Distribution Date or the Expiration Date, the surrender for
transfer of any certificate representing shares of Common Stock in respect

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of which Rights have been issued, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with such shares of Common Stock.

          (c) Rights shall be issued in respect of all shares of Common Stock
which are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date or, in certain circumstances provided in Section 22 hereof,
after the Distribution Date. Certificates representing such shares of Common
Stock shall also be deemed to be certificates for Rights, and shall bear a
legend substantially in the following form:

          This certificate also evidences and entitles the holder hereof to
     certain rights as set forth in the Rights Agreement between eLoyalty
     Corporation (the "Company") and ChaseMellon Shareholder Services, L.L.C.
     (the "Rights Agent") dated as of March 17, 2000, as the same may be amended
     from time to time (the "Rights Agreement"), the terms of which are hereby
     incorporated herein by reference and a copy of which is on file at the
     principal offices of the Company. Under certain circumstances, as set forth
     in the Rights Agreement, such Rights will be evidenced by separate
     certificates and will no longer be evidenced by this certificate. The
     Company will mail to the holder of this certificate a copy of the Rights
     Agreement, as in effect on the date of mailing, without charge promptly
     after receipt of a written request therefor. Under certain circumstances
     set forth in the Rights Agreement, Rights issued to, or held by, any Person
     who is, was or becomes an Acquiring Person or any Affiliate or Associate
     thereof (as such terms are defined in the Rights Agreement), whether
     currently held by or on behalf of such Person or by any subsequent holder,
     may become null and void.

With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the surrender
for transfer of any of such certificates shall also constitute the transfer of
the Rights associated with the Common Stock represented by such certificates. In
the event the Company purchases or acquires any shares of its Common Stock after
the Record Date but prior to the Distribution Date, any Rights associated with
such shares shall be deemed cancelled and retired so that the Company shall not
be entitled to exercise any Rights associated with shares of Common Stock that
are not outstanding.

Form of Rights Certificates.

          (a) The Rights Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall each be substantially
in the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate (but which do not affect the
duties or responsibilities of the Rights Agent) and as are not inconsistent with
the provisions of this Agreement, or as may be required to comply with

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any applicable law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Rights may from time
to time be listed, or to conform to usage. Subject to the provisions of Section
11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall
be dated as of the Record Date or, in the case of Rights with respect to shares
of Common Stock issued or becoming outstanding after the Record Date, the same
date as the stock certificate evidencing such shares, and on their face shall
entitle the holders thereof to purchase such number of one one-hundredths of a
share of Preferred Stock as shall be set forth therein at the price set forth
therein (such exercise price per one one-hundredth of a share, the "Purchase
Price"), but the amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to adjustment from
time to time as provided in Sections 11 and 13(a) hereof.

          (b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by any Person known to be:
(i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate)
who becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:

     The Rights represented by this Rights Certificate are or were beneficially
     owned by a Person who was or became an Acquiring Person or an Affiliate or
     Associate of an Acquiring Person (as such terms are defined in the Rights
     Agreement). Accordingly, this Rights Certificate and the Rights represented
     hereby may become null and void in the circumstances specified in Section
     7(e) of such Agreement.

Countersignature and Registration.

          (a) The Rights Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the Company's
seal or a facsimile thereof which shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile signature.
The Rights Certificates shall be countersigned manually or by facsimile
signature by the Rights Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company;

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and any Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.

          (b) Following the Distribution Date and subject to receipt of the
relevant materials and information, the Rights Agent will keep or cause to be
kept, at its principal office or offices designated as the appropriate place for
surrender of Rights Certificates upon exercise or transfer, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the certificate number and the date of each of the Rights
Certificates.

Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates.

          (a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the Close of Business on the Distribution
Date, and at or prior to the Close of Business on the Expiration Date, any
Rights Certificate or Certificates (other than Rights Certificates representing
Rights that have become null and void pursuant to Section 7(e) or that have been
exchanged pursuant to Section 24 hereof) may be transferred, split up, combined
or exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a share of
Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Certificates shall make
such request in writing delivered to the Rights Agent, and shall surrender the
Rights Certificate or Certificates to be transferred, split up, combined or
exchanged at the principal office or offices of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company or the Rights Agent shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e), Section
14 and Section 24 hereof, countersign and deliver to the Person entitled thereto
a Rights Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Rights Certificates. The Rights Agent shall
have no duty or obligation to take any action under any Section of this
Agreement which requires the payment by a Rights holder of applicable taxes and
governmental charges unless and until the Rights Agent is satisfied that all
such taxes and/or charges have been paid.

          (b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case

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of loss, theft or destruction, of indemnity or security satisfactory to them,
and reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificates if mutilated, the Company will execute and deliver a new
Rights Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered owner in lieu of the Rights Certificate so lost,
stolen, destroyed or mutilated.

Exercise of Rights; Purchase Price; Expiration Date of Rights.

          (a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the earliest of (i) the
Close of Business on March 31, 2010 (the "Final Expiration Date"), (ii) the time
at which the Rights are redeemed as provided in Section 23 hereof or (iii) the
time at which such Rights are exchanged pursuant to Section 24 hereof (the
earliest of (i), (ii) and (iii) being herein referred to as the "Expiration
Date").

          (b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $160, and
shall be subject to adjustment from time to time as provided in Sections 11 and
13(a) hereof and shall be payable in accordance with paragraph (c) below.

          (c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-hundredth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax required to be
paid by the holder of the Rights Certificate in accordance with Section 9(e)
hereof, the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the shares of Preferred
Stock (or make available, if the Rights Agent is the transfer agent for such
shares) certificates for the total number of one one-hundredths of a share of
Preferred Stock to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) if the Company shall
have elected to deposit the total number of shares of Preferred Stock issuable
upon exercise of the Rights hereunder with a depositary agent, requisition from
the depositary agent depositary receipts representing such number of one
one-hundredths of a share of Preferred Stock as are to be purchased (in which
case certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such

                                       9

<PAGE>   12

certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Rights Certificate, registered in
such name or names as may be designated by such holder, and (iv) after receipt
thereof, deliver such cash, if any, to or upon the order of the registered
holder of such Rights Certificate. The payment of the Purchase Price (as such
amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in
cash or by certified bank check or bank draft payable to the order of the
Company. In the event that the Company is obligated to issue other securities
(including Common Stock) of the Company, pay cash and/or distribute other
property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash and/or other property
are available for distribution by the Rights Agent, if and when necessary to
comply with the terms of this Agreement. The Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon any exercise of
Rights, a number of Rights be exercised so that only whole shares of Preferred
Stock would be issued.

          (d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.

          (e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a) (ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person (or
any Affiliate or Associate thereof) to holders of equity interests in such
Acquiring Person (or any Affiliate or Associate thereof) or to any Person with
whom the Acquiring Person (or any Affiliate or Associate thereof) has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e), shall become null
and void without any further action and no holder of such Rights shall have any
rights whatsoever with respect to such Rights, whether under any provision of
this Agreement or otherwise. The Company shall use all reasonable efforts to
ensure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but neither the Company nor the Rights Agent shall have any
liability to any holder of Rights Certificates or other Person as a result of
the Company's failure to make any determinations with respect to an Acquiring
Person or any of its Affiliates, Associates or transferees hereunder.

          (f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) properly completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such

                                       10
<PAGE>   13

exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or the Rights Agent shall reasonably request.

Cancellation and Destruction of Rights Certificates.

          All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Rights Certificates shall be issued in lieu thereof, except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificates purchased
or acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certificates to the Company, or shall,
at the written request of the Company, destroy such cancelled Rights
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.

Reservation and Availability of Capital Stock.

          (a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Preferred Stock
(and, following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities) or out of its
authorized and issued shares held in its treasury, the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement, including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.

          (b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange or The Nasdaq National Market (or any successor), the
Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be listed on
such exchange or The Nasdaq National Market (or any successor), upon official
notice of issuance upon such exercise.

          (c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, a registration statement under the Act with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after such
filing, and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act) until the earlier
of (A) the date as of which the Rights are no longer exercisable for such
securities, and (B) the date of the expiration of the Rights. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the

                                       11
<PAGE>   14

Rights. The Company may temporarily suspend, for a period of time not to exceed
ninety (90) days after the date set forth in clause (i) of the first sentence of
this Section 9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. In addition,
if the Company shall determine that a registration statement is required
following the Distribution Date, and a Section 11(a)(ii) Event has not occurred,
the Company may temporarily suspend (and shall give the Rights Agent prompt
notice thereof) the exercisability of Rights until such time as a registration
statement has been declared effective. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification or exemption in such jurisdiction
shall not have been obtained, the exercise thereof shall not be permitted under
applicable law or a registration statement shall not have been declared
effective.

          (d) The Company covenants and agrees that it will take all such
actions as may be necessary to ensure that all one one-hundredths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.

          (e) The Company further covenants and agrees that it will pay, when
due and payable, any and all transfer taxes and governmental charges which may
be payable in respect of the issuance or delivery of the Rights Certificates and
of any certificates for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in respect of a name other than
that of, the registered holder of the Rights Certificates evidencing Rights
surrendered for exercise or to issue or deliver any certificates for a number of
one one-hundredths of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) in a name other than that of the registered
holder upon the exercise of any Rights until such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.

Preferred Stock Record Date.

          Each Person in whose name any certificate for a number of one
one-hundredths of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of such fractional
shares of Preferred Stock (or Common Stock and/or other securities, as the case
may be) represented thereby on, and such certificate shall be dated, the date
upon which the Rights Certificate evidencing such Rights was duly surrendered
and payment of the Purchase Price (and all applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Stock (or Common Stock and/or other securities, as the case
may be) transfer books of the Company are closed, such Person shall be deemed to
have become the record holder of such shares (fractional or otherwise) on, and
such certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or Common Stock and/or other

                                       12
<PAGE>   15

securities, as the case may be) transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Rights Certificate
shall not be entitled to any rights of a stockholder of the Company with respect
to shares or other securities for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.

Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights.

          The Purchase Price, the number and kind of shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.

          (a)(i) In the event the Company shall at any time after the date of
     this Agreement (A) declare a dividend on the Preferred Stock payable in
     shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
     (C) combine the outstanding Preferred Stock into a smaller number of
     shares, or (D) issue any shares of its capital stock in a reclassification
     of the Preferred Stock (including any such reclassification in connection
     with a consolidation or merger in which the Company is the continuing or
     surviving corporation), except as otherwise provided in this Section 11(a)
     and Section 7(e) hereof, the Purchase Price in effect at the time of the
     record date for such dividend or of the effective date of such subdivision,
     combination or reclassification, and the number and kind of shares of
     Preferred Stock or capital stock, as the case may be, issuable on such
     date, shall be proportionately adjusted so that the holder of any Right
     exercised after such time shall be entitled to receive, upon payment of the
     Purchase Price then in effect, the aggregate number and kind of shares of
     Preferred Stock or capital stock, as the case may be, which, if such Right
     had been exercised immediately prior to such date and at a time when the
     Preferred Stock transfer books of the Company were open, such holder would
     have owned upon such exercise and been entitled to receive by virtue of
     such dividend, subdivision, combination or reclassification. If an event
     occurs which would require an adjustment under both this Section 11(a)(i)
     and Section 11(a)(ii) hereof, the adjustment provided for in this Section
     11(a)(i) shall be in addition to, and shall be made prior to, any
     adjustment required pursuant to Section 11(a)(ii) hereof.

          (ii) Subject to Section 24 hereof, in the event any Person becomes an
     Acquiring Person, then each holder of a Right (except as provided below and
     in Section 7(e) hereof) shall thereafter have the right to receive, upon
     exercise thereof at a price equal to the then current Purchase Price in
     accordance with the terms of this Agreement, in lieu of a number of one
     one-hundredths of a share of Preferred Stock, such number of shares of
     Common Stock of the Company as shall equal the result obtained by (x)
     multiplying the then current Purchase Price by the

                                       13

<PAGE>   16

     then number of one one-hundredths of a share of Preferred Stock for which a
     Right was exercisable immediately prior to the first occurrence of a
     Section 11(a)(ii) Event and (y) dividing that product (which, following
     such first occurrence shall thereafter be referred to as the "Purchase
     Price" for each Right and for all purposes of this Agreement) by 50% of the
     current market price (determined pursuant to Section 11(d) hereof) per
     share of Common Stock on the date of such first occurrence (such number of
     shares, the "Adjustment Shares").

          (iii) In the event that the number of shares of Common Stock which are
     authorized by the Company's certificate of incorporation, as amended, but
     not outstanding or reserved for issuance for purposes other than upon
     exercise of the Rights, is not sufficient to permit the exercise in full of
     the Rights in accordance with the foregoing subparagraph (ii) of this
     Section 11(a), the Company shall: (A) determine the value of the Adjustment
     Shares issuable upon the exercise of a Right (the "Current Value"), and (B)
     with respect to each Right, make adequate provision to substitute for the
     Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash,
     (2) a reduction in the Purchase Price, (3) Common Stock or other equity
     securities of the Company (including, without limitation, shares, or units
     of shares, of preferred stock, such as the Preferred Stock, which the Board
     of Directors of the Company has deemed to have substantially the same value
     or economic rights as shares of Common Stock (such shares of preferred
     stock, "common stock equivalents")), (4) debt securities of the Company,
     (5) other assets, or (6) any combination of the foregoing, having an
     aggregate value equal to the Current Value (less the amount of any
     reduction in the Purchase Price), where such aggregate value has been
     determined by the Board of Directors of the Company based upon the advice
     of a nationally recognized investment banking firm selected by the Board of
     Directors of the Company; provided, however, if the Company shall not have
     made adequate provision to deliver value pursuant to clause (B) above
     within thirty (30) days following the later of (x) the first occurrence of
     a Section 11(a)(ii) Event and (y) the date on which the Company's right of
     redemption pursuant to Section 23(a) expires (the later of (x) and (y)
     being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the
     Company shall be obligated to deliver, upon the surrender for exercise of a
     Right and without requiring payment of the Purchase Price, shares of Common
     Stock (to the extent available) and then, if necessary, cash, which shares
     and/or cash have an aggregate value equal to the Spread. For purposes of
     the preceding sentence, the term "Spread" shall mean the excess of (i) the
     Current Value over (ii) the Purchase Price. If the Board of Directors of
     the Company shall determine in good faith that it is likely that sufficient
     additional shares of Common Stock could be authorized for issuance upon
     exercise in full of the Rights, the thirty (30) day period set forth above
     may be extended to the extent necessary, but not more than ninety (90) days
     after the Section

                                       14
<PAGE>   17

     11(a)(ii) Trigger Date, in order that the Company may seek stockholder
     approval for the authorization of such additional shares (such thirty (30)
     day period, as it may be extended, the "Substitution Period"). To the
     extent that action is to be taken pursuant to the first and/or third
     sentences of this Section 11(a)(iii), the Company (x) shall provide,
     subject to Section 7(e) hereof, that such action shall apply uniformly to
     all outstanding Rights, and (y) may suspend the exercisability of the
     Rights until the expiration of the Substitution Period in order to seek
     such stockholder approval for such authorization of additional shares
     and/or to decide the appropriate form of distribution to be made pursuant
     to such first sentence and to determine the value thereof. In the event of
     any such suspension, the Company shall issue a public announcement stating
     that the exercisability of the Rights has been temporarily suspended, as
     well as a public announcement at such time as the suspension is no longer
     in effect (with prompt notice of such announcements to the Rights Agent).
     For purposes of this Section 11(a)(iii), the value of each Adjustment Share
     shall be the current market price (as determined pursuant to Section 11(d)
     hereof) per share of Common Stock on the Section 11(a)(ii) Trigger Date and
     the value of any "common stock equivalent" shall be deemed to equal the
     current market price (as determined pursuant to Section 11(d) hereof) per
     share of the Common Stock on such date.

          (b) In case the Company shall fix a record date for the issuance of
rights (other than the Rights), options or warrants to all holders of Preferred
Stock entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of Preferred
Stock ("equivalent preferred stock")) or securities convertible into Preferred
Stock or equivalent preferred stock at a price per share of Preferred Stock or
per share of equivalent preferred stock (or having a conversion price per share,
if a security convertible into Preferred Stock or equivalent preferred stock)
less than the current market price (as determined pursuant to Section 11(d)
hereof) per share of Preferred Stock on such record date, the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of shares of Preferred Stock
which the aggregate offering price of the total number of shares of Preferred
Stock and/or equivalent preferred stock so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price, and the denominator of which shall be the
number of shares of Preferred Stock outstanding on such record date, plus the
number of additional shares of Preferred Stock and/or equivalent preferred stock
to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consideration part or all of which
may be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Shares of
Preferred Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed, and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.

          (c) In case the Company shall fix a record date for a distribution to
all holders of

                                       15
<PAGE>   18

Preferred Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing corporation) of
evidences of indebtedness, cash (other than a regular periodic cash dividend out
of the earnings or retained earnings of the Company), assets (other than a
dividend payable in Preferred Stock, but including any dividend payable in stock
other than Preferred Stock) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price (as determined pursuant to Section 11(d)
hereof) per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights) of
the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a share of
Preferred Stock and the denominator of which shall be such current market price
(as determined pursuant to Section 11(d) hereof) per share of Preferred Stock.
Such adjustments shall be made successively whenever such a record date is
fixed, and in the event that such distribution is not so made, the Purchase
Price shall be adjusted to be the Purchase Price which would have been in effect
if such record date had not been fixed.

          (d) (i) For the purpose of any computation hereunder, other than
     computations made pursuant to Section 11(a)(iii) hereof, the "current
     market price" per share of Common Stock on any date shall be deemed to be
     the average of the daily closing prices per share of such Common Stock for
     the thirty (30) consecutive Trading Days (as such term is hereinafter
     defined) immediately prior to but not including such date, and for purposes
     of computations made pursuant to Section 11(a)(iii) hereof, the "current
     market price" per share of Common Stock on any date shall be deemed to be
     the average of the daily closing prices per share of such Common Stock for
     the ten (10) consecutive Trading Days immediately following but not
     including such date; provided, however, that in the event that the current
     market price per share of the Common Stock is determined during a period
     following the announcement by the issuer of such Common Stock of (A) a
     dividend or distribution on such Common Stock payable in shares of such
     Common Stock or securities convertible into shares of such Common Stock
     (other than the Rights), or (B) any subdivision, combination or
     reclassification of such Common Stock, and the ex-dividend date for such
     dividend or distribution, or the record date for such subdivision,
     combination or reclassification shall not have occurred prior to the
     commencement of the requisite thirty (30) Trading Day or ten (10) Trading
     Day period, as set forth above, then, and in each such case, the "current
     market price" shall be properly adjusted to take into account any trading
     during the period prior to such ex-dividend date or record date. The
     closing price for each day shall be the last sale price, regular way, or,
     in case no such sale takes place on such day, the average of the closing
     bid and asked prices, regular way, in either case as reported in the
     principal consolidated transaction reporting system with respect to
     securities listed or admitted to trading on the New York Stock Exchange or,
     if the shares of Common Stock are not listed or admitted to trading on the
     New York Stock Exchange, as reported in the principal consolidated
     transaction reporting system with respect to securities listed on the
     principal national securities exchange on which the shares of Common Stock
     are listed or admitted to trading or, if the shares of Common Stock are not
     listed or admitted to trading

                                       16
<PAGE>   19

     on any national securities exchange, the last quoted price or, if not so
     quoted, the average of the high bid and low asked prices in the
     over-the-counter market, as reported by the National Association of
     Securities Dealers, Inc. Automated Quotation System ("Nasdaq") or such
     other quotation system then in use, or, if on any such date the shares of
     Common Stock are not quoted by any such organization, the average of the
     closing bid and asked prices as furnished by a professional market maker
     making a market in the Common Stock selected by the Board of Directors of
     the Company. If on any such date no market maker is making a market in the
     Common Stock, the fair value of such shares on such date as determined in
     good faith by the Board of Directors of the Company shall be used. The term
     "Trading Day" shall mean a day on which the principal national securities
     exchange on which the shares of Common Stock are listed or admitted to
     trading is open for the transaction of business or, if the shares of Common
     Stock are not listed or admitted to trading on any national securities
     exchange, a Business Day. If the Common Stock is not publicly held or not
     so listed or traded, "current market price" per share shall mean the fair
     value per share as determined in good faith by the Board of Directors of
     the Company, whose determination shall be described in a statement filed
     with the Rights Agent and shall be conclusive for all purposes.

          (ii) For the purpose of any computation hereunder, the "current market
     price" per share of Preferred Stock shall be determined in the same manner
     as set forth above for the Common Stock in clause (i) of this Section 11(d)
     (other than the last sentence thereof). If the current market price per
     share of Preferred Stock cannot be determined in the manner provided above,
     or if the Preferred Stock is not publicly held or listed or traded in a
     manner described in clause (i) of this Section 11(d), the "current market
     price" per share of Preferred Stock shall be conclusively deemed to be an
     amount equal to 100 (as such number may be appropriately adjusted for such
     events as stock splits, stock dividends and recapitalizations with respect
     to the Common Stock occurring after the date of this Agreement) multiplied
     by the current market price per share of the Common Stock. If neither the
     Common Stock nor the Preferred Stock is publicly held or so listed or
     traded, "current market price" per share of the Preferred Stock shall mean
     the fair value per share as determined in good faith by the Board of
     Directors of the Company, whose determination shall be described in a
     statement filed with the Rights Agent and shall be binding on the Rights
     Agent and the holders of the Rights. For all purposes of this Agreement,
     the "current market price" of one one-hundredth of a share of Preferred
     Stock shall be equal to the "current market price" of one share of
     Preferred Stock divided by 100.

          (e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of

                                       17
<PAGE>   20

at least one percent (1%) in the Purchase Price; provided, however, that any
adjustments which by reason of this Section 11(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest cent or to
the nearest one ten-thousandth of a share of Common Stock or other share or one
one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding
the first sentence of this Section 11(e), any adjustment required by this
Section 11 shall be made no later than the earlier of (i) three (3) years from
the date of the transaction which mandates such adjustment, or (ii) the
Expiration Date.

          (f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
any Right and the Purchase Price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9,
10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.

          (g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.

          (h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one-hundredths of a
share of Preferred Stock (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.

          (i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of one one-hundredths of a share of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding after the adjustment in
the number of Rights shall be exercisable for the number of one one-hundredths
of a share of Preferred Stock for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment of
the number of Rights shall become that number of Rights (calculated to the
nearest one-ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement (with prompt notice thereof to the Rights Agent) of
its election to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date

                                       18

<PAGE>   21

may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Rights Certificates have been issued, shall be at least ten (10)
days later than the date of the public announcement. If Rights Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Rights Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Rights Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment. Rights Certificates
so to be distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Purchase Price) and shall be registered in the names of the holders of record of
Rights Certificates on the record date specified in the public announcement.

          (j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-hundredth of a
share and the number of one one-hundredths of a share which were expressed in
the initial Rights Certificates issued hereunder.

          (k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of one
one-hundredths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Preferred Stock at such adjusted
Purchase Price.

          (l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment (and shall
provide the Rights Agent prompt notice of such election); provided, however,
that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.

          (m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that the Board of Directors of the Company, in its good faith
judgment, shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of

                                       19
<PAGE>   22

Preferred Stock or securities which by their terms are convertible into or
exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance
of rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to such
stockholders.

          (n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger, sale or transfer there are any rights, warrants or
other instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger, sale or transfer, the stockholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.

          (o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23, Section 24 or Section 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.

          (p) In the event that the Company shall at any time after the Rights
Dividend Declaration Date and prior to the Distribution Date (i) declare a
dividend on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine
the outstanding shares of Common Stock into a smaller number of shares, the
number of Rights associated with each share of Common Stock then outstanding, or
issued or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.

Certificate of Adjusted Purchase Price or Number of Shares.

          Whenever an adjustment is made as provided in Section 11 or Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief

                                       20
<PAGE>   23

statement of the facts and computations accounting for such adjustment, (b)
promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock) in accordance with Section 26 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of such adjustment unless
and until it shall have received such certificate.

Consolidation, Merger or Sale or Transfer of Assets or Earning Power.

          (a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), and the Company shall not be the continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof) shall consolidate with, or merge with or into, the Company, and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions each of which complies with Section
11(o) hereof) (any event described in clauses (x), (y) or (z) of this Section
13(a) following the Stock Acquisition Date, a "Section 13 Event"), then, and in
each such case, proper provision shall be made so that: (i) each holder of a
Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of a number of one
one-hundredths of a share of Preferred Stock, such number of validly authorized
and issued, fully paid, nonassessable and freely tradable shares of Common Stock
of the Principal Party (as such term is hereinafter defined), not subject to any
liens, encumbrances, rights of first refusal or other adverse claims, as shall
be equal to the result obtained by (l) multiplying the then current Purchase
Price by the number of one one-hundredths of a share of Preferred Stock for
which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the
first occurrence of a Section 13 Event, multiplying the number of such one
one-hundredths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event by the
Purchase Price in effect immediately prior to such first occurrence), and
dividing that product (which, following the first occurrence of a Section 13
Event, shall be referred to as the "Purchase Price" for each Right and for all
purposes of this Agreement) by (2) 50% of the current market price (determined
pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such
Principal Party on the date of consummation of such Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the Company pursuant to
this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to
such

                                       21
<PAGE>   24

Principal Party, it being specifically intended that the provisions of Section
11 hereof shall apply only to such Principal Party following the first
occurrence of a Section 13 Event; (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13 Event.

          (b) "Principal Party" shall mean:

          (i) in the case of any transaction described in clause (x) or (y) of
     the first sentence of Section 13(a), the Person that is the issuer of any
     securities into which shares of Common Stock of the Company are converted
     in such merger or consolidation, and if no securities are so issued, the
     Person that is the other party to such merger or consolidation; and

          (ii) in the case of any transaction described in clause (z) of the
     first sentence of Section 13(a), the Person that is the party receiving the
     greatest portion of the assets or earning power transferred pursuant to
     such transaction or transactions;

provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stock of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.

          (c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer of assets mentioned in paragraph (a) of
this Section 13, the Principal Party will:

          (i) prepare and file a registration statement under the Act, with
     respect to the Rights and the securities purchasable upon exercise of the
     Rights on an appropriate form, and will use its best efforts to cause such
     registration statement to (A) become effective as soon as practicable after
     such filing and (B) remain effective (with a prospectus at all times
     meeting the requirements of the Act) until the Expiration Date; and

                                       22
<PAGE>   25

          (ii) deliver to holders of the Rights historical financial statements
     for the Principal Party and each of its Affiliates which comply in all
     respects with the requirements for registration on Form 10 under the
     Exchange Act.

                  (d) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. In the event
that a Section 13 Event shall occur at any time after the occurrence of a
Section 11(a)(ii) Event, the Rights which have not theretofore been exercised
shall thereafter become exercisable in the manner described in Section 13(a).

Fractional Rights and Fractional Shares.

          (a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Day immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported to the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading, or if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.

          (b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-hundredth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock). Fractions of shares of Preferred Stock in integral
multiples of one one-hundredth of a share may, at the election of the Company,
be evidenced by depositary receipts pursuant to an appropriate agreement between
the Company and a depositary selected by it; provided, however, that such
agreement shall provide that the holders of such depositary receipts shall have
all the rights, privileges and preferences to which they are entitled as
beneficial owners of the shares represented by such depositary receipts. In lieu
of fractional shares of Preferred Stock that are not integral multiples of one
one-hundredth of a share of Preferred Stock, the Company shall pay to the
registered holders of Rights Certificates at the time such

                                       23

<PAGE>   26

Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.

          (c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company shall
pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one share of Common Stock. For purposes of this Section
14(c), the current market value of one share of Common Stock shall be the
closing price of one share of Common Stock (as determined pursuant to Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.

          (d) The holder of a Right by the acceptance of the Rights expressly
waives such holder's right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.

          (e) The Rights Agent shall have no duty or obligation with respect to
this Section 14 and Section 24(e) unless and until it has received specific
instructions (and sufficient cash, if required) from the Company with respect to
its duties and obligations under such Sections.

Rights of Action.

          All rights of action in respect of this Agreement, other than rights
of action vested in the Rights Agent pursuant to the terms of this Agreement,
are vested in the respective registered holders of the Rights Certificates (and,
prior to the Distribution Date, the registered holders of the Common Stock); and
any registered holder of any Rights Certificate (or, prior to the Distribution
Date, of the Common Stock), without the consent of the Rights Agent or of the
holder of any other Rights Certificate (or, prior to the Distribution Date, of
the Common Stock), may, in such holder's own behalf and for such holder's own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, such holder's
right to exercise the Rights evidenced by such Rights Certificate in the manner
provided in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.

Agreement of Rights Holders.

          Every holder of a Right by accepting the same consents and agrees with
the Company and the Rights Agent and with every holder of a Right that:

                                       24
<PAGE>   27

          (a) prior to the Distribution Date, the Rights will be transferable
     only in connection with the transfer of Common Stock;

          (b) after the Distribution Date, the Rights Certificates are
     transferable only on the registry books of the Rights Agent if surrendered
     at the principal office or offices of the Rights Agent designated for such
     purposes, duly endorsed or accompanied by a proper instrument of transfer
     and with the appropriate forms and certificates fully executed;

          (c) subject to Section 6(a), Section 7(e) and Section 7(f) hereof, the
     Company and the Rights Agent may deem and treat the person in whose name a
     Rights Certificate (or, prior to the Distribution Date, the associated
     Common Stock certificate) is registered as the absolute owner thereof and
     of the Rights evidenced thereby (notwithstanding any notations of ownership
     or writing on the Rights Certificates or the associated Common Stock
     certificates made by anyone other than the Company or the Rights Agent) for
     all purposes whatsoever, and neither the Company nor the Rights Agent shall
     be required to be affected by any notice to the contrary; and

          (d) notwithstanding anything in this Agreement to the contrary,
     neither the Company nor the Rights Agent shall have any liability to any
     holder of a Right or other Person as a result of its inability to perform
     any of its obligations under this Agreement by reason of any preliminary or
     permanent injunction or other order, decree, judgment or ruling issued by a
     court of competent jurisdiction or by a governmental, regulatory or
     administrative agency or commission, or any statute, rule, regulation or
     executive order promulgated or enacted by any governmental authority,
     prohibiting or otherwise restraining performance of such obligation;
     provided, however, the Company must use reasonable efforts to have any such
     order, decree, judgment or ruling lifted or otherwise overturned as soon as
     possible.

Rights Certificate Holder Not Deemed a Stockholder.

          No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose to be the holder of the
number of one one-hundredths of a share of Preferred Stock or any other
securities of the Company which may at any time be issuable upon the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.

Concerning the Rights Agent.

                                       25
<PAGE>   28

          (a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the preparation, execution,
delivery and amendment of this Agreement and the exercise and performance of its
duties hereunder, provided, that the aggregate amount that the Company shall be
required to pay the Rights Agent in connection with the preparation, execution
and delivery of this Agreement shall not exceed $2,500. The Company also agrees
to indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or
expense incurred without gross negligence, bad faith or willful misconduct (each
as finally determined by a court of competent jurisdiction) on the part of the
Rights Agent for any action taken, suffered or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises. Anything to the contrary notwithstanding, in no event shall the Rights
Agent be liable for special, indirect, punitive, consequential or incidental
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Rights Agent has been advised of the likelihood of such
loss or damage. Any liability of the Rights Agent under this Rights Agreement
will be limited to the amount of fees paid by the Company to the Rights Agent.

          (b) The Rights Agent shall be authorized and protected and shall incur
no liability for or in respect of any action taken, suffered or omitted by it in
connection with its acceptance and administration of this Agreement in reliance
upon any Rights Certificate or certificate for Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20.

Merger or Consolidation or Change of Name of Rights Agent.

          (a) Any Person into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the stock
transfer business of the Rights Agent or any successor Rights Agent, shall be
the successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
provided, however, that such Person would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of a
predecessor Rights Agent and deliver such Rights Certificates so countersigned;
and in case at the time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.

                                       26
<PAGE>   29

          (b) In case at any time the name of the Rights Agent shall be changed,
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case, at
that time, any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.

Duties of Rights Agent.

          The Rights Agent undertakes only the duties and obligations expressly
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Rights Certificates, by their acceptance
thereof, shall be bound:

          (a) The Rights Agent may consult with legal counsel (who may be legal
     counsel for the Company), and the opinion of such counsel shall be full and
     complete authorization and protection to the Rights Agent and the Rights
     Agent shall incur no liability for or in respect of any action taken,
     suffered or omitted by it in good faith and in accordance with such
     opinion.

          (b) Whenever in the performance of its duties under this Agreement the
     Rights Agent shall deem it necessary or desirable that any fact or matter
     (including, without limitation, the identity of any Acquiring Person and
     the determination of "current market price") be proved or established by
     the Company prior to taking or suffering any action hereunder, such fact or
     matter (unless other evidence in respect thereof be herein specifically
     prescribed) may be deemed to be conclusively proved and established by a
     certificate signed by the Chairman of the Board, the President, any Vice
     President, the Treasurer, any Assistant Treasurer, the Secretary or any
     Assistant Secretary of the Company and delivered to the Rights Agent; and
     such certificate shall be full authorization and protection to the Rights
     Agent, and the Rights Agent shall incur no liability for or in respect of
     any action taken, suffered or omitted by it in good faith by it under the
     provisions of this Agreement in reliance upon such certificate.

          (c) The Rights Agent shall be liable hereunder only for its own gross
     negligence, bad faith or willful misconduct (each as finally determined by
     a court of competent jurisdiction).

          (d) The Rights Agent shall not be liable for or by reason of any of
     the statements of fact or recitals contained in this Agreement or in the
     Rights Certificates or be required to verify the same (except as to its
     countersignature on such Rights Certificates), but all such statements and
     recitals are and shall be deemed to have been made by the Company only.

          (e) The Rights Agent shall not be under any responsibility in respect
     of the validity of this Agreement or the execution and delivery hereof
     (except the due

                                       27
<PAGE>   30

     execution hereof by the Rights Agent) or in respect of the validity or
     execution of any Rights Certificate (except its countersignature thereof);
     nor shall it be responsible for any breach by the Company of any covenant
     or condition contained in this Agreement or in any Rights Certificate; nor
     shall it be responsible for any adjustment required under the provisions of
     Section 11, Section 13 or Section 24 hereof or responsible for the manner,
     method or amount of any such adjustment or the ascertaining of the
     existence of facts that would require any such adjustment (except with
     respect to the exercise of Rights evidenced by Rights Certificates after
     actual notice of any such adjustment); nor shall it by any act hereunder be
     deemed to make any representation or warranty as to the authorization or
     reservation of any shares of Common Stock or Preferred Stock to be issued
     pursuant to this Agreement or any Rights Certificate or as to whether any
     shares of Common Stock or Preferred Stock will, when so issued, be validly
     authorized and issued, fully paid and nonassessable.

          (f) The Company agrees that it will perform, execute, acknowledge and
     deliver or cause to be performed, executed, acknowledged and delivered all
     such further and other acts, instruments and assurances as may reasonably
     be required by the Rights Agent for the carrying out or performing by the
     Rights Agent of the provisions of this Agreement.

          (g) The Rights Agent is hereby authorized and directed to accept
     instructions with respect to the performance of its duties hereunder from
     the Chairman of the Board, the President, any Vice President, the
     Secretary, any Assistant Secretary, the Treasurer or any Assistant
     Treasurer of the Company, and to apply to such officers for advice or
     instructions in connection with its duties, and it shall incur no liability
     for or in respect of any action taken, suffered or omitted by it in good
     faith in accordance with instructions of any such officer.

          (h) The Rights Agent and any stockholder, director, Affiliate, officer
     or employee of the Rights Agent may buy, sell or deal in any of the Rights
     or other securities of the Company or become pecuniarily interested in any
     transaction in which the Company may be interested, or contract with or
     lend money to the Company or otherwise act as fully and freely as though it
     were not Rights Agent under this Agreement. Nothing herein shall preclude
     the Rights Agent from acting in any other capacity for the Company or for
     any other Person.

          (i) The Rights Agent may execute and exercise any of the rights or
     powers hereby vested in it or perform any duty hereunder either itself or
     by or through its attorneys or agents, and the Rights Agent shall not be
     answerable or accountable for any act, default, neglect or misconduct of
     any such attorneys or agents or for any loss to the Company resulting from
     any such act, default, neglect or misconduct; provided, however, that
     reasonable care was exercised in the selection and continued employment
     thereof.

          (j) No provision of this Agreement shall require the Rights Agent to

                                       28
<PAGE>   31

     expend or risk its own funds or otherwise incur any financial liability in
     the performance of any of its duties hereunder or in the exercise of its
     rights if there shall be reasonable grounds for believing that repayment of
     such funds or adequate indemnification against such risk or liability is
     not reasonably assured to it.

          (k) If, with respect to any Rights Certificate surrendered to the
     Rights Agent for exercise or transfer, the certificate attached to the form
     of assignment or form of election to purchase, as the case may be, has
     either not been completed or indicates an affirmative response to clause 1
     and/or 2 thereof, the Rights Agent shall not take any further action with
     respect to such requested exercise or transfer without first consulting
     with the Company.

Change of Rights Agent.

          The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon thirty (30) days' notice in
writing mailed to the Company, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon thirty (30) days' notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such
notice, submit such holder's Rights Certificate for inspection by the Company),
then any registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (i)
a Person organized and doing business under the laws of the United States or of
the State of Illinois or the State of New York (or of any other state of the
United States so long as such Person is authorized to do business in the State
of Illinois or the State of New York), in good standing, having an office or
agency in the State of Illinois or the State of New York, which is authorized
under such laws to exercise stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (ii) an Affiliate of such Person. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further reasonable assurance, conveyance, act or deed
necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates. Failure to give any notice provided for in this
Section 21 or any defect therein shall not affect the legality or validity of
the resignation or

                                       29
<PAGE>   32

removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.

Issuance of New Rights Certificates.

          Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
under the Rights Certificates made in accordance with the provisions of this
Agreement. In addition, in connection with the issuance or sale of shares of
Common Stock following the Distribution Date and prior to the redemption or
expiration of the Rights, the Company (a) shall, with respect to shares of
Common Stock so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, granted or awarded prior to the
Distribution Date, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing an appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Rights Certificate
would be issued, and (ii) no such Rights Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.

Redemption and Termination.

          (a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the Close of Business on the tenth day
following the Stock Acquisition Date (or, if the Stock Acquisition Date shall
have occurred prior to the Record Date, the Close of Business on the tenth day
following the Record Date), or (ii) the Final Expiration Date, redeem all but
not less than all of the then outstanding Rights at a redemption price of $.01
per Right, as such amount may be appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption Price").
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock (based on the "current market price", as defined in Section 11(d)(i)
hereof, of the Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors. The redemption of
the Rights by the Board of Directors may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole discretion
may establish.

          (b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption

                                       30
<PAGE>   33

Price for each Right so held. Promptly after the action of the Board of
Directors ordering the redemption of the Rights, the Company shall give notice
of such redemption to the Rights Agent and the holders of the then outstanding
Rights by mailing such notice to the Rights Agent and to all such holders at
each holder's last address as it appears upon the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of the transfer
agent for the Common Stock. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made.

Exchange.

          (a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become null and void pursuant to the provisions of Section 7(e) hereof) for
shares of Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person organized, appointed or established by the Company
for or pursuant to the terms of any such plan), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of fifty percent (50%)
or more of the Common Stock then outstanding.

          (b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of any such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice (with prompt
notice thereof to the Rights Agent) of any exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Company promptly shall mail a notice of any such exchange to
all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
will be effected pro rata based on the number of Rights (other than Rights which
have become null and void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.

          (c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute shares of Preferred Stock (or equivalent preferred stock,
as such term is defined in paragraph (b) of Section 11 hereof) for shares of
Common Stock exchangeable for Rights, at the initial rate of one one-hundredth
of a share of Preferred Stock (or equivalent preferred stock) for

                                       31
<PAGE>   34

each share of Common Stock, as appropriately adjusted to reflect adjustments in
the voting rights of the Preferred Stock pursuant to the terms thereof, so that
the fraction of a share of Preferred Stock delivered in lieu of each share of
Common Stock shall have the same voting rights as one share of Common Stock.

          (d) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such actions as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.

          (e) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, there shall be
paid to the registered holders of the Rights Certificates with regard to which
such fractional shares of Common Stock would otherwise be issuable, an amount in
cash equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this subsection (e), the current market value
of a whole share of Common Stock shall be the closing price of a share of Common
Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.

Notice of Certain Events.

          (a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular periodic cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to the Rights Agent and to each holder of a Rights Certificate, to
the extent feasible and in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Preferred Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of the shares of Preferred Stock for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the

                                       32
<PAGE>   35
taking of such proposed action or the date of participation therein by the
holders of the shares of Preferred Stock, whichever shall be the earlier.

          (b) In case a Section 11(a)(ii) Event shall occur, then, in any such
case, (i) the Company shall as soon as practicable thereafter give to each
holder of a Rights Certificate, to the extent feasible and in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under Section
11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.

Notices.

          Notices or demands authorized by this Agreement to be given or made by
the Rights Agent or by the holder of any Rights Certificate to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:

          eLoyalty Corporation
          205 North Michigan Avenue
          Suite 1500
          Chicago, Illinois 60601
          Attention:  President

Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:

          ChaseMellon Shareholder Services, L.L.C.
          111 Founders Plaza, 11th Floor
          East Hartford, Connecticut 06108
          Attention:  Relationship Manager

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.

Supplements and Amendments.

          The Company may from time to time supplement or amend this Agreement
without the approval of any holders of Rights Certificates in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make any other
provisions with respect to the Rights which the Company may deem necessary or
desirable (including, without limitation, a supplement or amendment that changes
the Purchase Price), any such supplement or amendment to be evidenced

                                       33
<PAGE>   36

by a writing signed by the Company and the Rights Agent; provided, however, that
from and after such time as any Person becomes an Acquiring Person, this
Agreement shall not be amended in any manner which would adversely affect the
interests of the holders of Rights and further provided that the Rights Agent
shall not be obligated to enter into any supplement or amendment that would
change or increase the duties, liabilities or obligations of the Rights Agent
hereunder. Prior to the Distribution Date, the interest of the holders of Rights
shall be deemed coincident with the interests of the holders of Common Stock.
Without limiting the foregoing, the Company may at any time prior to such time
as any Person becomes an Acquiring Person amend this Agreement to lower the
thresholds set forth in Sections 1(a) and 3(a) to a percentage that (subject to
exceptions for specified Persons or groups excepted from the definition of
"Acquiring Person") is not less than the greater of (i) the sum of .001% and the
largest percentage of the outstanding shares of Common Stock then known by the
Company to be beneficially owned by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan or, to the extent excepted
from the definition of "Acquiring Person", other specified Persons or groups)
and (ii) 10.0%.

Successors.

          All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.

Determination and Actions by the Board of Directors, etc.

          For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(l)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board of Directors of
the Company or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including, but not limited to, a determination to redeem or not
redeem the Rights or to amend this Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
of Directors of the Company in good faith shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other Persons, and (y) not subject the Board of Directors of the Company to any
liability to the holders of the Rights. The Rights Agent is entitled to always
assume that the Board of Directors of the Company acted in good faith and shall
be fully protected and incur no liability in reliance thereon.

Benefits of this Agreement.

                                       34
<PAGE>   37

          Nothing in this Agreement shall be construed to give to any Person
other than the Company, the Rights Agent and the registered holders of the
Rights Certificates (and, prior to the Distribution Date, registered holders of
the Common Stock) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the registered holders of the Rights Certificates
(and, prior to the Distribution Date, registered holders of the Common Stock).

Severability.

          If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated; provided, however, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this Agreement,
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the Close of Business on the tenth day following the date
of such determination by the Board of Directors of the Company.

Governing Law.

          This Agreement, each Right and each Rights Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts made and to be performed
entirely within such State.

Counterparts.

          This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.

Descriptive Headings.

          Descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.

                                       35
<PAGE>   38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.

Attest:                              eLoyalty Corporation

By: /s/ Timothy J. Cunningham             By: /s/ Kelly D. Conway
    -----------------------------             -------------------------
     Timothy J. Cunningham                Kelly D. Conway
     Senior Vice President and            President and Chief Executive Officer
     Chief Financial Officer

Attest:                              ChaseMellon Shareholder Services, L.L.C.

By: /s/ Lynore LeConche                        By: /s/ Lee Tinto
    -------------------------------            --------------------------------
    Name: Lynore LeConche                      Name: Lee Tinto
    Title: Vice President                      Title: Vice President

                                       36
<PAGE>   39
                                                                       Exhibit A

                           Certificate of Designations

                                       of

                  Series A Junior Participating Preferred Stock

                                       of

                              eLoyalty Corporation

                         Pursuant to Section 151 of the

                General Corporation Law of the State of Delaware

          The undersigned do hereby certify that the following resolution was
duly adopted by the Board of Directors of eLoyalty Corporation, a Delaware
corporation (the "Corporation"), on January 26, 2000:

          RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Certificate of Incorporation, as amended
(the "Charter"), the Board of Directors does hereby create, authorize and
provide for the issue of a series of Preferred Stock, par value $.01 per share,
of the Corporation, to be designated "Series A Junior Participating Preferred
Stock" (hereinafter referred to as the "Series A Preferred Stock"), initially
consisting of 1,000,000 shares, and to the extent that the designations, powers,
preferences and relative and other special rights and the qualifications,
limitations or restrictions of the Series A Preferred Stock are not stated and
expressed in the Charter, does hereby fix and herein state and express such
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Charter shall be deemed to have the meanings
provided therein):

          Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 1,000,000.

          Section 2. Dividends and Distributions.

          (A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,

<PAGE>   40

quarterly dividends payable in cash on the first business day of January, April,
July and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time after March 31, 2000 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

          (B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided, however, that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking prior to and
superior to the shares of Series A Preferred Stock with respect to dividends, a
dividend of $.01 per share on the Series A Preferred Stock shall nevertheless by
payable on such subsequent Quarterly Dividend Payment Date.

          (C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution

                                      A-2
<PAGE>   41

declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.

          Section 3. Voting Rights.

          The holders of shares of Series A Preferred Stock shall have the
following voting rights:

          (A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

          (B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote collectively as one class on all matters submitted to a vote of
stockholders of the Corporation.

          (C) (i) If at any time dividends on any Series A Preferred Stock shall
     be in arrears in an amount equal to six (6) quarterly dividends thereon,
     the occurrence of such contingency shall mark the beginning of a period
     (herein called a "default period") which shall extend until such time when
     all accrued and unpaid dividends for all previous quarterly dividend
     periods and for the current quarterly dividend period on all shares of
     Series A Preferred Stock then outstanding shall have been declared and paid
     or set apart for payment. During each default period, all holders of
     Preferred Stock (including holders of the Series A Preferred Stock) with
     dividends in arrears in an amount equal to six (6) quarterly dividends
     thereon, voting as a class, irrespective of series, shall have the right to
     elect two (2) Directors.

          (ii) During any default period, such voting right of the holders of
     Series A Preferred Stock may be exercised initially at a special meeting
     called pursuant to subparagraph (iii) of this Section 3(C) or at any annual
     meeting of stockholders, and thereafter at annual meetings of stockholders,
     provided that such voting right shall not be exercised unless the holders
     of ten percent (10%) in number of shares of Preferred Stock outstanding
     shall be present in person or by proxy. The absence of a quorum of the
     holders of Common Stock shall not affect the exercise by the holders of
     Preferred Stock of such voting rights. At any meeting at which the holders
     of Preferred Stock shall exercise such voting right initially during an
     existing default period, they shall have the right, voting as a class, to
     elect Directors to fill such vacancies, if any, in the Board of Directors
     as may then exist up to two (2) Directors or, if such right is exercised at
     an

                                      A-3
<PAGE>   42

     annual meeting, to elect two (2) Directors. If the number which may be so
     elected at any special meeting does not amount to the required number, the
     holders of the Preferred Stock shall have the right to make such increase
     in the number of Directors as shall be necessary to permit the election by
     them of the required number. After the holders of the Preferred Stock shall
     have exercised their right to elect Directors in any default period and
     during the continuance of such period, the number of Directors shall not be
     increased or decreased except by vote of the holders of Preferred Stock as
     herein provided or pursuant to the rights of any equity securities ranking
     senior to or pari passu with the Series A Preferred Stock.

          (iii) Unless the holders of Preferred Stock shall, during an existing
     default period, have previously exercised their right to elect Directors,
     the Board of Directors may order, or any stockholder or stockholders owning
     in the aggregate not less than ten percent (10%) of the total number of
     shares of Preferred Stock outstanding, irrespective of series, may request,
     the calling of special meeting of the holders of Preferred Stock, which
     meeting shall thereupon be called by the Chairman of the Board, the
     President, a Vice President or the Secretary of the Corporation. Notice of
     such meeting and of any annual meeting at which holders of Preferred Stock
     are entitled to vote pursuant to this paragraph (C)(iii) shall be given to
     each holder of record of Preferred Stock by mailing a copy of such notice
     to him or her at his or her last address as the same appears on the books
     of the Corporation. Such meeting shall be called for a time not earlier
     than 10 days and not later than 50 days after such order or request, or in
     default of the calling of such meeting within 50 days after such order or
     request, such meeting may be called on similar notice by any stockholder or
     stockholders owning in the aggregate not less than ten percent (10%) of the
     total number of shares of Preferred Stock outstanding. Notwithstanding the
     provisions of this paragraph (C)(iii), no such special meeting shall be
     called during the period within 50 days immediately preceding the date
     fixed for the next annual meeting of the stockholders.

          (iv) In any default period, the holders of Common Stock, and, if
     applicable, other classes of capital stock of the Corporation, shall
     continue to be entitled to elect the whole number of Directors until the
     holders of Preferred Stock shall have exercised their right to elect two
     (2) Directors voting as a class, after the exercise of which right (x) the
     Directors so elected by the holders of Preferred Stock shall continue in
     office until their successors shall have been elected by such holders or
     until the expiration of the default period, and (y) any vacancy in the
     Board of Directors may (except as provided in paragraph (C)(ii) of this
     Section 3) be filled by vote of a majority of the remaining Directors
     theretofore elected by the holders of the class of capital stock which
     elected the Director whose office shall have become vacant. References in
     this paragraph (C) to Directors elected by the holders of a particular
     class of stock shall include Directors appointed by such Directors to fill
     vacancies as provided in clause (y) of the foregoing sentence.

          (v) Immediately upon the expiration of a default period, (x) the right
     of the holders of Preferred Stock as a class to elect Directors shall
     cease, (y) the term of any Directors elected by the holders of Preferred
     Stock as a class shall terminate, and (z) the number of Directors shall be
     such number as may be provided for in the certificate of

                                      A-4
<PAGE>   43

     incorporation or by-laws irrespective of any increase made pursuant to the
     provisions of paragraph (C)(ii) of this Section 3 (such number being
     subject, however, to change thereafter in any manner provided by law or in
     the certificate of incorporation or by-laws). Any vacancies in the Board of
     Directors effected by the provisions of clauses (y) and (z) in the
     preceding sentence may be filled by a majority of the remaining Directors.

          (D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.

          Section 4. Certain Restrictions.

          (A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:

          (i) declare or pay dividends on, make any other distributions on, or
     redeem or purchase or otherwise acquire for consideration any shares of
     capital stock ranking junior (either as to dividends or upon liquidation,
     dissolution or winding up) to the Series A Preferred Stock;

          (ii) declare or pay dividends on or make any other distributions on
     any shares of stock ranking on a parity (either as to dividends or upon
     liquidation, dissolution or winding up) with the Series A Preferred Stock,
     except dividends paid ratably on the Series A Preferred Stock and all such
     parity stock on which dividends are payable or in arrears in proportion to
     the total amounts to which the holders of all such shares are then
     entitled;

          (iii) redeem or purchase or otherwise acquire for consideration shares
     of any capital stock ranking on a parity (either as to dividends or upon
     liquidation, dissolution or winding up) with the Series A Preferred Stock,
     provided that the Corporation may at any time redeem, purchase or otherwise
     acquire shares of any such parity stock in exchange for shares of any
     capital stock of the Corporation ranking junior (either as to dividends or
     upon dissolution, liquidation or winding up) to the Series A Preferred
     Stock; or

          (iv) purchase or otherwise acquire for consideration any shares of
     Series A Preferred Stock, or any shares of capital stock ranking on a
     parity with the Series A Preferred Stock, except in accordance with a
     purchase offer made in writing or by publication (as determined by the
     Board of Directors) to all holders of such shares upon such terms as the
     Board of Directors, after consideration of the respective annual dividend
     rates and other relative rights and preferences of the respective series
     and classes, shall determine in good faith will result in fair and
     equitable treatment among the respective series or classes.

                                      A-5
<PAGE>   44

          (B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

          Section 5. Reacquired Shares.

          Any shares of Series A Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.

          Section 6. Liquidation, Dissolution or Winding Up.

          (A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of capital stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Preferred Stock and Common Stock,
respectively, and the payment of liquidation preferences of all other shares of
capital stock which rank prior to or on a parity with Series A Preferred Stock,
holders of Series A Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.

          (B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.

          (C) In the event the Corporation shall at any time after the Rights
Declaration

                                      A-6
<PAGE>   45

Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

          Section 7. Consolidation, Merger, etc.

          In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series A Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of capital stock, securities, cash and/or any other
property (payable in kind), as the case may be, for which or into which each
share of Common Stock is exchanged or changed. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

          Section 8. No Redemption.

          The shares of Series A Preferred Stock shall not be redeemable.

          Section 9. Ranking.

          The Series A Preferred Stock shall rank junior to all other series of
the Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, whether or not upon the dissolution, liquidation or
winding up of the Corporation, unless the terms of any such series shall provide
otherwise.

          Section 10. Amendment.

          The Charter shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority of the outstanding shares of Series A Preferred Stock,
voting separately as a class.

          Section 11. Fractional Shares.

          Series A Preferred Stock may be issued in fractions of a share which
shall entitle

                                      A-7
<PAGE>   46

the holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Preferred Stock.

                                      A-8
<PAGE>   47
IN WITNESS WHEREOF, eLoyalty Corporation has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Kelly D. Conway, its
President and Chief Executive Officer, and the same to be attested to by Timothy
J. Cunningham, its Senior Vice President and Chief Financial Officer, this 17th
day of March, 2000.

                              eLoyalty Corporation

                              By:
                                 ------------------------------
                                    Kelly D. Conway
                                    President and Chief Executive Officer

(Corporate Seal)

Attest:

--------------------------------------------------
Timothy J. Cunningham
Senior Vice President and Chief Financial Officer

                                      A-9

<PAGE>   48
                                                                       Exhibit B

                          [Form of Rights Certificate]

Certificate No. R-                                             __________ Rights

NOT EXERCISABLE AFTER MARCH 31, 2010 OR EARLIER IF REDEEMED OR EXCHANGED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$.01 PER RIGHT, AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON
(AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE
AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.](1)

---------------------
    The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.

<PAGE>   49
                               Rights Certificate

                              eLoyalty Corporation

          This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of March 17, 2000, as the same may be amended from time to
time (the "Rights Agreement"), between eLoyalty Corporation, a Delaware
corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C., a New
Jersey limited liability company (the "Rights Agent"), to purchase from the
Company at any time prior to 5:00 P.M. (Chicago time) on March 31, 2010 at the
office or offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, one one-hundredth of a fully paid, nonassessable
share of Series A Junior Participating Preferred Stock, par value $.01 per share
(the "Preferred Stock"), of the Company, at a purchase price of $160 per one
one-hundredth of a share (the "Purchase Price"), upon presentation and surrender
of this Rights Certificate with the Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of March 31, 2000, based on the Preferred Stock
as constituted at such date. The Company reserves the right to require prior to
the occurrence of a Triggering Event (as such term is defined in the Rights
Agreement) that, upon any exercise of Rights, a number of Rights be exercised so
that only whole shares of Preferred Stock will be issued.

          Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person or an Affiliate or Associate of such Person, such Rights shall
become null and void and no holder hereof shall have any right with respect to
such Rights from and after the occurrence of such Section 11(a)(ii) Event.

          As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.

          This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the

                                      B-2

<PAGE>   50

Rights Agent.

          This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-hundredths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificates surrendered shall have
entitled such holder to purchase. If this Rights Certificate shall be exercised
in part, the holder shall be entitled to receive upon surrender hereof another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.

          Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may, in each case at the option of the Company, be
(i) redeemed by the Company at its option at a redemption price of $.01 per
Right or (ii) exchanged in whole or in part for shares of Common Stock or other
securities of the Company. Immediately upon the action of the Board of Directors
of the Company authorizing redemption, the Rights will terminate and the only
right of the holders of Rights will be to receive the redemption price.

          No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.

          No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.

          This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned manually or by facsimile
signature by the Rights Agent.

                                      B-3
<PAGE>   51
WITNESS the facsimile signature of the proper officers of the Company and its
corporate seal.

Dated as of _______ __, ____

ATTEST:                                     eLoyalty Corporation

                                            By:
_________________________                      ________________________________
       Secretary                               Name:
                                               Title:

Countersigned:

ChaseMellon Shareholder Services, L.L.C.

By:
   _________________________________
        Authorized Signature

                                      B-4
<PAGE>   52
                  [Form of Reverse Side of Rights Certificate]

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such

               holder desires to transfer the Rights Certificate.)

FOR VALUE RECEIVED _______________________________________________________
hereby sells, assigns and transfers unto

__________________________________________________________________________
               (Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.

Dated: ___________________,

                                      _____________________________
                                      Signature

Signature Guaranteed:

                                 Certificate

          The undersigned hereby certifies by checking the appropriate boxes
that:

          (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
     transferred by or on behalf of a Person who is or was an Acquiring Person
     or an Affiliate or Associate of an Acquiring Person (as such terms are
     defined pursuant to the Rights Agreement);

          (2) after due inquiry and to the best knowledge of the undersigned, it
     [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
     from any Person who is, was or subsequently became an Acquiring Person or
     an Affiliate or Associate of an Acquiring Person.

Dated: _______, ___            ____________________________
                                        Signature

Signature Guaranteed:

                                      B-5
<PAGE>   53
                                     NOTICE

          The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.

                          FORM OF ELECTION TO PURCHASE

     (To be executed if holder desires to exercise Rights represented by the
Rights Certificate.)

TO:  eLoyalty Corporation

          The undersigned hereby irrevocably elects to exercise ______ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares (or other securities) be
issued in the name of and delivered to:

Please insert social security
or other identifying number: ______________________

__________________________________________________________________
                  (Please print name and address)
__________________________________________________________________

          If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:

Please insert social security
or other identifying number: ______________________

__________________________________________________________________
                  (Please print name and address)
__________________________________________________________________

Dated:  _____________,

   ________________________________________________
                                  Signature

Signature Guaranteed:

                                      B-6
<PAGE>   54
                                   Certificate

          The undersigned hereby certifies by checking the appropriate boxes
that:

          (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
     not being exercised by or on behalf of a Person who is or was an Acquiring
     Person or an Affiliate or Associate of an Acquiring Person (as such terms
     are defined pursuant to the Rights Agreement);

          (2) after due inquiry and to the best knowledge of the undersigned, it
     [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
     from any Person who is, was or became an Acquiring Person or an Affiliate
     or Associate of an Acquiring Person.

Dated: _________,___                __________________________________
                                                 Signature

Signature Guaranteed:

                                     NOTICE

          The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.

                                      B-7
<PAGE>   55
                                                                       Exhibit C

                  SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK

          On March 17, 2000, a duly authorized committee of the Board of
Directors of eLoyalty Corporation adopted a Stockholders Rights Plan (the
"Rights Plan") and declared a dividend distribution of one Right for each
outstanding share of eLoyalty's common stock, to stockholders of record at the
close of business on March 31, 2000. Each Right will entitle its holder, under
the circumstances described below, to purchase from eLoyalty one one-hundredth
of a share of its Series A Junior Participating Preferred Stock, $.01 par value,
(the "Series A Preferred Stock"), at an exercise price of $160 per Right,
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between eLoyalty and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent.

          Initially, the Rights will be associated with the common stock and
evidenced by the common stock certificates, which will contain a notation
incorporating the Rights Agreement by reference, and will be transferred with
and only with underlying shares of common stock. The Rights will become
exercisable and separately certificated only upon the "Distribution Date," which
will occur upon the earlier of:

     -    ten days following a public announcement that a person or group (an
          "Acquiring Person") has acquired, or obtained the right to acquire,
          beneficial ownership of 15% or more of the outstanding shares of
          common stock then outstanding (the date of the announcement being the
          "Stock Acquisition Date"); or

     -    ten business days (or later if determined by eLoyalty's board of
          directors prior to any person becoming an Acquiring Person) following
          the commencement of a tender offer or exchange offer that would result
          in a person or group becoming an Acquiring Person.

          Until the Distribution Date, the surrender for transfer of any shares
of common stock outstanding will also constitute the transfer of the Rights
associated with such shares.

          As soon as practicable after the Distribution Date, separate
certificates or book-entry statements for the Rights will be mailed to holders
of record of common stock as of the close of business on the Distribution Date.
From and after the Distribution Date, the separate certificates or book-entry
statements alone will represent the Rights. Except as otherwise provided in the
Rights Agreement, only shares of common stock issued prior to the Distribution
Date will be issued with Rights.

          The Rights are not exercisable until the Distribution Date and will
expire at the close of business on March 31, 2010, unless earlier redeemed or
exchanged by eLoyalty as described below.

          In the event (a "Flip-In Event") that a person or group becomes an
Acquiring Person, each holder of a Right (other than any Acquiring Person and
certain related parties, whose Rights will automatically become null and void)
will have the right to receive, upon

<PAGE>   56
exercise, common stock, or, in certain circumstances, cash, property or other
securities of eLoyalty, with a value equal to two times the exercise price of
the Right. The Rights may not be exercised following a Flip-In Event while
eLoyalty has the ability to cause the Rights to be redeemed. eLoyalty's ability
to redeem the Rights is described below.

          For example, at an exercise price of $100 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following a Flip-In
Event would entitle its holder to purchase $200 worth of common stock (or other
consideration, as noted above) for $100. Assuming that the common stock had a
per share value of $50 at that time, the holder of each valid Right would be
entitled to purchase 4 shares of common stock for $100.

          In the event (a "Flip-Over Event") that, at any time following the
Stock Acquisition Date:

    -     eLoyalty is acquired in a merger or other business combination in
          which it is not the surviving entity,

    -     eLoyalty is acquired in a merger or other business combination in
          which it is the surviving entity and all or part of its common stock
          is converted into or exchanged for securities of another entity, cash
          or other property, or

    -     50% or more of eLoyalty's assets or earning power is sold or
          transferred,

then each holder of a Right (except Rights which previously have been voided as
set forth above) will have the right to receive, upon exercise, common stock of
the acquiring company having a value equal to two times the exercise price of
the Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."

          The exercise price payable, and the number of shares of Series A
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution:

    -     in the event of a stock dividend on, or a subdivision, combination or
          reclassification of, the Series A Preferred Stock,

    -     if holders of the Series A Preferred Stock are granted certain rights,
          options or warrants to subscribe for Series A Preferred Stock or
          convertible securities at less than the current market price of the
          Series A Preferred Stock, or

    -     upon the distribution to holders of the Preferred Stock of evidences
          of indebtedness or assets (excluding regular periodic cash dividends)
          or of subscription rights or warrants (other than those referred to
          above).

          With certain exceptions, no adjustment in the exercise price will be
required until cumulative adjustments amount to at least 1% of the then current
exercise price. No fractional shares of Series A Preferred Stock will be issued
and, in lieu thereof, an adjustment in cash will be made based on the market
price of the Series A Preferred Stock on the last trading day prior to the date
of exercise. eLoyalty may require prior to the occurrence of a Triggering Event
that,

                                      C-2
<PAGE>   57

upon any exercise of Rights, a number of Rights be exercised so that only whole
shares of Series A Preferred Stock will be issued.

          eLoyalty may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (subject to adjustment and payable in cash, common stock or
other consideration deemed appropriate by eLoyalty's board of directors) at any
time until ten days following the Stock Acquisition Date. Immediately upon the
action of eLoyalty's board of directors authorizing any redemption, the Rights
will terminate and the only right of the holders of Rights will be to receive
the redemption price.

          At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by that person or group of 50% or more of the
outstanding shares of common stock, eLoyalty may exchange the Rights (other than
Rights owned by that person or group which will have become void), in whole or
in part, at an exchange ratio of one share of common stock, or one one-hundredth
of a share of Series A Preferred Stock (or of a share of a class or series of
our preferred stock having equivalent rights, preferences and privileges), per
Right (subject to adjustment).

          Until a Right is exercised, its holder, as such, will have no rights
as a stockholder of eLoyalty, including, without limitation, the right to vote
or to receive dividends. While the distribution of the Rights will not result in
the recognition of taxable income by eLoyalty or its stockholders, stockholders
may, depending upon the circumstances, recognize taxable income after a
Triggering Event.

          The terms of the Rights may be amended by eLoyalty's board of
directors without the consent of the holders of the Rights. The board of
directors could, among other things, lower the thresholds described above to the
greater of 10% or .001% more than the largest percentage of the outstanding
shares of common stock then known to eLoyalty to be beneficially owned by any
person or group of affiliated or associated persons. Once a person or group has
become an Acquiring Person no amendment can adversely affect the interests of
the holders of the Rights.

          A copy of the Rights Agreement is available free of charge from the
Rights Agent. This description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.

                                      C-3<PAGE>   1

                                                                     EXHIBIT 4.2

                           Certificate of Designations

                                       of

                  Series A Junior Participating Preferred Stock

                                       of

                              eLoyalty Corporation

                         Pursuant to Section 151 of the

                General Corporation Law of the State of Delaware

                  The undersigned do hereby certify that the following
resolution was duly adopted by the Board of Directors of eLoyalty Corporation, a
Delaware corporation (the "Corporation"), on January 26, 2000:

                  RESOLVED, that pursuant to the authority vested in the board
of directors of the Corporation by the Certificate of Incorporation, as amended
(the "Charter"), the Board of Directors does hereby create, authorize and
provide for the issue of a series of Preferred Stock, par value $.01 per share,
of the Corporation, to be designated "Series A Junior Participating Preferred
Stock" (hereinafter referred to as the "Series A Preferred Stock"), initially
consisting of 1,000,000 shares, and to the extent that the designations, powers,
preferences and relative and other special rights and the qualifications,
limitations or restrictions of the Series A Preferred Stock are not stated and
expressed in the Charter, does hereby fix and herein state and express such
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Charter shall be deemed to have the meanings
provided therein):

                  Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 1,000,000.

                  Section 2.  Dividends and Distributions.
                              ---------------------------

                  (A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose,

<PAGE>   2

quarterly dividends payable in cash on the first business day of
January, April, July and October in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $.01 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock,
par value $.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time after March 31, 2000 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

                  (B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided, however, that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, subject to the prior and superior
rights of the holders of any shares of any series of Preferred Stock ranking
prior to and superior to the shares of Series A Preferred Stock with respect to
dividends, a dividend of $.01 per share on the Series A Preferred Stock shall
nevertheless by payable on such subsequent Quarterly Dividend Payment Date.

                  (C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution

                                       2
<PAGE>   3

declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.

                  Section 3.  Voting Rights.
                              -------------

                  The holders of shares of Series A Preferred Stock shall have
the following voting rights:

                  (A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

                  (B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote collectively as one class on all matters submitted to a vote of
stockholders of the Corporation.

                  (C) (i) If at any time dividends on any Series A Preferred
         Stock shall be in arrears in an amount equal to six (6) quarterly
         dividends thereon, the occurrence of such contingency shall mark the
         beginning of a period (herein called a "default period") which shall
         extend until such time when all accrued and unpaid dividends for all
         previous quarterly dividend periods and for the current quarterly
         dividend period on all shares of Series A Preferred Stock then
         outstanding shall have been declared and paid or set apart for payment.
         During each default period, all holders of Preferred Stock (including
         holders of the Series A Preferred Stock) with dividends in arrears in
         an amount equal to six (6) quarterly dividends thereon, voting as a
         class, irrespective of series, shall have the right to elect two (2)
         Directors.

                  (ii) During any default period, such voting right of the
         holders of Series A Preferred Stock may be exercised initially at a
         special meeting called pursuant to subparagraph (iii) of this Section
         3(C) or at any annual meeting of stockholders, and thereafter at annual
         meetings of stockholders, provided that such voting right shall not be
         exercised unless the holders of ten percent (10%) in number of shares
         of Preferred Stock outstanding shall be present in person or by proxy.
         The absence of a quorum of the holders of Common Stock shall not affect
         the exercise by the holders of Preferred Stock of such voting rights.
         At any meeting at which the holders of Preferred Stock shall exercise
         such voting right initially during an existing default period, they
         shall have the right, voting as a class, to elect Directors to fill
         such vacancies, if any, in the Board of Directors as may then exist up
         to two (2) Directors or, if such right is exercised at an

                                       3
<PAGE>   4

         annual meeting, to elect two (2) Directors. If the number which may be
         so elected at any special meeting does not amount to the required
         number, the holders of the Preferred Stock shall have the right to make
         such increase in the number of Directors as shall be necessary to
         permit the election by them of the required number. After the holders
         of the Preferred Stock shall have exercised their right to elect
         Directors in any default period and during the continuance of such
         period, the number of Directors shall not be increased or decreased
         except by vote of the holders of Preferred Stock as herein provided or
         pursuant to the rights of any equity securities ranking senior to or
         pari passu with the Series A Preferred Stock.

                  (iii) Unless the holders of Preferred Stock shall, during an
         existing default period, have previously exercised their right to elect
         Directors, the Board of Directors may order, or any stockholder or
         stockholders owning in the aggregate not less than ten percent (10%) of
         the total number of shares of Preferred Stock outstanding, irrespective
         of series, may request, the calling of special meeting of the holders
         of Preferred Stock, which meeting shall thereupon be called by the
         Chairman of the Board, the President, a Vice President or the Secretary
         of the Corporation. Notice of such meeting and of any annual meeting at
         which holders of Preferred Stock are entitled to vote pursuant to this
         paragraph (C)(iii) shall be given to each holder of record of Preferred
         Stock by mailing a copy of such notice to him or her at his or her last
         address as the same appears on the books of the Corporation. Such
         meeting shall be called for a time not earlier than 10 days and not
         later than 50 days after such order or request, or in default of the
         calling of such meeting within 50 days after such order or request,
         such meeting may be called on similar notice by any stockholder or
         stockholders owning in the aggregate not less than ten percent (10%) of
         the total number of shares of Preferred Stock outstanding.
         Notwithstanding the provisions of this paragraph (C)(iii), no such
         special meeting shall be called during the period within 50 days
         immediately preceding the date fixed for the next annual meeting of the
         stockholders.

                  (iv) In any default period, the holders of Common Stock, and,
         if applicable, other classes of capital stock of the Corporation, shall
         continue to be entitled to elect the whole number of Directors until
         the holders of Preferred Stock shall have exercised their right to
         elect two (2) Directors voting as a class, after the exercise of which
         right (x) the Directors so elected by the holders of Preferred Stock
         shall continue in office until their successors shall have been elected
         by such holders or until the expiration of the default period, and (y)
         any vacancy in the Board of Directors may (except as provided in
         paragraph (C)(ii) of this Section 3) be filled by vote of a majority of
         the remaining Directors theretofore elected by the holders of the class
         of capital stock which elected the Director whose office shall have
         become vacant. References in this paragraph (C) to Directors elected by
         the holders of a particular class of stock shall include Directors
         appointed by such Directors to fill vacancies as provided in clause (y)
         of the foregoing sentence.

                  (v) Immediately upon the expiration of a default period, (x)
         the right of the holders of Preferred Stock as a class to elect
         Directors shall cease, (y) the term of any Directors elected by the
         holders of Preferred Stock as a class shall terminate, and (z) the
         number of Directors shall be such number as may be provided for in the
         certificate of

                                       4
<PAGE>   5

         incorporation or by-laws irrespective of any increase made pursuant to
         the provisions of paragraph (C)(ii) of this Section 3 (such number
         being subject, however, to change thereafter in any manner provided by
         law or in the certificate of incorporation or by-laws). Any vacancies
         in the Board of Directors effected by the provisions of clauses (y) and
         (z) in the preceding sentence may be filled by a majority of the
         remaining Directors.

                  (D) Except as set forth herein, holders of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.

                  Section 4.  Certain Restrictions.
                              --------------------

                  (A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:

                  (i) declare or pay dividends on, make any other distributions
         on, or redeem or purchase or otherwise acquire for consideration any
         shares of capital stock ranking junior (either as to dividends or upon
         liquidation, dissolution or winding up) to the Series A Preferred
         Stock;

                  (ii) declare or pay dividends on or make any other
         distributions on any shares of stock ranking on a parity (either as to
         dividends or upon liquidation, dissolution or winding up) with the
         Series A Preferred Stock, except dividends paid ratably on the Series A
         Preferred Stock and all such parity stock on which dividends are
         payable or in arrears in proportion to the total amounts to which the
         holders of all such shares are then entitled;

                  (iii) redeem or purchase or otherwise acquire for
         consideration shares of any capital stock ranking on a parity (either
         as to dividends or upon liquidation, dissolution or winding up) with
         the Series A Preferred Stock, provided that the Corporation may at any
         time redeem, purchase or otherwise acquire shares of any such parity
         stock in exchange for shares of any capital stock of the Corporation
         ranking junior (either as to dividends or upon dissolution, liquidation
         or winding up) to the Series A Preferred Stock; or

                  (iv) purchase or otherwise acquire for consideration any
         shares of Series A Preferred Stock, or any shares of capital stock
         ranking on a parity with the Series A Preferred Stock, except in
         accordance with a purchase offer made in writing or by publication (as
         determined by the Board of Directors) to all holders of such shares
         upon such terms as the Board of Directors, after consideration of the
         respective annual dividend rates and other relative rights and
         preferences of the respective series and classes, shall determine in
         good faith will result in fair and equitable treatment among the
         respective series or classes.

                                       5
<PAGE>   6

                  (B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.

                  Section 5.  Reacquired Shares.
                              -----------------

                  Any shares of Series A Preferred Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.

                  Section 6.  Liquidation, Dissolution or Winding Up.
                              --------------------------------------

                  (A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of shares of capital stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Preferred Stock and Common Stock,
respectively, and the payment of liquidation preferences of all other shares of
capital stock which rank prior to or on a parity with Series A Preferred Stock,
holders of Series A Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.

                  (B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, which rank on a parity with the Series A Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.

                  (C) In the event the Corporation shall at any time after the
Rights Declaration

                                       6
<PAGE>   7

Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

                  Section 7.  Consolidation, Merger, etc.
                              --------------------------

                  In case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series A Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of capital stock, securities, cash and/or any other
property (payable in kind), as the case may be, for which or into which each
share of Common Stock is exchanged or changed. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

                  Section 8.  No Redemption.
                              -------------

                  The shares of Series A Preferred Stock shall not be
redeemable.

                  Section 9.  Ranking.
                              -------

                  The Series A Preferred Stock shall rank junior to all other
series of the Corporation's Preferred Stock as to the payment of dividends and
the distribution of assets, whether or not upon the dissolution, liquidation or
winding up of the Corporation, unless the terms of any such series shall provide
otherwise.

                  Section 10.  Amendment.
                               ---------

                  The Charter shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of a majority of the outstanding shares of Series A
Preferred Stock, voting separately as a class.

                  Section 11.  Fractional Shares.
                               -----------------

                  Series A Preferred Stock may be issued in fractions of a share
which shall entitle

                                       7
<PAGE>   8

the holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Preferred Stock.

                                       8
<PAGE>   9

IN WITNESS WHEREOF, eLoyalty Corporation has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Kelly D. Conway, its
President and Chief Executive Officer, and the same to be attested to by Timothy
J. Cunningham, its Senior Vice President and Chief Financial Officer, this 17th
day of March, 2000.

                                                eLoyalty Corporation

                                                By:  /s/ Kelly D. Conway
                                                     -------------------------
                                                         Kelly D. Conway
                                                         President and
                                                         Chief Executive Officer

(Corporate Seal)

Attest:

/s/ Timothy J. Cunningham
------------------------------------------
Timothy J. Cunningham
Senior Vice President and Chief Financial Officer

                                       9

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