Document:

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                                                                  EXHIBIT 10.3

                              eLoyalty Corporation

                                 January 2, 2001

Mr. Jay Istvan
614 W. Maple Street
Hinsdale, IL 60521

Dear Jay:

         This letter agreement is entered into in connection with, and
supplements the terms of, your employment agreement with eLoyalty Corporation
("eLoyalty") dated effective as of January 29, 2001.

         We have agreed that neither you nor eLoyalty intends to obtain,
disclose or use any trade secrets or other confidential information of Boston
Consulting Group ("BCG") and that you will not disclose (and eLoyalty will not
ask you to disclose) to eLoyalty any of BCG's trade secrets or other
confidential information.

         Based upon your knowledge of the businesses conducted by eLoyalty and
BCG, and your respective duties and responsibilities at eLoyalty and BCG, you
believe that your employment by eLoyalty will not cause you to violate any
non-competition provisions applicable to you under the terms and conditions of
your employment by BCG. We recognize, however, that BCG may take a contrary
position and determine that various items of compensation otherwise owed to you
by BCG is forfeitable because your employment by eLoyalty is deemed competitive
with BCG under applicable non-compete forfeiture provisions in one or more
compensation plans, agreements or arrangements maintained by BCG.

         Accordingly, eLoyalty hereby agrees to provide one or more loans to you
in accordance with the following terms of this letter in the amount of the
compensation which you would otherwise be entitled to receive from BCG but which
is forfeited by you by reason of BCG's determination that your employment by
eLoyalty constitutes competitive activity under any agreement between you and
BCG or any compensation plan or arrangement maintained by BCG.

         The maximum aggregate amount of such loans from eLoyalty shall be
$1,000,000.

         As a condition to each such loan, you agree to enter into a promissory
note with respect to the amount thereof. Such promissory note shall be
substantially identical in all material respects to the promissory note attached
hereto as Attachment A.

<PAGE>   2

         Prior to eLoyalty making any such loan, you shall provide evidence
reasonably satisfactory to eLoyalty of the amount of compensation otherwise
payable to you by BCG which was forfeited by reason of BCG's determination that
your employment with eLoyalty triggers the non-compete forfeiture provisions
under the terms of one or more agreements between you and BCG or the terms of
one or more applicable BCG compensation plans or arrangements.

         eLoyalty shall provide such loans to you as soon as reasonably
practicable after you provide the evidence described in the preceding paragraph.
As a further condition to any such loan, however, you agree to pursue in good
faith any dispute resolution procedure established by BCG with respect to the
forfeiture of compensation due to competitive activity; provided, however, that
you shall not be required to pursue mediation, arbitration or litigation unless
eLoyalty agrees to pay the costs thereof. You shall use any amount recovered and
actually received by you pursuant to such procedure to repay the corresponding
loan, notwithstanding the repayment terms otherwise applicable under the loan.

         You agree to keep this letter and the terms thereof confidential until
such time as it is made publicly available by eLoyalty.

         If the foregoing properly reflects our agreement as to these matters,
please indicate that your agreement by signing this letter in the space provided
below and returning it to my attention.

                                                Yours truly,

                                                eLoyalty Corporation

                                                By: __________________________
                                                        Kelly D. Conway

Acknowledged and agreed to this
____ day of January, 2001

_______________________________
          Jay Istvan

<PAGE>   3

                                                                    Attachment A

                                 PROMISSORY NOTE

U.S. ____________                                        _____________ 2001

                  FOR VALUE RECEIVED, the undersigned, Jay Istvan ("Borrower"),
whose principal current residence address is 614 West Maple Street, Hinsdale,
Illinois 60521, hereby unconditionally promises to pay to the order of eLoyalty
Corporation, a Delaware corporation ("Lender"), having its principal office at
150 Field Drive, Lake Forest, Illinois 60045, in lawful money of the United
States of America and in immediately available funds, the principal sum of
_______________________________________________________ ($__________), together
with interest on the principal balance from time to time outstanding at the rate
of ____________ percent (____%) per annum from the date hereof until payment in
full thereof in accordance with the immediately succeeding paragraph.

                  The principal indebtedness evidenced hereby, together with
interest as aforesaid, shall be payable on January 29, 2003 (the "Payment
Date"), whereby Borrower shall pay to Lender the sum of
_____________________________ Dollars ($___________), such sum comprised of
________________________________($_________) of principal repayment and
____________________ Dollars ($_______) of interest payment; provided, however,
that if Borrower has been employed by Lender, or any parent or subsidiary
company of Lender, from the date hereof through and including the Payment Date,
then such principal indebtedness and interest shall be discharged and forgiven
by Lender and shall no longer be due and, accordingly, Borrower shall have no
further obligation to Lender hereunder. In the event that, prior to the Payment
Date, Borrower terminates his employment with Lender of Borrower's own accord
other than (i) pursuant to a "Constructive Discharge," as defined in Borrower's
Employment Agreement dated effective as of January 29, 2001 (the "Employment
Agreement") or (ii) by reason of Disability, as defined in the Employment
Agreement, or if Borrower's employment with Lender is terminated prior to the
Payment Date by Lender for "Serious Misconduct," as defined in the Employment
Agreement, then the full amount of outstanding principal and accrued interest
shall become due and payable in accordance with and at the time provided by the
following provisions of this Note. In the event that Borrower's employment with
Lender is terminated by Lender for any reason other than Serious Misconduct, or
is terminated by Borrower pursuant to a Constructive Discharge or is terminated
by either Borrower or Lender by reason of Borrower's Disability or in the event
of Borrower's death, then such principal indebtedness and interest shall be
discharged and forgiven by Lender and shall no longer be due and, accordingly,
Borrower shall have no further obligation to Lender hereunder. Borrower,
however, shall in all cases be responsible for income tax on the principal plus
interest, if and when they are recognized as income, which may be withheld by
Lender.

                  Borrower reserves the right to prepay this Note, in whole or
in part, at any time without penalty. In the event of such prepayment, the
amount so prepaid will be applied to principal due and interest will be adjusted

<PAGE>   4
accordingly. Payments received by Lender from Borrower on this Note shall be
applied first to the payment of interest, which is due and payable and only
thereafter to the outstanding principal balance.

                  All payments of principal and interest under this Note shall
be made by Borrower to Lender, at Lender's principal place of business as set
forth above, or at such other place as Lender may from time to time designate in
writing.

                  The occurrence or existence of one or more of the following
events shall constitute an event of default ("Default") under this Note: (i) the
failure of Borrower to pay when due any principal or interest due hereunder; or
(ii) prior to the Payment Date, Borrower shall no longer remain an employee of
Lender, or a parent or subsidiary company of Lender, because of termination of
his employment due to Serious Misconduct or because of Borrower's own accord
other than pursuant to a Constructive Discharge or by reason of his Disability.

                  In an event of Default, Lender may, by 90 days' written notice
to Borrower, declare all the indebtedness evidenced by this Note to be, and,
upon the expiration of such 90-day period, such indebtedness shall become
immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by Borrower.

                  If payment hereunder becomes due and payable on a day which is
not a "Business Day" (as defined below), the due date thereof shall be extended
to the next succeeding Business Day, and interest shall be payable thereon
during such extension at the rate specified above. "Business Day" shall mean a
day on which banks in Chicago, Illinois are open for the transaction of banking
business. In no case or event whatsoever shall interest charged hereunder,
however such interest may be characterized or computed, exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that Lender has received interest hereunder in excess of the highest
rate applicable hereto, Lender shall (i) apply such excess to any unpaid
principal balance due and payable by Borrower hereunder to Lender; and (ii) if
the amount of such excess exceeds the unpaid principal and other liabilities due
and payable by Borrower hereunder, Lender shall remit such excess to Borrower.

                  Any notice hereunder shall be sufficiently given if in writing
and delivered in person or mailed by first class mail addressed as follows:

<PAGE>   5

IF TO BORROWER:

              Jay Istvan
              614 West Maple Street
              Hinsdale, Illinois  60521

IF TO LENDER:

              eLoyalty Corporation
              150 Field Drive, Suite 250
              Lake Forest, Illinois  60045
              Attention:  Senior Vice President and Chief Financial Officer

                  Borrower and Lender may each designate additional or different
addresses by notice to the other party as provided herein.

                  Lender shall be under no obligation to marshal any assets in
favor of Borrower in payment of any or all of Borrower's liabilities hereunder.
To the extent that Borrower makes a payment or payments to Lender, and such
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, provincial, state
or federal law, common law or equitable cause, then to the extent of such
recovery, the obligation or part hereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.

                  Any dispute between Lender and Borrower arising out of,
connected with, related to, or incidental to the relationship established
between them in connection with this Note, and whether arising in contract,
tort, equity, or otherwise, shall be resolved in accordance with the internal
laws and not the conflicts of law provisions of the State of Illinois.

                  Except as provided in the immediately succeeding paragraph,
Lender and Borrower each agree that all disputes between them arising out of,
connected with, related to, or incidental to the relationship established
between them in connection with this Note and whether arising in contract, tort,
equity, or otherwise, shall be resolved only by state or federal courts located
in Cook County, Illinois, but Lender and Borrower acknowledge that any appeals
from those courts may have to be heard by a court located outside of Cook
County, Illinois. Borrower waives any and all objections that he may have to the
location of the court considering the dispute.

                  Borrower agrees that Lender shall have the right to proceed
against Borrower or his property in a court in any location to enable Lender to
enforce a judgment or other court order entered in favor of Lender. Borrower
agrees that he will not assert any permissive counterclaims in any proceeding
brought by Lender to enforce a judgment or other court order in favor of Lender.
Borrower waives any objection that he may have to the location of the court in
which Lender has commenced a proceeding described in this paragraph.

<PAGE>   6
                  Borrower waives personal service of any process upon him and
consents that all such service of process be made by registered mail directed to
Borrower at the address stated herein.

                  Borrower waives the posting of any bond otherwise required of
Lender to enforce any judgment or other court order entered in favor of Lender,
or to enforce this note by specific performance, temporary restraining order,
preliminary or permanent injunction.

                  Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note. Whenever in this Note reference is
made to Lender or Borrower, such reference shall be deemed to include, as
applicable, a reference to their respective successors and assigns, and the
provisions of this Note shall be binding upon and shall inure to the benefit of
said successors and assigns. Borrower's successors and assigns shall include,
without limitation, a receiver, receiver and manager, trustee or
debtor-in-possession of or for Borrower.

                                            By: _____________________________
                                                       Jay Istvan
                                                       Borrower<PAGE>   1
                                                                  EXHIBIT 10.4

                            INDEMNIFICATION AGREEMENT

         INDEMNIFICATION AGREEMENT made effective as of the 29th day of January,
2001, between eLoyalty Corporation, a Delaware corporation (the "Company"), and
Jay Istvan (the "Indemnitee").

         WHEREAS, it is essential to the Company and its stockholders to attract
and retain qualified and capable directors, officers, employees, agents and
fiduciaries;

         WHEREAS, the Certificate of Incorporation of the Company (the
"Certificate of Incorporation") and the Company's Bylaws require the Company to
indemnify and advance expenses to its directors and officers to the extent not
prohibited by law;

         WHEREAS, historically, basic protection against undue risk of personal
liability of directors and officers has been provided through insurance coverage
affording reasonable protection at reasonable cost;

         WHEREAS, it is presently uncertain whether, and to what extent, such
insurance is or will continue to be available to the Company at a reasonable
cost for the protection of Indemnitee;

         WHEREAS, in recognition of Indemnitee's need for protection against
personal liability in order to induce Indemnitee to serve or continue to serve
the Company in an effective manner, and, in the case of directors and officers,
to supplement or replace the Company's directors' and officers' liability
insurance coverage, and in part to provide Indemnitee with specific contractual
assurance that the protection promised by the Certificate of Incorporation and
Bylaws will be available to Indemnitee (regardless of, among other things, any
amendment to or revocation of the Certificate of Incorporation and Bylaws or any
change in the composition of the Company's Board of Directors or any acquisition
transaction relating to the Company), the Company wishes to provide the
Indemnitee with the benefits contemplated by this Agreement; and

         WHEREAS, as a result of the provision of such benefits Indemnitee has
agreed to serve or to continue to serve the Company;

         NOW, THEREFORE, the parties hereto hereby agree as follows:

         1. Definitions. The following terms, as used herein, shall have the
following respective meanings:

         (a) Claim: means any threatened, pending or completed action, suit,
arbitration or proceeding, or any inquiry or investigation, whether brought by
or in the right of the Company or otherwise, that Indemnitee in good faith

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believes might lead to the institution of any such action, suit, arbitration or
proceeding, whether civil, criminal, administrative, investigative or other, or
any appeal therefrom.

         (b) D&O Insurance: means any valid directors' and officers' liability
insurance policy maintained by the Company for the benefit of the Indemnitee.

         (c) Determination: means a determination, and Determined means a matter
which has been determined based on the facts known at the time, by: (i) a
majority vote of a quorum of disinterested directors, or (ii) if such a quorum
is not obtainable, or even if obtainable, if a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (iii) a
majority of the disinterested stockholders of the Company, or (iv) a final
adjudication by a court of competent jurisdiction.

         (d) Excluded Claim: means any payment for Losses or Expenses in
connection with any Claim: (i) based upon or attributable to Indemnitee gaining
in fact any personal profit or advantage to which Indemnitee is not entitled; or
(ii) for the return by Indemnitee of any remuneration paid to Indemnitee without
the previous approval of the stockholders of the Company which is illegal; or
(iii) for an accounting of profits in fact made from the purchase or sale by
Indemnitee of securities of the Company within the meaning of Section 16 of the
Securities Exchange Act of 1934, as amended, or similar provisions of any state
law; or (iv) resulting from Indemnitee's knowingly fraudulent, dishonest or
willful misconduct; or (v) the payment of which by the Company under this
Agreement is not permitted by applicable law.

         (e) Expenses: means any reasonable expenses incurred by Indemnitee as a
result of a Claim or Claims made against Indemnitee for Indemnifiable Events
including, without limitation, attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending, being
a witness in or participating in (including on appeal), or preparing to defend,
be a witness in or participate in any Claim relating to any Indemnifiable Event.

         (f) Fines: means any fine, penalty or, with respect to an employee
benefit plan, any excise tax or penalty assessed with respect thereto.

         (g) Indemnifiable Event: means any event or occurrence, occurring prior
to or after the date of this Agreement, related to the fact that Indemnitee is,
was or has agreed to serve as, a director or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise; provided that the Indemnitee acted in good faith and
in a manner the Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or

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<PAGE>   3

proceeding, the Indemnitee had no reasonable cause to believe his conduct was
unlawful.

         (h) Losses: means any amounts or sums which Indemnitee is legally
obligated to pay as a result of a Claim or Claims made against Indemnitee for
Indemnifiable Events including, without limitation, damages, judgments and sums
or amounts paid in settlement of a Claim or Claims, and Fines.

         2. Basic Indemnification Agreement. In consideration of, and as an
inducement to, the Indemnitee rendering valuable services to the Company, the
Company agrees that in the event Indemnitee is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, a Claim by reason of ( or arising in part out of) an
Indemnifiable Event, the Company will indemnify Indemnitee to the fullest extent
authorized by law, against any and all Losses and Expenses (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Losses and Expenses) of such Claim, whether or not such Claim
proceeds to judgment or is settled or otherwise is brought to a final
disposition, subject in each case, to the further provisions of this Agreement.

         3. Limitations on Indemnification. Notwithstanding the provisions of
Section 2, Indemnitee shall not be indemnified and held harmless from any Losses
or Expenses (a) which have been Determined, as provided herein, to constitute an
Excluded Claim; (b) to the extent Indemnitee is indemnified by the Company and
has actually received payment pursuant to the Certificate of Incorporation and
Bylaws, D&O Insurance or otherwise; or (c) other than pursuant to the last
sentence of Section 4(d) or Section 12, in connection with any claim initiated
by Indemnitee, unless the Board of Directors has authorized such claim.

         4. Indemnification Procedures.

         (a) Promptly after receipt by Indemnitee of notice of any Claim,
Indemnitee shall, if indemnification with respect thereto may be sought from the
Company under this Agreement, notify the Company of the commencement thereof;
provided, however, that the failure to give such notice promptly shall not
affect or limit the Company's obligations with respect to the matters described
in the notice of such Claim, except to the extent that the Company is materially
prejudiced thereby. Indemnitee agrees further not to make any admission or
effect any settlement with respect to such Claim without the consent of the
Company, except any Claim with respect to which the Indemnitee has undertaken
the defense in accordance with the second to last sentence of Section 4(d).

         (b) If, at the time of the receipt of such notice, the Company has D&O
Insurance in effect, the Company shall give prompt notice of the commencement of
Claim to the insurers in accordance with the procedures set forth in the

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<PAGE>   4

respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of Indemnitee, all
Losses and Expenses payable as a result of such Claim.

         (c) To the extent the Company does not, at the time of the Claim have
applicable D&O Insurance, or if a Determination is made that any Expenses
arising out of such Claim will not be payable under the D&O Insurance then in
effect, the Company shall be obligated to pay the Expenses of any Claim in
advance of the final disposition thereof and the Company, if appropriate, shall
be entitled to assume the defense of such Claim, with counsel satisfactory to
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After the delivery of such notice, the Company will not be liable to
Indemnitee under this Agreement for any legal or other Expenses subsequently
incurred by Indemnitee in connection with such defense other than reasonable
Expenses of investigation; provided that Indemnitee shall have the right to
employ its counsel in such Claim but the fees and expenses of such counsel
incurred after delivery of notice from the Company of its assumption of such
defense shall be at the Indemnitee's expense; provided further that if: (i) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such action, the reasonable fees and expenses of counsel
shall be at the expense of the Company.

         (d) All payments on account of the Company's indemnification
obligations under this Agreement shall be made within sixty (60) days of
Indemnitee's written request therefor unless a Determination is made that the
Claims giving rise to Indemnitee's request are Excluded Claims or otherwise not
payable under this Agreement, provided that all payments on account of the
Company's obligation to pay Expenses under Section 4(c) of this Agreement prior
to the final disposition of any Claim shall be made within 20 days of
Indemnitee's written request therefor and such obligation shall not be subject
to Section 4(e) of this Agreement. In the event the Company makes a
Determination that Indemnitee is not entitled to indemnification in connection
with the proposed settlement of any Claim, Indemnitee shall have the right at
his own expense to undertake defense of any such Claim, insofar as such
proceeding involves Claims against the Indemnitee, by written notice given to
the Company within 10 days after the Company has notified Indemnitee in writing
of its contention that Indemnitee is not entitled to indemnification; provided,
however, that the failure to give such notice within such 10-day period shall
not affect or limit the Company's obligations with respect to any such Claim if
such Claim is subsequently determined not to be an Excluded Claim or otherwise
to be payable under this Agreement, except to the extent that the Company is
materially prejudiced thereby. If it is subsequently determined in connection
with such proceeding that the Indemnifiable Events are not Excluded Claims and
that Indemnitee, therefore, is entitled to be indemnified under the provisions
of Section 2 hereof, the Company shall promptly indemnify Indemnitee.

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<PAGE>   5

         (e) Indemnitee hereby expressly undertakes and agrees to reimburse the
Company for all Losses and Expenses paid by the Company in connection with any
Claim against Indemnitee in the event and only to the extent that a
Determination shall have been made by a court of competent jurisdiction in a
decision from which there is no further right to appeal that Indemnitee is not
entitled to be indemnified by the Company for such Losses and Expenses because
the Claim is an Excluded Claim or because Indemnitee is otherwise not entitled
to payment under applicable law.

         (f) In connection with any Determination as to whether Indemnitee is
entitled to be indemnified hereunder the burden of proof shall be on the Company
to establish that Indemnitee is not so entitled.

         5. Settlement. The Company shall have no obligation to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any Claim
effected without the Company's prior written consent. The Company shall not
settle any Claim in which it takes the position that Indemnitee is not entitled
to indemnification in connection with such settlement without the consent of
Indemnitee, nor shall the Company settle any Claim in any manner which would
impose any Fine or any obligation on Indemnitee, without Indemnitee's written
consent. Neither the Company nor Indemnitee shall unreasonably withhold its or
his consent to any proposed settlement.

         6. No Presumption. For purposes of this Agreement, the termination of
any Claim by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.

         7. Non-exclusivity, Etc. The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Certificate of
Incorporation and Bylaws, the Company's By-laws, the Delaware General
Corporation Law, any vote of stockholders or disinterested directors or
otherwise, both as to action in Indemnitee's official capacity and as to action
in any other capacity by holding such office, and shall continue after
Indemnitee ceases to serve the Company as a director or officer for so long as
Indemnitee shall be subject to any Claim by reason of (or arising in part out
of) an Indemnifiable Event. To the extent that a change in the Delaware General
Corporation Law (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the
Certificate of Incorporation and By-Laws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.

                                       5
<PAGE>   6

         8. Liability Insurance. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee, if an officer or director of the Company, shall be
covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage available for any director or officer of the
Company.

         9. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.

         10. Partial Indemnity, Etc. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Losses and Expenses of a Claim but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding
any other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims relating
in whole or in part to any Indemnifiable Event or in defense of any issue or
matter therein, including dismissal without prejudice, Indemnitee shall be
indemnified against all Expenses incurred in connection therewith.

         11. Liability of Company. Indemnitee agrees that neither the
stockholders nor the directors nor any officer, employee, representative or
agent of the Company shall be personally liable for the satisfaction of the
Company's obligations under this Agreement and Indemnitee shall look solely to
the assets of the Company for satisfaction of any claims hereunder.

         12. Enforcement.

         (a) Indemnitee's right to indemnification and other rights under this
Agreement shall be specifically enforceable by Indemnitee only in the state or
Federal courts of the States of Delaware or Illinois and shall be enforceable
notwithstanding any adverse Determination by the Company's Board of Directors,
independent legal counsel or the Company's stockholders and no such
Determination shall create a presumption that Indemnitee is not entitled to be
indemnified hereunder. In any such action the Company shall have the burden of
proving that indemnification is not required under this Agreement.

         (b) In the event that any action is instituted by Indemnitee under this
Agreement, or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and reasonable expenses,
including reasonable counsel fees, incurred by Indemnitee with respect to such
action, unless the court determines that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous.

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<PAGE>   7

         13. Severability. In the event that any provision of this Agreement is
determined by a court to require the Company to do or to fail to do an act which
is in violation of applicable law, such provision (including any provision
within a single section, paragraph or sentence) shall be limited or modified in
its application to the minimum extent necessary to avoid a violation of law,
and, as so limited or modified, such provision and the balance of this Agreement
shall be enforceable in accordance with their terms to the fullest extent
permitted by law.

         14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State.

         15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consents to the jurisdiction of the courts of the States of Delaware
and Illinois for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agrees that any action instituted
under this Agreement shall be brought only in the state and Federal courts of
the States of Delaware and Illinois.

         16. Notices. All notices or other communications required or permitted
hereunder shall be sufficiently given for all purposes if in writing and
personally delivered, telegraphed, telexed, sent by facsimile transmission or
sent by registered or certified mail, return receipt requested, with postage
prepaid addressed as follows, or to such other address as the parties shall have
given notice of pursuant hereto:

         (a)      If to the Company, to:

                  eLoyalty Corporation
                  150 Field Drive
                  Suite 250
                  Lake Forest, Illinois 60045
                  Attention: General Counsel
                  Facsimile: (847) 582-7002

         (b)      If to Indemnitee, to:

                  Jay Istvan
                  614 West Maple Street
                  Hinsdale, Illinois 60521
                  Facsimile: (630) 920-0712

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<PAGE>   8

         17. Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original and all of which, when taken together, shall
constitute one and the same instrument.

         18. Successors and Assigns. This Agreement shall be (i) binding upon
all successors and assigns of the Company, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, and (ii) binding
upon and inure to the benefit of any successors and assigns, heirs, and personal
or legal representatives of Indemnitee.

         19. Amendment; Waiver. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in a writing
signed by each of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.

         IN WITNESS WHEREOF, the Company and Indemnitee have executed this
Agreement to be effective as of the day and year first above written.

                                      eLOYALTY CORPORATION

________________________________      By:_______________________________________
             Jay Istvan                    Kelly D. Conway
                                           President and Chief Executive Officer

________________________________      __________________________________________
Date                                  Date

                                       8

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