ELOYALTY CORP, S-1/A, 2000-02-08

ELOYALTY CORP
S-1/A, 2000-02-08
NON-OPERATING ESTABLISHMENTS

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<PAGE> 1

REGISTRATION STATEMENT NO. 333-94293

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 3

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

eLOYALTY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 7373 36-4304577
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>

205 NORTH MICHIGAN AVENUE
SUITE 1500
CHICAGO, ILLINOIS 60601
(312) 228-4500
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
---------------------

KELLY D. CONWAY
eLOYALTY CORPORATION
205 NORTH MICHIGAN AVENUE
SUITE 1500
CHICAGO, ILLINOIS 60601
(312) 228-4500
(Name, address, including zip code and telephone number, including area code, of
agent for service)
---------------------

Please Send Copies of All Communications To:

<TABLE>
<S> <C>
JOHN M. O'HARE
PAUL R. PETERSON STEVEN SUTHERLAND
TECHNOLOGY SOLUTIONS COMPANY SIDLEY & AUSTIN
205 NORTH MICHIGAN AVENUE BANK ONE PLAZA
SUITE 1500 10 SOUTH DEARBORN STREET
CHICAGO, ILLINOIS 60601 CHICAGO, ILLINOIS 60603
(312) 228-4500 (312) 853-7000
</TABLE>

---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2

[TSC LETTERHEAD]

February , 2000

Dear Stockholders:

The Board of Directors of Technology Solutions Company (TSC) has decided to
separate the two divisions of TSC through a spin-off of the eLoyalty division.
TSC will accomplish this spin-off by transferring the eLoyalty business to a
newly created company called eLoyalty Corporation and then distributing the
common stock of eLoyalty owned by TSC to TSC stockholders. Following the
spin-off, eLoyalty will be a new, independent public company that will trade on
The Nasdaq National Market under the symbol "ELOY." The spin-off will occur on
or about February , 2000.

TSC will continue to be a public company and TSC common stock will continue
to trade on The Nasdaq National Market under the symbol "TSCC." TSC will focus
on its remaining business, the E-Solutions division. The E-Solutions division
provides consulting and systems integration services that help companies apply
technology to improve the way they do business, specifically in the areas of
eCommerce, supply chain management, computer based training and resource
planning.

If you own TSC common stock as of the close of business on February ,
2000, you will receive one share of eLoyalty common stock for every one share of
TSC common stock you own at that time. You should receive your eLoyalty shares
shortly after February , 2000.

You do not need to take any action for the spin-off to occur. You do not
have to pay for the shares of eLoyalty common stock that you will receive in the
spin-off, nor do you have to surrender or exchange shares of TSC common stock in
order to receive your shares of eLoyalty common stock. The number of shares of
TSC common stock that you own will not change as a result of the spin-off. TSC
has received a ruling from the IRS that the spin-off will be tax-free to TSC and
its stockholders.

This information statement/prospectus gives you information about TSC,
eLoyalty and the spin-off. We are enthusiastic about the spin-off and the
opportunities that await these two separate companies. We encourage you to read
this document carefully to learn more about the two companies and this spin-off.

Sincerely,

William H. Waltrip
Chairman of the Board

[TSC LETTERHEAD]
<PAGE> 3

[eLOYALTY LOGO]

February , 2000

Dear Future Stockholders,

Welcome to eLoyalty.

It is with great pleasure that we are sharing with you the exciting news
about eLoyalty. In March of 1999, the Technology Solutions Company Board of
Directors announced its decision to spin-off eLoyalty into a separate, publicly
traded company. If you own Technology Solutions Company common stock on the
record date of February , 2000 you will become a stockholder in eLoyalty as
well as retain your ownership of Technology Solutions Company.

We believe that the spin-off will have significant impact on advances in
the arena of customer loyalty. Consider the following:

- After the spin-off, we will be the largest pure-play customer
relationship solutions provider in the industry;

- We design solutions to help companies build loyalty across the various
ways that companies communicate with their customers;

- We offer a broad knowledge of electronic customer relationship management
technologies to deploy loyalty solutions across the Internet, e-mail,
web-chat, telephone and fax;

- We have highly experienced professionals specializing in customer
loyalty; and

- Our investment in research and development improves the effectiveness of
our solutions and will enable us to remain a driving force in the
evolution of customer loyalty.

We encourage you to read this information statement/prospectus to learn
more about eLoyalty. We look forward to the focus and expansion that will be
possible for eLoyalty as a stand-alone public company. We believe that eLoyalty,
as an independent company, will be better able to provide complete solutions for
our clients and adapt to rapid technology change. We are committed to building
an exciting and rewarding company that is worthy of your investment.

Sincerely,

/s/ Kelly D. Conway
Kelly D. Conway
President and
Chief Executive Officer

[ELOYALTY LETTERHEAD]
<PAGE> 4

THE MATERIAL IN THIS INFORMATION STATEMENT/PROSPECTUS MAY BE REVISED OR
COMPLETED. WE HAVE FILED A REGISTRATION STATEMENT RELATING TO THE COMMON
STOCK OF eLOYALTY WITH THE SECURITIES AND EXCHANGE COMMISSION. WE WILL
NOT ISSUE THESE SECURITIES BEFORE THE REGISTRATION STATEMENT BECOMES
EFFECTIVE.

SUBJECT TO COMPLETION, DATED FEBRUARY 8, 2000

INFORMATION STATEMENT/PROSPECTUS

[ELOYALTY LOGO]

eLOYALTY CORPORATION
COMMON STOCK

We are furnishing you with this information statement/prospectus in
connection with the spin-off by Technology Solutions Company of all of the
outstanding shares of common stock of eLoyalty Corporation owned by Technology
Solutions Company to stockholders of Technology Solutions Company.

Technology Solutions Company will accomplish the spin-off by distributing
all issued and outstanding shares of our common stock owned by Technology
Solutions Company to holders of record of Technology Solutions Company common
stock. The distribution of eLoyalty common stock will be made on February ,
2000 to holders of record of Technology Solutions Company common stock at the
close of business on February , 2000. This spin-off will be accomplished
through a distribution of one share of common stock of eLoyalty for every one
share of Technology Solutions Company common stock. NO CONSIDERATION WILL BE
PAYABLE BY TECHNOLOGY SOLUTIONS COMPANY STOCKHOLDERS FOR THE eLOYALTY SHARES,
NOR WILL THEY BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF TECHNOLOGY
SOLUTIONS COMPANY COMMON STOCK OR TAKE ANY OTHER ACTION IN ORDER TO RECEIVE THE
eLOYALTY SHARES.

There is currently no public market for the common stock of eLoyalty,
although it is expected that a "when-issued" trading market may develop prior to
the time of the spin-off. eLoyalty common stock has been approved for listing on
The Nasdaq National Market under the symbol "ELOY," subject to official notice
of issuance.

IN REVIEWING THIS INFORMATION STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY
CONSIDER THE MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" COMMENCING ON
PAGE 9.

---------------------

WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS INFORMATION STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THIS INFORMATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.

---------------------

THE DATE OF THIS INFORMATION STATEMENT/PROSPECTUS IS FEBRUARY , 2000
<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 9
The Spin-Off................................................ 23
eLoyalty's Business......................................... 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 44
eLoyalty Capitalization..................................... 60
eLoyalty Financing.......................................... 61
eLoyalty Selected Financial Data............................ 62
eLoyalty's Relationship with Technology Solutions Company
After the Spin-Off........................................ 64
eLoyalty's Management....................................... 70
Ownership of eLoyalty Common Stock by Certain Beneficial
Owners.................................................... 79
Description of eLoyalty Capital Stock....................... 80
Certain Transactions........................................ 89
eLoyalty's 2001 Annual Meeting of Stockholders.............. 90
Legal Matters............................................... 90
Experts..................................................... 90
Additional Information...................................... 91
Index to Financial Statements and Schedule.................. F-1
Schedules................................................... S-1
Annex A -- Opinion of Credit Suisse First Boston............ A-1
</TABLE>

Until , 2000, all dealers that effect transactions in these
securities may be required to deliver this information statement/prospectus.

i
<PAGE> 6

SUMMARY

This summary highlights selected information from this information
statement/prospectus, but does not contain all details concerning the spin-off
and eLoyalty, including information that may be important to you. To better
understand the spin-off and the business and financial position of eLoyalty you
should carefully review this entire document.

In this information statement/prospectus, "eLoyalty," "we," "our" and "us"
each refers to eLoyalty Corporation and the business we conducted as a division
of Technology Solutions Company.

QUESTIONS AND ANSWERS ABOUT eLOYALTY AND THE SPIN-OFF

What is the spin-off?........ The spin-off is designed to separate Technology
Solutions Company's E-Solutions and eLoyalty
businesses into separate publicly traded
companies. Technology Solutions Company will
accomplish the spin-off by distributing to
Technology Solutions Company stockholders as a
dividend all of the outstanding common stock of
eLoyalty owned by Technology Solutions Company.
For every share of Technology Solutions Company
common stock that you own of record on February
, 2000 you will receive one share of eLoyalty
common stock. For example, if you own 200 shares
of Technology Solutions Company common stock on
the record date, you will receive 200 shares of
eLoyalty common stock in the spin-off.

Why is Technology Solutions
Company effecting the
spin-off?................. Technology Solutions Company's board of directors
and management believe that separating eLoyalty
from the rest of Technology Solutions Company's
business will allow both Technology Solutions
Company and eLoyalty to:

- focus their attention and financial
resources on their respective businesses;

- pursue different strategies;

- react quickly to changing market
environments;

- focus on each company's own strategic
plan;

- develop incentive programs tailored to
their own business; and

- have greater capital planning flexibility
and simplify their organizational and
internal reporting structures.

What is the business of
eLoyalty?................. eLoyalty is a management consulting and
information technology services company that
provides solutions designed to improve customer
relationships for our clients.

eLoyalty is currently a subsidiary of Technology
Solutions Company and will become an independent
publicly traded company upon completion of the
spin-off.

What are customer
relationships?............ Companies build relationships with their
customers through a chain of events including
marketing, sales and post sale customer service.
During this chain of events, companies
communicate and interact with their customers in
a variety of different ways including:

- person to person;

- over the Internet;

1
<PAGE> 7

- by telephone;

- by e-mail; and

- by fax.

We believe the complexity increases as the
customer purchases more than one product or
service. Therefore, large companies are often
organized into separate product divisions that
communicate with customers independently of other
divisions. In addition, we believe each division
commonly separates the management of each
communication with the customer by creating
separate marketing, sales and customer service
groups. Furthermore, each of these groups may
then focus separate teams of employees (for
instance field sales force, eCommerce group, call
center, etc.) to respond to the different ways
companies interact with their customers. In many
cases these teams may have overlapping or
conflicting goals.

Companies may establish different policies,
personnel and management of customer
relationships in each distinct area. This
sometimes results in the purchase of different
software products to support each separate
business aim. In our experience, these software
products are not compatible with each other
without customization and technology integration.
The internal business and technology
infrastructure may serve to manage each function
of the company and the result can be a fragmented
picture of each customer.

The effect for the customer is the appearance of
a disjointed organization that does not fully
recognize the customer's specific needs. This
lack of understanding can lead to companies
losing their customers.

Why is it important to
improve customer
relationships?............ Improved customer relationships can lead to
higher revenues and improved profitability for
companies. Companies today are increasingly aware
of the significant financial impact associated
with losing high value customers, particularly in
the early stages of the relationship. According
to research presented by Frederick R. Reichheld
and W. Earl Sasser, Jr. in a Harvard Business
Review article, "companies can boost their
profits by almost 100% by retaining just 5% more
of their customers."

What are loyalty
solutions?................ A loyalty solution is a combination of business
strategy and technology integration that seeks to
improve customer relationships. A loyalty
solution focuses on:

- improving the efficiency and effectiveness
of the communications with the customer;
and

- taking advantage of customer interactions
to sell more products and services to
customers.

2
<PAGE> 8

We believe that several different and specialized
skills are required to create a loyalty solution.
These skills include:

- strategic business consulting to define a
company's policies for managing customers
in each division and group within the
organization;

- technical knowledge of the different
products that a company needs to
communicate with their customers using the
Internet, telephone, e-mail and fax;

- integration techniques to enable each of
these software products to be tied
together; and

- ongoing support of their loyalty solution
to meet changing business requirements and
emerging technology.

What is new about loyalty
solutions?................ eLoyalty believes that loyalty solutions are the
next step in the customer relationship management
or CRM market. This market refers to consulting
services and software products that focus on
helping a company manage communications with its
customers.

With the emergence of the Internet, managing
customer relationships has become more complex.
The Internet is available at all times of the day
and night and almost anywhere in the world. This
freedom of access can create an expectation with
customers that they should be able to communicate
with any part of a company about any matter
relating to their products or services at any
time. To meet these new expectations, a company
needs to link their existing customer
relationship management solution with this new
electronic environment.

We define this market opportunity as electronic
customer relationship management or eCRM.
Electronic customer relationship management is an
expansion of customer relationship management to
further include the Internet, e-mail and web-chat
across each division of a company. We view a
loyalty solution as an electronic customer
relationship management business and technology
solution that is designed to:

- help companies build lasting relationships
with their customers;

- maximize the efficiency and effectiveness
of customer interactions; and

- capitalize on selling opportunities based
on customer information gathered during
these interactions.

What are eLoyalty's key
objectives?............... eLoyalty's objective is to be the leading
international provider of loyalty solutions. We
intend to substantially increase our revenues and
profitability and to create an international
brand name. Our strategy to attain these goals
is:

- to focus on providing business benefits to
our clients;

- to enhance our loyalty solutions to
include hosting capabilities;

- to build strategic vendor relationships;

3
<PAGE> 9

- to invest in brand awareness;

- to invest in operational and management
systems; and

- to expand our international presence.

What will be the relationship
between eLoyalty and
Technology Solutions
Company after the
spin-off?................. After the spin-off, Technology Solutions Company
will not own any of our common stock. Technology
Solutions Company and eLoyalty will enter into
agreements in connection with the spin-off to
allocate responsibility for obligations arising
prior to the spin-off and for some obligations
that might arise in the future. Technology
Solutions Company will retain responsibility for
liabilities and obligations relating to its
business and we will assume responsibility for
liabilities and obligations relating to our
business. For a more complete discussion of the
obligations of eLoyalty and Technology Solutions
Company to each other after the spin-off, see
"eLoyalty's Relationship with Technology
Solutions Company After the Spin-Off."

What do I have to do to
participate in the
spin-off?................. Nothing. You are not required to take any action
to receive eLoyalty common stock in the spin-off.
No proxy or vote is necessary for the spin-off.
You should not mail in Technology Solutions
Company stock certificates to receive eLoyalty
shares. Our transfer agent will send to you your
eLoyalty share certificates shortly after
February , 2000. The number of shares of
Technology Solutions Company common stock you own
will not change as a result of the spin-off.

When will I receive my
eLoyalty shares?.......... If you hold your Technology Solutions Company
shares in your own name, your share certificates
will be mailed to you on or about February ,
2000. You should allow several days for the mail
to reach you. If you hold your Technology
Solutions Company shares through your
stockbroker, bank or other nominee, you are
probably not a stockholder of record. Your
receipt of eLoyalty shares depends on your
arrangements with the nominee that holds your
Technology Solutions Company shares for you. For
a more complete discussion of how the spin-off
will be accomplished, see "The Spin-Off -- Manner
of Effecting the Spin-Off."

Is the spin-off taxable for
United States federal
income tax purposes?...... The spin-off is conditioned on, among other
things, TSC receiving a ruling from the United
States Internal Revenue Service that the spin-
off will be tax-free to Technology Solutions
Company and its United States stockholders.
Technology Solutions Company has received that
ruling (which has been received). See "The
Spin-Off -- Material Federal Tax Consequences"
for a more complete discussion of the United
States federal income tax consequences of the
spin-off to holders of Technology Solutions
Company common stock.

4
<PAGE> 10
Where will my shares of our
common stock trade?....... Currently, there is no public market for eLoyalty
common stock. eLoyalty common stock has been
approved for listing on The Nasdaq National
Market under the symbol "ELOY," subject to
official notice of issuance. We expect that a
"when-issued" trading market for eLoyalty common
stock will develop prior to February , 2000, and
that "regular-way" trading will begin on that
date. For a more complete discussion of the
public market for our shares following the
spin-off, see "The Spin-Off -- Market for
eLoyalty Common Stock."

What will happen to the
listing of Technology
Solutions Company's shares
on The Nasdaq National
Market?................... Technology Solutions Company common stock will
continue to be listed on The Nasdaq National
Market under the symbol "TSCC." Technology
Solutions Company expects that its common stock
will continue to trade on a regular basis through
and after the spin-off date.

Who do I contact for
information regarding the
spin-off, Technology
Solutions Company and
eLoyalty?................. Before the spin-off, you should direct inquiries
relating to the spin-off to:

ChaseMellon Shareholder Services, L.L.C.
111 Founders Plaza, 11th Floor
East Hartford, Connecticut 06108
(860) 282-3512

Technology Solutions Company
205 North Michigan Avenue
Chicago, Illinois 60601
Attention: Investor Relations
(312) 228-4500

After the spin-off, you should direct inquiries
relating to your investment in eLoyalty common
stock to:

eLoyalty
205 North Michigan Avenue
Chicago, Illinois 60601
Attention: Timothy J. Cunningham
(312) 228-4540
[email protected]

After the spin-off, the transfer agent and
registrar for the eLoyalty common stock will be
ChaseMellon Shareholder Services, L.L.C.

5
<PAGE> 11

RECENT DEVELOPMENTS

On January 26, 2000 we announced operating income of $0.3 million on
revenues of $38.4 million for the three months ended December 31, 1999.

eLOYALTY

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE FOR THE TWELVE MONTHS
MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31,
----------------- ---------------------
1999 1998 1999 1998
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................................ $38,351 $27,550 $146,003 $105,235
Revenues less project personnel......................... 18,525 14,327 73,591 54,548
Operating income (loss)................................. 294 (1,234) 8,042 2,718
Net (loss) income....................................... $ (28) $ (947) $ 4,058 $ 1,067
Basic net (loss) income per common share................ $ (0.00) $ (0.02) $ 0.10 $ 0.03
Diluted net (loss) income per common share.............. $ (0.00) $ (0.02) $ 0.08 $ 0.02
Shares used to calculate basic net (loss) income per
share (in millions)(1)................................ 41.4 41.4 41.4 41.4
Shares used to calculate diluted net (loss) income per
share (in millions)(1)................................ 41.4 41.4 48.0 46.6
</TABLE>

- ---------------

(1) In December 1999, eLoyalty issued 41.4 million shares to Technology
Solutions Company. Basic earnings per share have been computed by dividing
the net income/(loss) for each period presented by the 41.4 million shares.
Diluted net earnings per share was computed by dividing the net
income/(loss) for each period presented by the 41.4 million shares plus the
estimated effect of dilutive stock options using the "treasury stock"
method. See Note 8 to the Notes to Combined Financial Statements for a
discussion of stock options.

6
<PAGE> 12

SUMMARY FINANCIAL DATA

The following tables present summary selected historical financial data of
eLoyalty. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes thereto included
in this information statement/prospectus. The statement of operations data for
the seven month period ended December 31, 1998 and for each of the three years
ended May 31, 1998, 1997 and 1996 and the balance sheet data as of December 31,
1998 set forth below are derived from the audited combined financial statements
included in this information statement/prospectus. They should be read in
conjunction with those financial statements and the notes. The statement of
operations data for the nine month periods ended September 30, 1999 and 1998 and
for the seven month period ended December 31, 1997 and for years ended May 31,
1995 and 1994 and the balance sheet data as of September 30, 1999 are derived
from unaudited combined financial statements.

The historical financial information may not be indicative of our future
performance and does not necessarily reflect what our financial position and
results of operations would have been had we operated as a separate, stand-alone
entity during the periods covered.

eLOYALTY

STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE NINE FOR THE SEVEN
MONTH MONTH PERIODS
PERIODS ENDED ENDED
SEPTEMBER 30, DECEMBER 31, FOR THE YEARS ENDED MAY 31,
------------------ --------------------- ---------------------------------------------
1999 1998 1998 1997 1998 1997 1996 1995 1994
-------- ------- ------- ----------- ------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues(1).......................... $107,652 $77,685 $64,415 $43,668 $84,488 $43,181 $26,516 $6,132 $1,333
Revenues less project personnel(1)... $ 55,066 $40,221 $33,113 $21,339 $43,159 $25,103 $14,842 $2,995 $ 618
Operating income (loss)(1, 2)........ $ 7,748 $ 3,952 $ (230) $ 911 $ 4,259 $ 4,808 $ 4,907 $ (179) $ (101)
Net income (loss)(1, 2).............. $ 4,086 $ 2,014 $ (543) $ 335 $ 2,213 $ 2,926 $ 3,050 $ (128) $ 2
Basic net income (loss) per common
share(3)........................... $ 0.10 $ 0.05 $ (0.01) $ 0.01 $ 0.05 $ 0.07 $ 0.07 $(0.00) $ 0.00
Diluted net income (loss) per common
share(3)........................... $ 0.09 $ 0.04 $ (0.01) $ 0.01 $ 0.05 $ 0.06 $ 0.07 $(0.00) $ 0.00
Shares used to calculate basic net
income (loss) per share (in
millions)(3)....................... 41.4 41.4 41.4 41.4 41.4 41.4 41.4 41.4 41.4
Shares used to calculate diluted net
income (loss) per share (in
millions)(3)....................... 47.6 46.5 41.4 45.8 46.8 46.6 45.5 41.4 46.0
</TABLE>

eLOYALTY

BALANCE SHEET DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $10,654 $ 4,411
Working capital............................................. $51,932 $26,231
Total assets................................................ $92,792 $63,904
Stockholders' Equity........................................ $71,289 $47,888
</TABLE>

- ---------------

(1) Includes the results of acquired businesses since their acquisition dates.
See Note 3 to the Notes to Combined Financial Statements.

(2) Includes goodwill amortization of $3,748, $2,704, $2,450, $1,856, $3,201 and
$376 for the nine month periods ended September 30, 1999 and 1998, the seven
month periods ended December 31, 1998 and 1997, and the years ended May 31,
1998

7
<PAGE> 13

and 1997, respectively, and amortization of capitalized software to be sold
of $320, $447, $206, $354 and $110 for the nine months ended September 30,
1998, the seven month periods ended December 31, 1998 and 1997, and the
fiscal years ended May 31, 1998 and 1997, respectively. There was no
goodwill amortization for the years ended May 31, 1996, 1995 and 1994. There
was no amortization of capitalized software to be sold during the nine month
period ended September 30, 1999 and the years ended May 31, 1996, 1995 and
1994.

(3) In December 1999, eLoyalty issued 41.4 million shares to Technology
Solutions Company. Basic earnings per share have been computed by dividing
the net income/(loss) for each period presented by the 41.4 million shares.
Diluted net earnings per share was computed by dividing the net
income/(loss) for each period presented by the 41.4 million shares plus the
estimated effect of dilutive stock options using the "treasury stock"
method. See Note 8 to the Notes to Combined Financial Statements for a
discussion of stock options.

All other share numbers in this information statement/prospectus, unless we
specifically state otherwise, assume that we have issued:

- 41.4 million shares of our common stock to Technology Solutions Company;
and

- 2.4 million shares of our common stock to Sutter Hill Ventures and four
entities controlled by Technology Crossover Management III, L.L.C.
("Technology Crossover Ventures") under an agreement that we have with
them. See "Certain Transactions."

The number of eLoyalty shares of common stock which Technology Solutions
Company will distribute in the spin-off will be equal to the number of common
shares of TSC outstanding as of the record date for the spin-off. The number of
shares issued to Sutter Hill Ventures and Technology Crossover Ventures, and the
purchase price per share, will be adjusted proportionately to the extent that
the number of our shares owned by Technology Solutions Company when we issue
shares to these investors does not equal 41.4 million. After the adjustment each
of Sutter Hill Ventures and Technology Crossover Ventures will own about 2.75%
of our outstanding common stock immediately after the spin-off. The number of
shares reserved for issuance under our 1999 Stock Incentive Plan, as well as the
number of shares and the exercise price for options we have already granted
under that plan, may also need to be adjusted proportionately if Technology
Solutions Company distributes in the spin-off a different number of our shares
than the 41.4 million shares we assumed at the time we adopted the 1999 Stock
Incentive Plan and issued first options under that plan.

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<PAGE> 14

RISK FACTORS

You should carefully consider each of the following risks and all of the
other information in this information statement/prospectus. Some of the
following risks relate principally to the spin-off while other risks relate
principally to our business in general and the industry in which we operate.
Finally, other risks relate principally to the securities markets and ownership
of our stock.

If any of the following risks and uncertainties develop into actual events,
our business, financial condition or results of operations could be materially
adversely affected. If that happens, the trading price of our common stock could
decline.

This information statement/prospectus contains forward-looking statements
that involve risks and uncertainties. You should not rely on these
forward-looking statements. We use words such as "anticipate," "believe,"
"plan," "expect," "future," "intend" and similar expressions to identify such
forward-looking statements. This information statement/prospectus also contains
forward-looking statements attributed to third parties relating to their
estimates regarding, among other things, the growth of the customer relationship
management or CRM industry and the number of Internet users. You should not
place undue reliance on those forward-looking statements. Our actual results
could differ materially from those anticipated in the forward-looking statements
for many reasons, including the risks faced by us described below and elsewhere
in this information statement/prospectus.

RISKS RELATING TO THE SPIN-OFF

We are subject to the following risks relating to the spin-off.

WE COULD INCUR SIGNIFICANT TAX LIABILITY IF THE CONTRIBUTION OR THE SPIN-OFF
DOES NOT QUALIFY FOR TAX FREE TREATMENT.

Technology Solutions Company and the Technology Solutions Company
stockholders could incur significant tax liability if the contribution of the
eLoyalty business or the spin-off does not qualify for tax-free treatment.
Should this occur, we could be jointly and severally liable for, and could be
required to indemnify and pay Technology Solutions Company for, taxes and
resulting liabilities imposed upon Technology Solutions Company with respect to
the contribution or the spin-off.

Technology Solutions Company has received a private letter ruling from the
IRS indicating that the contribution of the eLoyalty business and the spin-off
would not be taxable to Technology Solutions Company or its stockholders. For a
more complete discussion of the ruling, and the circumstances under which the
ruling might be invalid, see "The Spin-Off -- Material Federal Tax
Consequences."

The spin-off may become taxable to Technology Solutions Company if:

- acquisitions involving 50% or more of eLoyalty stock (by vote or value)
are found to be part of a plan (or a series of related transactions) of
which the spin-off is a part; or

- acquisitions involving 50% or more of Technology Solutions Company stock
(by vote or value) are found to be part of a plan (or a series of related
transactions) of which the spin-off is a part.

If the contribution or the spin-off were not to qualify for tax-free
treatment for United States federal income tax purposes then, in general, a very
substantial tax would be payable by Technology Solutions Company (in the case of
the contribution or the spin-off) and Technology Solutions Company stockholders
(in the case of the spin-off only). In general, Technology Solutions Company
would be subject to tax as if it had sold the eLoyalty business in a taxable
sale and the Technology Solutions Company shareholders would generally be
subject to tax as if they had received a taxable distribution equal to the fair
market value of the eLoyalty stock distributed to them. For a more complete
discussion of the tax consequences of the spin-off being taxable, see "The
Spin-Off -- Material Federal Tax Consequences."

Although the taxes described above generally would be imposed on Technology
Solutions Company and its stockholders, we would be liable for all or a portion
of such taxes in the circumstances described below. First, as part of the
spin-off, Technology Solutions Company and we will enter into a Tax Sharing
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<PAGE> 15

and Disaffiliation Agreement. This agreement will generally allocate, between
Technology Solutions Company and us, the taxes and liabilities relating to the
failure of the contribution or the spin-off to be tax-free. For a more complete
discussion of the allocation of taxes and liabilities between Technology
Solutions Company and us under the Tax Sharing and Disaffiliation Agreement, see
"eLoyalty's Relationship with Technology Solutions Company After the Spin-Off --
Tax Sharing and Disaffiliation Agreement."

Second, aside from the Tax Sharing and Disaffiliation Agreement, under
United States federal income tax laws, we and Technology Solutions Company would
be jointly and severally liable for Technology Solutions Company's federal
income taxes resulting from the spin-off being taxable. This means that even if
we do not have to indemnify Technology Solutions Company for any liabilities and
expenses if the contribution or the spin-off fails to be tax-free, we may still
be liable for any part of, including the whole amount of, these liabilities and
expenses.

OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS
A SEPARATE COMPANY AND, THEREFORE, MAY NOT BE RELIABLE AS AN INDICATOR OF OUR
HISTORICAL OR FUTURE RESULTS

The historical financial information we have included in this information
statement/prospectus may not reflect what our results of operations, financial
position and cash flows would have been had we been a separate, stand-alone
entity during the periods presented or what our results of operations, financial
position and cash flows will be in the future. This is because:

- we have made adjustments and allocations, primarily with respect to
corporate-level adjustments and administrative functions, because
Technology Solutions Company did not account for us as, and we were not
operated as, a single stand-alone business for all periods presented; and

- the information does not reflect changes that we expect to occur in the
future as a result of our separation from Technology Solutions Company,
including tax, employee, transitional service matters and establishing
new offices.

For additional information about our past financial performance, see
"eLoyalty Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

THE TRANSITIONAL SERVICES PROVIDED TO US BY TECHNOLOGY SOLUTIONS COMPANY MAY NOT
BE SUFFICIENT TO MEET OUR NEEDS

We have never operated as a stand-alone company. While Technology Solutions
Company is contractually obligated to provide us with transitional services
including, among others, accounting, tax, benefits, human resources and
information systems, we cannot assure you that these services will be sustained
at the same level as when we were part of Technology Solutions Company or that
we will obtain the same benefits. We will also lease and sub-lease office
facilities from Technology Solutions Company. We cannot assure you that, after
the expiration of these various arrangements, we will be able to replace the
transitional services or enter into appropriate leases in a timely manner or on
terms and conditions, including cost, as favorable as those we will receive from
Technology Solutions Company. In addition, as we build our own infrastructure
during the term of those agreements, we will incur additional costs for
duplicated administrative services.

These agreements were made in the context of a parent-subsidiary
relationship and were negotiated in the overall context of our separation from
Technology Solutions Company. For more information about these arrangements, see
"eLoyalty's Relationship with Technology Solutions Company After the Spin-Off."

WE WILL NOT BE ABLE TO RELY ON TECHNOLOGY SOLUTIONS COMPANY TO FUND FUTURE
CAPITAL REQUIREMENTS AND, THEREFORE, WE MAY NOT BE ABLE TO PROVIDE FOR OUR
CAPITAL NEEDS

In the past, our capital needs have been satisfied by Technology Solutions
Company. However, following the spin-off, Technology Solutions Company will no
longer provide funds to finance our working capital or other cash requirements
and (except as described under "eLoyalty Financing") will not

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<PAGE> 16

guarantee our financial or other obligations. We cannot guarantee that
financing, if needed, will be available on favorable terms.

We believe that our capital requirements will vary greatly from quarter to
quarter, depending on, among other things, capital expenditures, fluctuations in
our operating results and financing activities. We believe that the following
sources will provide sufficient capital to satisfy our cash requirements for the
foreseeable future:

- the net proceeds from the investment by the venture capital investors
described under "Certain Transactions;"

- current cash, cash equivalents and additional cash to be contributed by
Technology Solutions Company to eLoyalty prior to the spin-off;

- the revolving credit facility described under "eLoyalty Financing;" and

- cash flow from operations after the spin-off.

However, to increase our financial resources, we intend to obtain
additional equity financing in the next twelve months through a public offering.
In addition, we may obtain additional capital through a private placement of
equity with strategic or other investors or through additional debt financing in
the future. Future equity financings would dilute the relative percentage
ownership of the then existing holders of our common stock. Future debt
financings could involve restrictive covenants that limit our ability to take
some actions such as pay dividends, incur additional indebtedness or create
liens. We may not be able to obtain financing with interest rates as favorable
as those historically enjoyed by Technology Solutions Company. For a more
complete discussion of our plans to obtain adequate financing, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

IF WE ARE UNABLE TO OBTAIN THIRD-PARTY CONSENTS TO THE SPIN-OFF, OUR ABILITY TO
CONDUCT OUR BUSINESS AS CURRENTLY CONDUCTED COULD BE MATERIALLY ADVERSELY
AFFECTED

The spin-off and related transactions could result in a violation of some
of Technology Solutions Company's existing contractual arrangements or require
the consent of a third party to transfer these arrangements to us. In a
substantial number of situations, an amendment, consent or waiver from third
parties (such as from clients or suppliers) will be required. Although we
believe that no single agreement for which an amendment, consent or waiver is
being sought is material, the failure to receive a significant number of such
amendments, waivers or consents from our vendors could make it significantly
more difficult or expensive to meet our obligations to our clients.

CREDITORS OF TECHNOLOGY SOLUTIONS COMPANY AT THE TIME OF THE SPIN-OFF MAY
ATTEMPT TO CHALLENGE THE SPIN-OFF AS A FRAUDULENT CONVEYANCE

If a court in a lawsuit by an unpaid creditor or representative of
creditors of Technology Solutions Company, such as a trustee in bankruptcy, were
to find that, among other reasons, at the time of the spin-off, Technology
Solutions Company or eLoyalty,

- was insolvent,

- was rendered insolvent by reason of the spin-off,

- was engaged in a business or transaction for which Technology Solutions
Company's or eLoyalty's remaining assets constituted unreasonably small
capital or

- intended to incur, or believed it would incur, debts beyond its ability
to pay such debts as they matured,

the court may be asked to void the spin-off (in whole or in part) as a
fraudulent conveyance. The court could then require that the stockholders return
some or all of the shares of eLoyalty common stock, or require Technology
Solutions Company or eLoyalty, as the case may be, to fund liabilities of the
other
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<PAGE> 17

company for the benefit of creditors. The measure of insolvency for purposes of
the foregoing will vary depending upon the jurisdiction whose law is being
applied. Generally, however, each of Technology Solutions Company and eLoyalty,
as the case may be, would be considered insolvent if the fair value of its
assets were less than the amount of its liabilities or if it incurred debt
beyond its ability to repay such debt as it matures. Technology Solutions
Company and eLoyalty believe that each company will be solvent after the
spin-off.

IF THE SPIN-OFF IS NOT A LEGAL DIVIDEND, IT COULD BE HELD INVALID BY A COURT

The dividend which effects the spin-off is subject to the Delaware
corporate law. We cannot assure you that a court will not later determine that
the spin-off was invalid under Delaware law and reverse the spin-off. The
resulting complications and cost could have a material adverse effect on our
financial condition and results of operations. We do not intend to obtain a
legal opinion that the dividend is valid under Delaware law but intend to rely
on financial calculations by our officers, as permitted by Delaware law.

THE COMBINED POST-SPIN-OFF VALUE OF TECHNOLOGY SOLUTIONS COMPANY AND eLOYALTY
SHARES MAY NOT EQUAL OR EXCEED THE PRE-SPIN-OFF VALUE OF TECHNOLOGY SOLUTIONS
COMPANY SHARES

After the spin-off, Technology Solutions Company common stock will continue
to be listed and traded on The Nasdaq National Market. eLoyalty common stock
will be listed and traded on The Nasdaq National Market. We cannot assure you
that the combined trading prices of Technology Solutions Company common stock
and eLoyalty common stock after the spin-off will be equal to or greater than
the trading price of Technology Solutions Company common stock prior to the
spin-off. Until the market has fully evaluated the business of Technology
Solutions Company without the business of eLoyalty, the price at which
Technology Solutions Company common stock trades may fluctuate significantly.
Similarly, until the market has fully evaluated the eLoyalty business, the price
at which our common stock trades may fluctuate significantly.

RISK FACTORS RELATING TO OUR BUSINESS

Our business is subject to the following risks, which include risks
relating to the industry in which we operate.

WE HAVE A LIMITED OPERATING HISTORY AND CONSEQUENTLY MAY FACE SIGNIFICANT RISKS
AND UNCERTAINTIES DUE TO OUR RELATIVELY LIMITED HISTORY

We commenced our business as a separate business unit within Technology
Solutions Company in 1994 and therefore have a limited operating history. An
owner of our common stock must consider the risks and difficulties frequently
encountered by early stage companies. We have a limited history of addressing
material risks in our business which means that we may not have the experience
necessary handle problems in an efficient manner. These risks include our
potential inability to:

- attract, retain and motivate qualified personnel particularly given the
shortage of qualified personnel in our industry;

- increase the scale of our operations;

- maintain sufficiently high employee utilization;

- continue to develop and upgrade our solutions to satisfy the changing
needs of our clients; and

- replace the transitional services necessary for the conduct of our
business that Technology Solutions Company has agreed to provide to us
for a limited period after the completion of the spin-off.

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WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND, IF
WE ARE UNABLE TO MANAGE THIS GROWTH, OUR BUSINESS WILL BE ADVERSELY AFFECTED

Our ability to successfully implement our business plan in a rapidly
evolving market requires an effective planning and management process. Our
growth has placed significant demands on our management and other resources and
will continue to do so in the future. Our revenues increased approximately 38.6%
for the nine month period ended September 30, 1999 compared to the first nine
months of 1998. Our employees increased from 518 full-time employees at December
31, 1998 to 653 at September 30, 1999. Our future success will depend on our
ability to manage our growth effectively, including:

- continuing to retain and motivate our existing employees and attract and
integrate new employees;

- improving our business development capabilities;

- maintaining project quality;

- maintaining high rates of employee utilization;

- accurately estimating time and resources for engagements; and

- developing and improving our operational, financial, accounting and other
internal systems and controls.

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE
OF MANY FACTORS, ANY OF WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE

Our quarterly financial results will vary from quarter to quarter. It is
possible that in some future periods our operating results may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock may fall. Our revenues and operating results may vary
significantly from quarter to quarter due to a number of factors, many of which
are not in our control. These factors include:

- unanticipated cancellations or reductions in the scope of major projects;

- variability in market demand for the solutions we provide;

- our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;

- our ability to deliver complex projects and the number, size and scope of
our projects;

- our client retention and acquisition rate and the length of the sales
cycle associated with our solutions;

- the introduction of new services and solutions;

- the efficiency with which we utilize our employees, plan and manage our
existing and new projects and manage future growth;

- our ability to anticipate accurately our revenues and operating expenses;

- changes in pricing policies by us or our competitors;

- number of billing days;

- general economic conditions; and

- seasonal availability of employees.

Our quarterly revenues for the year ended December 31, 1997 were $11
million, $15 million, $19 million and $19 million; for the year ended December
31, 1998 were $24 million, $26 million,

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$28 million and $28 million; and for the three quarters ended September 30, 1999
were $31 million, $36 million and $40 million, respectively.

OUR INDUSTRY IS VERY COMPETITIVE AND, IF WE FAIL TO SUCCESSFULLY COMPETE, OUR
MARKET SHARE AND BUSINESS WILL BE ADVERSELY AFFECTED

The CRM market has been in existence for some time. We define the CRM
market as the consulting services and software products that focus on helping a
company manage communications with its customers. The electronic customer
relationship management or eCRM market in which we compete is an expansion of
customer CRM to further include the Internet, e-mail and web-chat across each
division of a company. The eCRM market is relatively new and very competitive.
We expect competition to intensify even further as this market evolves. Many of
our competitors have longer operating histories, more clients, longer
relationships with their clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations
resources than we do. As a result, our competitors may be in a stronger position
to respond quickly to new or emerging technologies and changes in client
requirements. They may also develop and promote their products and services more
effectively than we do. These risks are especially pronounced in our industry
where we will face major challenges from other companies including:

- systems integrators such as Andersen Consulting, Deloitte & Touche LLP,
Ernst & Young LLP, KPMG LLP, PricewaterhouseCoopers LLP, Arthur Andersen
LLP, IBM Global Services, Cambridge Technology Partners, Sapient
Corporation, Diamond Technology Partners and Whittman-Hart, Inc.;

- Internet and eCommerce services companies such as Scient Corporation,
Viant Corporation, Proxicom, Inc., AppNet Inc., Tanning Technology
Corporation and Razorfish, Inc.;

- large information technology service companies such as Computer Sciences
Corporation and Perot Systems Corporation;

- management consulting firms such as Bain & Company, Booz, Allen &
Hamilton, Boston Consulting Group, Inc. and McKinsey & Company; and

- internal information technology departments of current and potential
clients.

To compete successfully, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance and expand our solutions, as well as our
sales and marketing channels. Increased competition could result in price
reductions, reduced margins or loss of market share.

THE LOSS OF OUR PROFESSIONALS, OR THE INABILITY TO RECRUIT ADDITIONAL
PROFESSIONALS, WOULD MAKE IT DIFFICULT TO COMPLETE EXISTING PROJECTS AND BID FOR
NEW PROJECTS

The people-intensive information technology professional services industry
currently faces a shortage of qualified personnel, which is expected to
continue. We compete intensely with other companies to recruit and hire from
this limited pool. In addition, our industry suffers from a high rate of
employee turnover. If we cannot hire and retain qualified personnel, or if a
significant number of our current employees leave, we may be unable to complete
or retain existing projects or bid for new projects of similar scope and
revenue.

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WE DEPEND ON OUR KEY PERSONNEL AND THE LOSS OF ANY KEY PERSONNEL MAY HARM OUR
ABILITY TO OBTAIN AND RETAIN CLIENT ENGAGEMENTS AND COMPETE EFFECTIVELY

We believe that our success will depend on the continued employment of our
key personnel. This dependence is particularly important to our business because
personal relationships are critical to obtaining and maintaining client
engagements. If one or more of our key personnel were unable or unwilling to
continue in their present positions, they would be very difficult to replace and
our business could be seriously harmed. In addition, if any of these key
employees joins a competitor or forms a competing company, some of our clients
might choose to use the services of that competitor or new company instead of
our own. Furthermore, clients or other companies seeking to develop in-house
information technology services capabilities may hire away some of our key
employees. This would not only result in the loss of key employees but could
also result in the loss of a client relationship or a new business opportunity.

WE MAY INCUR SIGNIFICANT UNANTICIPATED COSTS ASSOCIATED WITH OUR NEW BUSINESS
OFFERINGS

We are currently exploring several new solution offerings that represent
fundamentally different business models from our core business. One such model
is our Architecture Hosting solution. Using the Architecture Hosting solution,
we plan to provide our clients with dial-up access to an integrated collection
of third-party and proprietary software applications to support their customer
interactions across multiple channels including the Internet, e-mail, web-chat,
telephone and fax. With this solution, we expect that our clients will reduce
their risk, time and investment in supporting loyalty-building interactions with
their customers. To provide this service, we need to form alliances and to
invest in infrastructure including, computers, software and application
integration in amounts that may exceed our current expectations. We have no
prior experience delivering such a comprehensive operational system from a
remote site, and our failure to successfully deliver this and other new business
offerings could cause us to lose business opportunities with both existing and
potential clients. In addition, we may fail to accurately price new business
offerings, which could reduce the profitability of, or result in a loss on,
projects involving these new offerings.

WE MUST MAINTAIN OUR REPUTATION AND EXPAND OUR NAME RECOGNITION TO REMAIN
COMPETITIVE

We believe that establishing and maintaining a good reputation and name
recognition is critical for attracting and expanding our targeted client base.
If our reputation is damaged or if potential clients do not know what solutions
we provide, we may become less competitive or lose our market share. Promotion
and enhancement of our name will depend largely on our success in providing high
quality services and solutions, which cannot be assured. If clients do not
perceive our solutions to be effective or of high quality, our brand name and
reputation could be materially and adversely affected.

Our clients use our solutions for critical applications. Any errors,
defects or other performance problems, including those in our proprietary
software or products supplied by third-party vendors, could result in financial
or other damages. In addition to any liability we might have, performance
problems could also adversely affect our brand name and reputation.

WE MAY FAIL TO ACCURATELY ESTIMATE THE TIME AND RESOURCES NECESSARY FOR THE
PERFORMANCE OF OUR SERVICES

To date, we have generally provided solutions to our clients on a time and
materials basis, although we sometimes work on a fixed-fee or capped-fee basis.
In the future, it is possible that an increasing percentage of our client
engagements will be subject to fixed-fee or other arrangements that are not
solely based on time and materials. For example, we may price some engagements
on a value-based model under which we may reduce our billing rates or limit our
fees in exchange for a share of the expected economic benefits to our clients
from implementing our solutions. Because we have limited experience in pricing
engagements on these terms, it can be difficult to judge the time and resources
necessary to complete a project or to gauge any business benefits that our
clients may realize from our solutions. Our failure to accurately estimate these
variables could reduce the profitability of, or result in a loss on, our
projects and could damage our client relationships and our reputation.

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WE MUST ADAPT TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS IN
ORDER TO MAINTAIN THE GROWTH OF OUR BUSINESS

Our industry is characterized by rapidly changing technologies, the
introduction of many new products and services and evolving industry standards.
The recent growth of the eCRM market and the intense competition in our industry
magnify these characteristics. In addition, enhancements of our solutions must
meet the requirements of our current and prospective clients and must achieve
significant acceptance. Our future success will depend on our ability to:

- - adapt to rapidly changing technologies by continually improving our solutions;

- - continue to develop our strategic business consulting and technical knowledge;

- - enhance our current solutions;

- - remain knowledgeable on emerging eCRM technology including the Internet,
e-mail, telephony and other software applications;

- - remain knowledgeable with respect to leading-edge research on customer
behavior and actions required to increase customer loyalty;

- - develop new solutions that meet changing client needs;

- - advertise and market our solutions; and

- - influence and respond to emerging industry standards and other technological
changes.

We cannot give any assurance that we will be successful in addressing these
developments and challenges on a timely basis or at all.

WE DEPEND ON OUR ABILITY TO RAPIDLY LEARN, USE AND INTEGRATE SOFTWARE PACKAGES
DEVELOPED BY THIRD PARTIES TO SUCCESSFULLY COMPETE IN THE ECRM MARKET

To conduct our business we use software packages from a variety of
third-party vendors. In particular, we rely on third-party software products and
services. If we are unable to integrate this software in a fully functional
manner, we may experience difficulties that could delay or prevent the
successful development, introduction or marketing of new solutions. We could
also incur substantial costs if we need to modify our services or infrastructure
to adapt to these changes. These modifications and complex solutions that
include software often contain errors or defects, particularly when first
introduced or when new versions or enhancements are released. Despite internal
testing and testing by current and potential clients, our current and future
solutions may contain serious defects due to our software or that of third-party
vendors. Serious defects or errors could result in liability for damages, lost
revenues or a delay in market acceptance.

We rely on relationships with the executive level management of third-party
vendors of technology that we integrate or incorporate into our solutions. These
relationships are necessary to allow us to rapidly learn about their software
packages, to develop appropriate methods to integrate their software into our
solutions and to gain executive level sponsorship of the integration process. If
we are unable to initiate and maintain such relationships, we may significantly
reduce our ability to successfully integrate third-party technology in our
solutions.

In addition, our competitors could also learn, use and integrate software
packages developed by third-parties and develop relationships with these
third-party vendors. By offering similar solutions, these competitors could
prevent us from obtaining new clients or could cause us to lose existing
clients.

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WE MUST PROTECT OUR INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES IN
ORDER TO REMAIN COMPETITIVE IN OUR INDUSTRY

Proprietary rights are important to our success and our competitive
position. Although we seek to protect our proprietary rights through a variety
of means, we cannot assure you that the actions we have taken are adequate to
protect these rights.

We typically enter into confidentiality or license agreements with our
clients, employees, professionals and corporate partners and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite our efforts to protect our proprietary rights
from unauthorized use or disclosure, parties may attempt to disclose, obtain or
use our rights. The steps we have taken may not prevent misappropriation of our
proprietary rights, particularly in foreign countries where laws or law
enforcement practices may not protect our proprietary rights as fully as in the
United States.

We may be required to obtain licenses from others to refine, develop,
market and deliver current and new services and solutions. There can be no
assurance that we will be able to obtain any of these licenses on commercially
reasonable terms or at all, or that rights granted by these licenses will be
valid and enforceable.

OTHERS COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS WHICH
MAY RESULT IN SUBSTANTIAL COSTS, DIVERSION OF RESOURCES AND MANAGEMENT
ATTENTION, AND HARM TO OUR REPUTATION

Although we believe that our solutions do not infringe on the intellectual
property rights of others, we cannot give any assurances that an infringement
claim will be successfully defended. We may also license content from third
parties in the future and it is possible that we could become subject to
infringement actions based upon the content licensed from these third parties.
In addition, a portion of our business involves the development of software
applications for specific client engagements. Ownership of client-specific
software is generally retained by the client, although we retain rights to some
of the applications, processes and other intellectual property developed in
connection with client engagements. We may have disputes with our clients
related to our development of software for specific client engagements and our
ability to resell or reuse that software. A successful infringement claim
against us could materially and adversely affect us in the following ways:

- we may experience a diversion of our financial resources and the
attention of technical and management personnel;

- we may be liable for damages and litigation costs, including attorneys'
fees;

- we may be enjoined from further use of the intellectual property;

- we may have to obtain a license to use the intellectual property,
incurring licensing fees;

- we may have to develop a non-infringing alternative, which could be
costly and delay projects; and

- we may have to indemnify clients with respect to losses incurred as a
result of our infringement of the intellectual property.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS

For the nine month period ended September 30, 1999, 22.5% of our revenues
were derived from our international operations. We expect international revenue
to account for a growing percentage of total revenue in the future and we
believe that we will need to continue to expand our international operations to
be successful. Our international sales growth will be limited if we are unable
to establish additional foreign operations, expand international sales
management and support organizations, hire additional personnel, customize our
solutions for use in local markets, develop relationships with international
service providers and establish relationships with additional distributors and
third-party vendors. Even if we are able to successfully expand international
operations, we cannot be certain that international market

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demand for our solutions will increase. International operations are generally
subject to a number of risks, including:

- difficulties in staffing and managing international operations, including
the logistics of transferring information and training employees;

- expenses associated with customizing our solutions for use in foreign
countries;

- protectionist laws and business practices that favor local competition;

- dependence on local vendors;

- multiple, conflicting and changing governmental laws and regulations and
difficulties in enforcing contractual obligations related to intellectual
property in foreign countries;

- potentially adverse tax consequences;

- international currency issues, including foreign currency exchange rate
fluctuations;

- longer sales cycles;

- seasonal reductions in business activity; and

- political and economic instability.

To date, a majority of our international revenue and costs have been
denominated in foreign currencies. We believe that an increasing portion of our
international revenue and costs will be denominated in foreign currencies in the
future. To date, we have not engaged in any foreign exchange hedging
transactions and we are therefore subject to foreign currency risk.

INCREASING GOVERNMENT REGULATION COULD CAUSE US TO LOSE CLIENTS OR IMPAIR THE
GROWTH OF OUR BUSINESS

We are subject not only to regulations applicable to businesses generally,
but also to laws and regulations directly applicable to electronic commerce.
Although there are currently few such laws and regulations, state, federal and
foreign governments may adopt laws and regulations applicable to our business.
Any such legislation or regulation could dampen the growth of the Internet and
decrease its acceptance. If such a decline occurs, companies may decide in the
future not to use our solutions. Any new laws and regulations in the following
areas could affect our existing business relationships or prevent us from
getting new clients:

- user privacy;

- the pricing and taxation of goods and services offered over the Internet;

- the content of websites;

- copyrights;

- consumer protection;

- the online distribution of specific material or content over the
Internet; and

- the characteristics and quality of products and services offered over the
Internet.

THE YEAR 2000 ISSUE MAY CAUSE US TO HAVE SUBSTANTIAL, UNEXPECTED COSTS AND
DISRUPTIONS

The Year 2000 issue is a general term used to address a class of problems
caused by the inability of computer programs to recognize various date values
around January 1, 2000. This class of problems could result in a system failure
or miscalculations causing disruptions of operations such as, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.

accounting, tax, benefits administration, human resources and information
systems. As a result, Year 2000 problems experienced by Technology Solutions
Company could have a material adverse effect on our business, financial
condition or results of operations. Technology Solutions Company has advised us
that, based on presently available information, it believes that any necessary
compliance efforts concerning its internal systems will not have a material
adverse effect on its business, operating results and financial condition.
However, if compliance efforts of which Technology Solutions Company is not
currently aware are required and are not completed on time, or if the cost of
any required updating, modification or replacement of Technology Solutions
Company's information systems exceeds its estimates, the Year 2000 issue could
have a material adverse impact on TSC's business, operating results and
financial condition, which in turn could cause us to have substantial,
unexpected costs and disruptions.

In addition, Year 2000 problems of our clients could affect our systems or
operations. Widespread Year 2000 difficulties could also decrease demand for our
services as companies expend resources upgrading their computer systems. As part
of our analysis of the Year 2000 problem, we have analyzed the impact of the
"worst case scenario" on our business. The "worst case scenario" would occur if
the statements and warranties of vendors concerning their Year 2000 compliance
and upgrade programs were entirely false, its current upgrades were unsuccessful
and either our contingency plan or Technology Solutions Company's failed,
resulting in a critical systems failure.

Although, as a general matter, we do not specifically warrant to clients
that our work will be Year 2000 compliant, some clients have requested and
received such warranties. In such cases, we do not warrant the compliance of
third-party software; rather, we warrant only that software created by us will
be Year 2000 compliant. However, even absent a specific Year 2000 warranty,
there is a risk that clients for whom we have created or implemented software
will attempt to hold us liable for any damages that result in connection with
Year 2000 problems.

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000" for a more complete description of the Year
2000 risks that we face and the steps we have taken to reduce those risks.

IF GROWTH IN THE USE OF THE INTERNET AND ECRM TECHNOLOGIES DECLINES, DEMAND FOR
OUR SERVICES MAY DECREASE

Internet and eCRM technologies are central to many of our solutions. Our
business depends upon continued growth in the use of these technologies by our
clients, prospective clients and their customers and suppliers. If the number of
users of this technology does not increase and commerce using this technology
does not become more accepted and widespread, demand for our services may
decrease. Factors that may affect the usage of this technology include:

- actual or perceived lack of security of information;

- lack of access and ease of use;

- congestion of Internet traffic or other usage delays;

- inconsistent quality of service;

- increases in costs of using the Internet and eCRM technology;

- increased government regulation;

- uncertainty regarding intellectual property ownership;

- reluctance to adopt new business methods; and

- costs associated with the obsolescence of existing infrastructure.

POTENTIAL FUTURE ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS AND DILUTE STOCKHOLDER VALUE

Although we currently have no specific plans to do so, we may acquire other
businesses in the future that may complicate our management tasks. We may need
to integrate widely dispersed operations with

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distinct corporate cultures. Such integration efforts may not succeed or may
distract our management from servicing existing clients. Our failure to manage
future acquisitions successfully could seriously harm our operating results.
Also, acquisition costs could cause our quarterly operating results to vary
significantly. Furthermore, our stockholders would be diluted if we finance the
acquisitions by issuing equity or equity-linked securities.

RISK FACTORS RELATING TO SECURITIES MARKETS

There are risks relating to securities markets that you should consider in
connection with your ownership of our stock.

THE MARKET PRICE FOR OUR COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES OF
COMMON STOCK IN THE PUBLIC MARKET

Sales of substantial amounts of our common stock in the public market or
the perception that such sales might occur could have a material adverse effect
on the price of our common stock. The shares of our common stock distributed in
the spin-off will be freely tradable except for shares received by persons who
may be deemed to be our "affiliates." As of the date of this
prospectus/information statement, an aggregate of 7,410,000 shares of our common
stock have been reserved for issuance under our stock incentive plan. On the
first day of each fiscal year, an additional number of shares equal to 5% of the
number of shares of our common stock then outstanding will be added to the
number of shares available under that plan. As of September 30, 1999 we have
issued options to purchase an aggregate of 5,046,000 shares of our common stock,
and will issue additional options as of the date of the spin-off in substitution
of all of the Technology Solutions Company options then held by our employees
and directors and some of the Technology Solutions Company options then held by
Technology Solutions Company employees and directors. As of December 31, 1999,
options to purchase 4,236,768 shares of Technology Solutions Company stock
granted before June 22, 1999 were held by persons who will continue as employees
or directors of Technology Solutions Company after the spin-off, or who will not
be employees or directors of either Technology Solutions Company or eLoyalty
after the spin-off. As of the spin-off, these options will be converted into
options to purchase the same number of shares of eLoyalty stock. In addition, as
of December 31, 1999, options to purchase 3,138,385 shares of Technology
Solutions Company stock held by persons who will be employees or directors of
eLoyalty after the spin-off (and who will not also be directors of Technology
Solutions Company) will be converted as of the spin-off into a greater number of
options to purchase eLoyalty stock, based on the trading prices of Technology
Solutions Company and eLoyalty at the time of the spin-off. For a more complete
discussion of how the stock options of Technology Solutions Company and eLoyalty
will be allocated to the employees of each company, see "eLoyalty Relationship
with Technology Solutions Company After the Spin-Off -- Stock Options" and Note
8 of the Notes to Consolidated Financial Statements. These substitute options
are not subject to the limit on the shares reserved for issuance set forth
above. An additional 500,000 shares are reserved for issuance under the our
employee stock purchase plan. We intend to file registration statements on Form
S-8 covering the issuance of shares of our common stock pursuant to those plans.
Accordingly, the shares issued pursuant to either of those plans will be freely
tradable, subject to the restrictions on resale by persons who may be deemed to
be our affiliates.

We have entered into a common stock purchase and sale agreement with Sutter
Hill Ventures and Technology Crossover Ventures. Sutter Hill Ventures is an
affiliate of Mr. Tench Coxe, who will be our chairman of the board of directors.
On June 22, 1999 the investors agreed to purchase an aggregate of 2,400,000
shares of our common stock at $3.50 per share. The agreement with the investors
provides that the proposed purchase of our common stock is subject to the
receipt of a private letter ruling from the IRS (which has been received) to the
effect that the spin-off will be tax-free to Technology Solutions Company and
its stockholders for United States federal income tax purposes and other
customary conditions. Following the completion of the sale of our common stock
to the investors, each of Sutter Hill Ventures and Technology Crossover Ventures
will have the right to designate a nominee to our board of directors. We expect
Sutter Hill Ventures to nominate Tench Coxe as its designee on our board and
that

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Tench Coxe will be our chairman of the board. We expect that Technology
Crossover Ventures to nominate Jay Hoag as its designee on our board.

PROVISIONS IN OUR CORPORATE DOCUMENTS, AND FEDERAL INCOME TAX CONSIDERATIONS,
COULD DELAY OR PREVENT A CHANGE IN CONTROL OF eLOYALTY, WHICH COULD ADVERSELY
AFFECT THE PRICE OF OUR COMMON STOCK

The existence of some provisions in our corporate documents and Delaware
law could delay or prevent a change in control of eLoyalty, which could
adversely affect the price of our common stock. Our certificate of incorporation
and bylaws contain provisions that may make the acquisition of control of
eLoyalty more difficult, including provisions relating to the nomination,
election and removal of directors and limitations on actions by our
stockholders. For example, our certificate of incorporation provides that the
board of directors will be divided into three classes as nearly equal in size as
possible with staggered three-year terms. This classification of the board of
directors has the effect of making it more difficult for stockholders to change
the composition of the board of directors. In addition, our preferred share
purchase rights would cause substantial dilution to any person or group who
attempts to acquire a significant interest in eLoyalty without advance approval
from our board of directors. For a more complete description of our capital
stock, our certificate of incorporation, bylaws, our preferred share purchase
rights and the effects of Delaware law that could hinder a third party's attempt
to acquire control over us, see "Description of eLoyalty Capital Stock."

Some acquisitions of the stock of eLoyalty prior to, or following, the
spin-off might cause the spin-off to be taxable, for federal income tax
purposes, to Technology Solutions Company if the acquisitions involve, in the
aggregate, 50% or more (by vote or value) of eLoyalty's stock and are found to
be part of a plan (or series of related transactions) of which the spin-off is a
part. Acquisitions of eLoyalty stock occurring during the four-year period
beginning two years before, and ending two years after, the spin-off are
presumed to be part of a plan (or series of related transactions) of which the
spin-off is a part. Under the Tax Sharing and Disaffiliation Agreement, eLoyalty
has agreed to indemnify Technology Solutions Company if the spin-off is taxable
as a result of any acquisition or other transaction involving the capital stock
of eLoyalty. Such liability, if it were to arise, would be significant. As a
consequence of the foregoing, persons otherwise interested in acquiring eLoyalty
stock might postpone or cancel any acquisitions out of concern that their
acquisitions would cause the spin-off to be taxable, with the resulting tax
liability effectively borne by eLoyalty under the terms of the Tax Sharing and
Disaffiliation Agreement. For a more complete discussion of the consequences of
the spin-off being taxable, see "The Spin-Off -- Material Federal Tax
Consequences" and "eLoyalty's Relationship with Technology Solutions Company
After the Spin-Off -- Tax Sharing and Disaffiliation Agreement."

OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THE SPIN-OFF

The market price of our common stock could be subject to significant
fluctuations in response to our operating results, changes in earnings estimated
by securities analysts or our ability to meet those estimates, publicity
regarding the CRM industry in general or any of our significant clients and
other factors. Some or all of these factors may be beyond our control. In
particular, the realization of any of the risks described in these "Risk
Factors," including the possibility of substantial sales of our common stock and
the timing, structure and terms of the spin-off, could have a significant and
adverse impact on the market price of our common stock. In addition, the stock
market in general has experienced extreme volatility that has often been
seemingly unrelated to the operating performance of particular companies,
particularly those that are technology related. These broad market fluctuations
may adversely affect the trading price of our common stock. In the past,
securities class action litigation has often been instituted against companies
following periods of volatility in the market price of their securities. Such
litigation could result in substantial costs and a diversion of management's
attention and resources. There is currently no public market for our common
stock and we cannot assure you that an active trading market will develop or be
sustained after the spin-off.

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THE SPIN-OFF

BACKGROUND AND PURPOSES OF THE SPIN-OFF

Technology Solutions Company was organized in 1988 and became a public
company in 1991. Technology Solutions Company's businesses originally consisted
of the design, development and implementation of custom client/server computer
systems for large corporate clients. Technology Solutions Company's first
engagements in the customer relationship management or CRM area consisted of
custom call center projects at two Fortune 500 companies, the first of which
began in 1991.

Over time, the business conducted by Technology Solutions Company has
evolved in related but distinct directions, which led to the establishment of
two divisions within Technology Solutions Company:

- the eLoyalty division, which represents the business formerly conducted
as the Enterprise Customer Management business unit within Technology
Solutions Company; and

- the E-Solutions division, which comprises the remaining business
currently conducted by Technology Solutions Company.

Technology Solutions Company's E-Solutions division provides consulting and
systems integration services that help companies apply technology to improve the
way they do business. The E-Solutions division specializes in the areas of
eCommerce, supply chain management, computer based training and resource
planning. Historically, the E-Solutions division has focused on the integration
of packaged software applications. Currently, E-Solutions is applying this
expertise in the high growth areas of eBusiness.

The principal market in which the E-Solutions division operates is the more
established information technology services market, which is distinct from the
market targeted by eLoyalty. As a result, eLoyalty and E-Solutions have
developed different growth characteristics and strategic priorities.

Over the past year, Technology Solutions Company's board of directors has
considered alternatives to separate the businesses of the eLoyalty division from
the E-Solutions division, including by way of a spin-off or a spin-off preceded
by an initial public offering of eLoyalty common stock. On September 23, 1999,
Technology Solutions Company announced its intention to spin-off eLoyalty
through the tax-free distribution of eLoyalty shares to Technology Solutions
Company stockholders.

The spin-off is designed to separate the E-Solutions and eLoyalty
businesses. We expect that important benefits will accrue to Technology
Solutions Company and eLoyalty, including the following:

- Capital Financing Flexibility. After the spin-off, each company should
have greater capital planning flexibility. For example, each company
would be able to use its own stock to pursue acquisitions if and when it
chooses to do so, subject to federal income tax considerations. For a
more complete discussion of restrictions on our use of our stock for
acquisitions, see "-- Material Federal Tax Consequences." The eLoyalty
business will no longer have to compete with other business units in
Technology Solutions Company to secure funding for the investments it
believes are appropriate to effect its growth plan.

- Business Focus. As a result of the spin-off, each of Technology Solutions
Company and eLoyalty will be better able to focus its attention and
financial resources on its own business and on exploring and implementing
the most appropriate growth opportunities and executing its own strategic
plans.

- Employee Incentives. The spin-off will allow each company to develop
incentive programs for management and other professionals that are
tailored to their own business and are tied to the market performance of
their own common stock. These programs will more directly reward
employees based on each company's individual success.

- Simplified Internal Structures. Management of each company should be able
to implement simplified organizational and internal reporting structures.

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MANNER OF EFFECTING THE SPIN-OFF

Technology Solutions Company will accomplish the spin-off by distributing
all of the outstanding common stock of eLoyalty owned by Technology Solutions
Company to Technology Solutions Company stockholders as a dividend. Technology
Solutions Company's board of directors has declared the dividend necessary to
effect the spin-off. Each Technology Solutions Company stockholder of record as
of the close of business on February , 2000, which is the "record date" for
the spin-off, will be entitled to participate in the spin-off. On the spin-off
date, those same TSC stockholders will each receive one share of our common
stock for every one share of TSC common stock that they hold as of the record
date. Although the spin-off will not occur unless the stated conditions are
satisfied, we expect that the spin-off will take place on or about February ,
2000. For a more complete discussion of the conditions required for the spin-off
to occur, see "-- Conditions to the Spin-Off."

As soon as possible on or after the spin-off date, Technology Solutions
Company will deliver to the spin-off agent, as agent for Technology Solutions
Company stockholders as of the close of business on the record date for the
spin-off, certificates representing shares of eLoyalty common stock. The
spin-off agent will then mail, on or about the spin-off date, certificates
representing shares of our common stock to those stockholders.

No Technology Solutions Company stockholder will be required to pay cash or
other consideration for the shares of eLoyalty common stock to be received in
the spin-off or to surrender or exchange shares of Technology Solutions Company
common stock in order to receive eLoyalty common stock. Accordingly, eLoyalty
will not receive any proceeds from the distribution of eLoyalty shares in the
spin-off.

RESULTS OF THE SPIN-OFF

After the spin-off, Technology Solutions Company and eLoyalty will be
separate, independent public companies. Our management, fundamentals, growth
characteristics and strategic priorities will be different from those of
Technology Solutions Company.

The number and identity of our stockholders immediately after the spin-off
will be the number and identity of Technology Solutions Company's stockholders
at the close of business on the record date for the spin-off together with the
venture capital investors described under "Certain Transactions." Immediately
after the spin-off we expect to have approximately 1,228 holders of record of
our common stock and approximately 43,350,000 shares of our common stock issued
and outstanding, based on the number of holders of record and issued and
outstanding shares of TSC common stock on December 31, 1999.

Our board of directors has adopted a rights plan, which will entitle each
eLoyalty stockholder to one preferred share purchase right for every share of
eLoyalty common stock he or she receives in the spin-off. Shares of eLoyalty
common stock also will represent the same number of rights issued under the
rights plan. For a more complete discussion of the shareholder rights plan, see
"Description of eLoyalty Capital Stock -- Rights Plan." Unless the context
otherwise requires, references in this information statement/prospectus to our
common stock include the related rights to be issued under our rights plan.

The spin-off will not affect the rights of the holders of outstanding
shares of Technology Solutions Company or the rights associated with those
shares.

MATERIAL FEDERAL TAX CONSEQUENCES

The following summarizes the material United States federal income tax
consequences of the spin-off. The discussion that follows is based on and
subject to the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations under the Code, existing administrative interpretations and court
decisions as of the date of this information statement/prospectus, all of which
are subject to change (possibly with retroactive effect) and all of which are
subject to differing interpretation. The following discussion does not address
the effects of the spin-off under any state, local or foreign tax laws.

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<PAGE> 29

The tax treatment of a Technology Solutions Company stockholder may vary
depending upon the stockholder's particular situation, and some Technology
Solutions Company stockholders (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, persons who do not hold
Technology Solutions Company stock as capital assets, employees of Technology
Solutions Company, and individuals who hold Technology Solutions Company stock
as part of a straddle or conversion transaction) may be subject to special rules
not discussed below. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO
THE SPECIFIC TAX CONSEQUENCES OF THE SPIN-OFF INCLUDING THE EFFECTS OF UNITED
STATES FEDERAL, STATE AND LOCAL, AND FOREIGN AND OTHER TAX RULES, AND THE EFFECT
OF POSSIBLE CHANGES IN TAX LAWS.

Technology Solutions Company has received a private letter ruling from the
IRS regarding the United States federal income tax consequences of the spin-off,
substantially to the effect that, among other things:

- No gain or loss will be recognized by Technology Solutions Company or
eLoyalty upon the transfer of the eLoyalty business assets by Technology
Solutions Company to eLoyalty (and the assumption by eLoyalty of some
liabilities);

- The spin-off will qualify as a tax-free spin-off under Section 355 of the
Code;

- No gain or loss will be recognized by Technology Solutions Company upon
the distribution of all of its shares of eLoyalty common stock to the
stockholders of Technology Solutions Company;

- No gain or loss will be recognized by (and no amount will be included in
the income of) the Technology Solutions Company stockholders as a result
of their receipt of eLoyalty common stock in the spin-off;

- In connection with the spin-off, a stockholder's basis in Technology
Solutions Company stock will be apportioned between the Technology
Solutions Company stock and the eLoyalty common stock received in the
spin-off in accordance with their relative fair market values on the date
of the spin-off; and

- The holding period of the eLoyalty common stock received in the spin-off
will include the holding period of the Technology Solutions Company stock
with respect to which the eLoyalty common stock will be distributed,
provided the Technology Solutions Company stock is held as a capital
asset on the date of the spin-off.

The private letter ruling is generally binding on the IRS. However, the
ruling is based upon various factual representations and assumptions, as well as
upon undertakings that Technology Solutions Company and we have agreed to. We
are not aware of any facts or circumstances that would cause the representations
and assumptions to be untrue or incomplete in a material respect. If, however,
any of those factual representations or assumptions were untrue or incomplete in
a material respect, any undertaking were not complied with, or the facts upon
which the ruling is based were materially different from the facts at the time
of the spin-off, the ruling received from the IRS might be invalid.

Some acquisitions of the stock of eLoyalty or Technology Solutions Company
prior to, or following, the spin-off might cause the spin-off to be taxable, for
federal income tax purposes, to Technology Solutions Company (but not its
stockholders) if the acquisitions involve, in the aggregate, 50% or more (by
vote or value) of the stock of eLoyalty or Technology Solutions Company and are
found to be part of a plan (or series of related transactions) of which the
spin-off is a part. Acquisitions of eLoyalty or Technology Solutions Company
stock occurring during the four-year period beginning two years before, and
ending two years after, the spin-off are presumed to be part of a plan (or
series of related transactions) of which the spin-off is a part.

If the contribution or the spin-off were not to qualify for tax-free
treatment for United States federal income tax purposes then, in general, a very
substantial tax would be payable by Technology Solutions Company. Such a tax
would generally be based on the excess of the gross fair market value of the
eLoyalty business over the tax basis of the assets included in that business
(which tax basis is expected to be insignificant relative to the fair market
value). If the spin-off were not to qualify for tax-free treatment for United
States federal income tax purposes (other than by reason of acquisitions
described in the preceding paragraph) then, in general, a very substantial tax
would also be payable by the Technology
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Solutions Company stockholders. In general, a Technology Solutions Company
stockholder would be treated as having received a distribution equal to the fair
market value of the eLoyalty stock on the date of distribution. The distribution
would be taxed as ordinary dividend income to the extent not in excess of
Technology Solutions Company's current and accumulated earnings and profits.
Thereafter, the distribution would decrease (but not below zero) a Technology
Solutions Company stockholder's tax basis in his or her Technology Solutions
Company stock. Thereafter, the distribution would be taxed as gain from the sale
or exchange of Technology Solutions Company stock.

Under United States federal income tax laws, Technology Solutions Company
and eLoyalty would be jointly and severally liable for Technology Solutions
Company's federal income taxes resulting from the contribution or spin-off being
taxable. As summarized below under "eLoyalty's Relationship with Technology
Solutions Company After the Spin-Off -- Tax Sharing and Disaffiliation
Agreement," arrangements will exist between Technology Solutions Company and
eLoyalty relating to tax sharing and other tax matters, including
indemnification by Technology Solutions Company and eLoyalty to each other with
respect to the failure of the contribution of the eLoyalty business or the
spin-off to be tax free.

United States Treasury Regulations require each Technology Solutions
Company stockholder to attach to its United States federal income tax return for
the year of the spin-off a detailed statement setting forth data as may be
appropriate in order to show the applicability of Section 355 of the Code to the
spin-off. Within a reasonable time after the spin-off, Technology Solutions
Company will provide Technology Solutions Company stockholders with the
information necessary to comply with these requirements, and will provide
information regarding the allocation of the tax basis as described in the fifth
bullet point above in this section. The private letter ruling, if received by
Technology Solutions Company, will not specifically address the tax basis
allocation rules applicable to Technology Solutions Company stockholders who
hold blocks of Technology Solutions Company stock with different per share tax
bases and these stockholders should consult their own tax advisors in that
regard. ALL TECHNOLOGY SOLUTIONS COMPANY STOCKHOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO THEM,
INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS AND ANY CHANGES
IN UNITED STATES FEDERAL INCOME TAX LAW THAT MAY OCCUR AFTER THE DATE OF THIS
INFORMATION STATEMENT/ PROSPECTUS.

MARKET FOR eLOYALTY COMMON STOCK

See "Risk Factors" for a discussion of considerations relating to the
market for and trading prices of our common stock following the spin-off.

Currently there is no regular public market for our common stock. Our
common stock has been approved for listing on The Nasdaq National Market under
the symbol "ELOY," subject to official notice of issuance. "Regular-way" trading
of our common stock is expected to begin on the first business day after the
spin-off date. In addition, we expect that "when-issued" trading for our common
stock will develop prior to the spin-off date. "When-issued" trading refers to
that period when shares are traded prior to the time shares are actually
available or issued. None of these trades, however, will settle until after the
spin-off date, when regular trading in our common stock has begun. If the
spin-off does not occur, all when-issued trading will be null and void.
Technology Solutions Company expects that its common stock will continue to
trade on a regular basis through and after the spin-off date.

Shares of our common stock distributed in the spin-off will be freely
transferable, except for shares received by persons who may be deemed to be our
"affiliates" under the Securities Act of 1933, as amended (the "Securities
Act"). Persons who may be deemed to be our affiliates after the spin-off
generally include individuals or entities that control, are controlled by, or
are under common control with, us and may include some of our officers,
directors or principal stockholders. Persons or entities who or which are our
affiliates will be permitted to sell shares of our common stock only pursuant to
an effective registration statement under the Securities Act or any exemption
from the registration requirements of the Securities Act that may be available.

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CONDITIONS TO THE SPIN-OFF

The spin-off is conditioned on, among other things, declaration of the
spin-off by the Technology Solutions Company board of directors. Other
conditions to the spin-off include:

- Technology Solutions Company's receipt of the private letter ruling from
the IRS as described under "-- Material Federal Tax Consequences (which
has been received);"

- the receipt by Technology Solutions Company's board of directors of
opinions of Technology Solutions Company's financial advisor regarding
the fairness to stockholders of Technology Solutions Company of the
spin-off and the viability of Technology Solutions Company and eLoyalty
after the spin-off (which opinions have been received);

- receipt of all material approvals and consents necessary to consummate
the spin-off;

- the absence of any prohibition of the spin-off by any law or governmental
authority;

- registration of our common stock under the Securities Act and the
Securities Exchange Act of 1934 (the "Exchange Act") (which registrations
have not yet been effected); and

- approval for listing on The Nasdaq National Market of our common stock
(which approval has been received).

Even if all the conditions to the spin-off are satisfied, Technology
Solutions Company has reserved the right to amend or terminate the
reorganization agreement providing for the spin-off and the related
transactions. The Technology Solutions Company board of directors has not
attempted to identify or establish objective criteria for evaluating the
particular types of events or conditions that would cause it to consider
amending or terminating the spin-off. Although the conditions described above
may be waived by Technology Solutions Company to the extent permitted by law,
the Technology Solutions Company board of directors presently has no intention
to proceed with the spin-off unless each of these conditions is satisfied.

OPINIONS OF FINANCIAL ADVISOR

Technology Solutions Company has engaged Credit Suisse First Boston
Corporation as a financial advisor in connection with the spin-off. As provided
for in an engagement letter dated November 1, 1999, Credit Suisse First Boston
has delivered to the Technology Solutions Company board of directors its written
opinion with respect to:

- the fairness of the spin-off from a financial point of view to the
stockholders of Technology Solutions Company; and

- whether the spin-off should materially and adversely affect the ability
of Technology Solutions Company (after the completion of the spin-off)
and eLoyalty to meet their respective projected operating and capital
expenditures immediately following the spin-off through December 31, 2000
as set forth in the financial forecasts provided to Credit Suisse First
Boston by the management of Technology Solutions Company.

The Technology Solutions Company board of directors considered this opinion in
deciding to formally declare the spin-off dividend.

The full text of the Credit Suisse First Boston opinion sets forth, among
other things, assumptions made, procedures followed, matters considered and
limitations set on the scope of the review undertaken by Credit Suisse First
Boston in rendering its opinion. The full text of the opinion has been attached
as Annex I to this information statement/prospectus and is incorporated by
reference in its entirety. The Credit Suisse First Boston opinion addresses only
the fairness of the spin-off from a financial point of view to the stockholders
of Technology Solutions Company and as to whether the spin-off should materially
and adversely affect the ability of Technology Solutions Company (after the
completion of the spin-off) and eLoyalty to meet their respective projected
operating and capital expenditures immediately following the spin-off through
December 31, 2000, as set forth in the financial forecasts provided to Credit
Suisse First

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Boston by the management of Technology Solutions Company. The opinion is
addressed to the Technology Solutions Company board of directors and does not
constitute a recommendation to any stockholder of Technology Solutions Company
as to whether such stockholder should buy, sell or continue to hold shares of
Technology Solutions Company common stock or, following the spin-off, eLoyalty
common stock.

As provided for in the engagement letter, Technology Solutions Company has
agreed to pay Credit Suisse First Boston a customary fee, which will be paid
upon the completion of the spin-off. Technology Solutions Company has agreed to
reimburse Credit Suisse First Boston for its out-of-pocket expenses, including
attorney's fees, incurred in connection with its engagement. Technology
Solutions Company has also agreed to indemnify Credit Suisse First Boston and
related persons against specified liabilities and expenses arising out of or in
conjunction with its rendering of services under its engagement, including
liabilities arising under the federal securities laws.

Credit Suisse First Boston was selected by the Technology Solutions Company
board of directors based on Credit Suisse First Boston's qualifications,
expertise and reputation, as well as its familiarity with Technology Solutions
Company. Credit Suisse First Boston is an internationally recognized investment
banking and advisory firm. Credit Suisse First Boston, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of its business, Credit Suisse First Boston and
its affiliates may actively trade the debt and equity securities of Technology
Solutions Company and eLoyalty for their own accounts and for the accounts of
their customers and, accordingly, may at any time hold a long or short position
in such securities.

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eLOYALTY'S BUSINESS

OUR HISTORY

eLoyalty was founded in 1994 as a business unit within Technology Solutions
Company and was incorporated in Delaware in May 1999.

Technology Solutions Company's core business originally consisted of the
design, development and implementation of custom client/server computer systems
for large corporate clients. Technology Solutions Company's first engagements in
the customer relationship management or CRM area consisted of projects at two
Fortune 500 companies which involved the identification, integration and
implementation of various software products so that these clients could better
communicate with their customers by telephone from a centralized location. These
centralized locations are commonly referred to as call centers. The first of
these projects began in 1991. Kelly Conway, eLoyalty's President and Chief
Executive Officer, was hired by Technology Solutions Company in November 1993.
Drawing upon Technology Solutions Company's experience and his own background
and knowledge, Mr. Conway led the development of Technology Solutions Company's
expertise in call center and other CRM technologies.

Mr. Conway established the call center business unit within Technology
Solutions Company in May 1994. To reflect the broader scope and strategic,
enterprise-wide focus of the solutions developed and offered by the group headed
by Mr. Conway, it was renamed the Enterprise Customer Management business unit
in 1997. In June 1999, the Enterprise Customer Management business unit was
named the eLoyalty division of Technology Solutions Company. Since 1994, this
group within Technology Solutions Company has consistently dedicated time and
resources to developing eLoyalty's strategic consulting and technology
capabilities in an effort to lead the development of, and stay at the forefront
of, the electronic customer relationship management or eCRM market.

OVERVIEW

We are a management consulting and information technology services company
providing solutions that are designed to improve customer relationships for our
clients. We define these solutions as loyalty solutions.

We believe that loyalty solutions are the next step in the CRM market. The
CRM market refers to consulting services and software products designed to help
companies better communicate with their customers. The CRM market focuses
primarily on the person to person (for instance through field sales and field
service) and telephone (for instance through call center) as the means of
communication.

With the emergence of the Internet, managing customer relationships has
become more complex. The Internet is available at all times of the day and night
and almost anywhere in the world. This freedom of access can create an
expectation with customers that they should be able to communicate with any part
of a company about any matter relating to their products or services at any
time. To meet these new expectations, a company needs to link the policies and
technologies of their existing CRM solution into this new electronic
environment.

We define the market opportunity created by this business need as eCRM.
eCRM is an expansion of CRM to further include the Internet, e-mail and web-chat
across each division of a company. Our key services to build a loyalty solution
include:

- strategic and business consulting to define a company's policy for
managing customer relationships;

- technical knowledge of the software products available from third party
vendors in this area;

- proprietary software and methodologies to tie together the different
software products; and

- ongoing support to meet the changing business requirements of our clients
as well as to update their solutions as technology advances.

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The following scenarios illustrate how loyalty solutions can increase
profitability and build loyalty:

CUSTOMER SCENARIO #1: BANKING

A highly valued customer is late making his credit card payment. He has
exceeded his credit limit and is about to have his credit line suspended.
The bank's standard policy on late payments is to charge a $20 delinquency
fee and to apply a high interest charge to the outstanding balance.

A customer information database identifies the situation and notes that
although he is a low value customer to the credit card division, he is of
high overall value to the bank because he maintains several profitable
accounts. In recognition of his value, the business rules put into place
by executive management and embedded in the loyalty solution direct the
customer service representative to initiate a call to the customer and
notify him that he has been granted a two-week payment extension and that
no fees or interest will be charged to his account. To increase the
profitability of this relationship, the loyalty solution also prompts the
customer service representative to up-sell the customer a new platinum
credit card. The customer accepts the offer because his credit limit will
be increased. The bank expects to generate higher annual fees from this
upgrade as well as greater transaction revenue from the customer's
increased spending.

CUSTOMER SCENARIO #2: TECHNOLOGY

A highly valued customer has purchased many top-of-the-line computers from
the direct sales division over the past two years. The customer has
recently experienced a problem with a new printer only four months after
buying it. Unfortunately, the customer did not purchase an extended
warranty. The company's standard policy is to charge a fee to repair the
machine after the standard, ninety-day coverage expires.

The customer goes on-line, but cannot find the solution to the printer's
problem using the self-service problem resolution application on the
company's web site. The loyalty solution recognizes the customer's value
and automatically presents the customer with a "call me" option. Within
minutes, the customer receives a call at home from a technical engineer.
The engineer quickly determines that the printer does not have sufficient
memory to meet the customer's needs. Information pulled from the customer
database by the loyalty solution also notifies the engineer that during
the customer's previous on-line activity he has been browsing the scanner
section of the company's web site. The engineer then informs the customer
that he will not be charged for the service request and successfully sells
the customer an upgrade package for the printer along with a new order for
a scanner at a special discounted rate.

CUSTOMER SCENARIO #3: TRAVEL

A top-tier business traveler is making an on-line reservation to fly with
her husband and daughter on vacation. The executive travels over 100,000
miles a year with the airline, putting her in the top group of frequent
fliers. She has collected sufficient points to upgrade her family on this
trip, however, the airline's standard travel policy allows only one
additional upgrade per reservation. This would mean that one of the three
passengers has to travel alone in coach class seating. This same
businesswoman is also the decision maker for her company's travel policy.

The Internet ticketing system automatically searches the customer
information database and determines that the customer is in the airline's
highest value segment. Based on business rules put into place by executive
management, the Internet ticketing system allows the high-value customer
to upgrade up to three additional reservations. These rules, embedded in
the loyalty solution, direct the system to offer the businesswoman a
"companion travels free" coupon as an incentive for her to use the airline
for subsequent personal travel.

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INDUSTRY BACKGROUND

Increasing competitiveness is forcing companies to become more focused on
their current customers. The importance of customer relationships is a familiar
business concept. New technologies are helping companies attract and maximize
the value of their existing customers more effectively. In addition, the rapid
growth of the Internet is fundamentally changing the way businesses communicate
(interact) with their customers. Customers can use the Internet to more quickly
evaluate products and prices from a wide range of companies without regard to
geographical constraints. Consumers are increasingly using the Internet, e-mail
and web-chat as their preferred methods of communication. International Data
Corporation (IDC) expects the number of worldwide Internet users to grow from
142 million in 1998 to 502 million in 2003. In addition, IDC expects consumer
e-mail users in the United States to grow from 48 million in 1998 to 112 million
in 2005.

To remain competitive in this dynamic business environment, more companies
are seeking to create and enhance customer loyalty by making their interactions
with customers more personal and relevant to the customer. By personalizing
these contacts with their customers, companies hope to build a stronger
relationship with each customer -- a relationship that will increase that
customer's loyalty to the company's products or services. This greater loyalty
is expected to increase revenue and profitability per customer. By knowing their
customers better, companies can market complementary products, known as
"cross-selling," or market higher-end products, known as "up-selling," during
regular customer interactions.

Furthermore, companies today are increasingly aware of the significant
financial impact associated with losing high value customers, particularly in
the early stages of the relationship. In most industries, initial customer
acquisition costs far exceed a typical customer's spending in the first year.
According to research presented by Frederick R. Reichheld and W. Earl Sasser,
Jr. in a Harvard Business Review article, "companies can boost their profits by
almost 100% by retaining just 5% more of their customers."

The early stage of CRM was focused on the call center, where customer
interaction took place through telemarketing, telesales and follow-up customer
service. Although call centers were a first step in the CRM initiative, they
were limited to only the telephone. In addition, call centers were often not
integrated with back office transaction processing systems. As a result,
significant amounts of manual processing were necessary to fulfill a customer's
request.

With advances in the Internet and information technology, CRM has become
more sophisticated and complex. As a result of the Internet, customer
expectations have increased, barriers to market entry have decreased and
competitors are only a click away. The Internet also enables companies to obtain
additional customer information and feedback at considerably reduced costs. To
meet new customer expectations, ward off competitors and make use of new
customer information, companies need to link their existing CRM solution into
this new electronic environment. We define the market opportunity created by
this business need as eCRM. eCRM is therefore an expansion of CRM to further
include the Internet, e-mail and web-chat across each division of a company.

Currently, no single software product can provide all of the capabilities
needed to effectively address the eCRM market. To see why this is true, we need
to examine the components of the eCRM market. The eCRM market can be separated
into six significant components: Channel Management, eCommerce, Customer
Segmentation, CRM Applications, Back Office and Call Center Technology.

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Companies today require these software products to be integrated into an
enterprise-wide solution that incorporates all the various ways that companies
communicate with their customers including the Internet, e-mail, web-chat,
telephone and fax, and provides a seamless integration of these channels to
support core business operations. Increasingly, companies are looking for
outside providers to implement these initiatives directed at improving customer
loyalty. The Gartner Group, an information technology research firm, predicts
that the market for CRM services will grow from $2.9 billion in 1998 to $20.8
billion in 2003. The following diagram illustrates those six components grouped
by their functionality, as well as examples of third party vendors who provide
software in each category.

Significant Components of the eCRM Market
[COMPONENTS OF THE eCRM MARKET GRAPHIC]
CHANNEL MANAGEMENT CUSTOMER SEGMENTATION CRM APPLICATIONS
eCOMMERCE CRITICAL VOID BACK OFFICE
CALL CENTER TECHNOLOGY
eLOYALTY APPROACH

While a well-defined technical system design is needed to successfully
integrate these software products, the value of an eCRM solution is derived from
combining this technical system design with an effective business strategy. The
business strategy defines the policies for managing customer relationships and
involves grouping customers into value segments and analyzing potential customer
interactions. Business rules need to be created to define the specific actions
that should be taken each time a customer interaction occurs. The results of
these actions then need to be analyzed to ensure that the customers' loyalty has
increased due to the interaction.

A loyalty solution is an eCRM business and technology solution that is
designed to help companies build lasting relationships with their customers,
maximize the efficiency of customer interactions and capitalize on selling
opportunities based on customer information gathered during these interactions.

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THE eLOYALTY DIFFERENCE

We believe that we can be considered a leading provider of loyalty
solutions for the following reasons:

- ACTION-ORIENTED APPROACH TO CREATING LOYALTY

We help our clients by identifying appropriate customer loyalty goals,
improving customer retention, increasing up-selling and cross-selling
opportunities, reducing sales costs and increasing customer referrals. We
identify these goals by analyzing and segmenting a client's customer base
using key indicators including value, preference and potential sales
opportunities. We work with the senior executives of our clients to help
organize the company's approach to its customers based on the results of
our analysis. Our approach is designed to translate the customer loyalty
goals of our clients into operational business rules. The business rules
prescribe a set of specific actions to be used by our client to help
increase customer loyalty. In essence, we work with our clients to help
them create practical steps to optimize everyday customer interactions.

- ABILITY TO DESIGN AND INTEGRATE MULTI-CHANNEL ENTERPRISE-WIDE SOLUTIONS

We provide our clients with the necessary skills to develop
enterprise-wide loyalty solutions. We understand the technology, software
applications and components across the Internet, e-mail, web-chat,
telephone and fax. We are able to design solutions that integrate various
point applications, our proprietary software and the back office
transaction processing systems of our clients.

Our familiarity with emerging technology and software applications used in
the eCRM market coupled with our understanding of key business processes
allow us to implement successful loyalty solutions.

- PROPRIETARY TECHNOLOGY THAT ENHANCES OUR SOLUTIONS

We have developed software that is designed to complement existing
technology and point applications. The availability of this software
reduces the time needed to deploy our solutions. In addition, our software
increases the functionality of third-party applications that are used in
our solutions. Our proprietary software, the Loyalty Suite, enables us to
design a comprehensive solution that takes advantage of emerging
technology.

We develop software in our Loyalty Lab, which is a showcase for our
business and technology capabilities. The Loyalty Lab is also used as a
demonstration center for current and prospective clients and as a training
center for employees. In addition, we use the Loyalty Lab to create
prototypes and test solutions before they are implemented at a client's
site.

- ONGOING SUPPORT FOR OUR SOLUTIONS

Loyalty solutions are complex multi-channel implementations that include
many different software applications in an integrated design. To maintain
optimal operating performance, a wide breadth of knowledge is required to
understand each individual component and also how the pieces of the
solution fit together. Each time one of these application vendors releases
a new version of their software, our clients need to understand and verify
the compatibility with the other components of their solution. These
upgrades normally take place at least twice a year for each application
and our clients are often unable to attract or retain resources with the
broad range of skills in each of the existing and emerging technologies.
Our Loyalty Support group provides around-the-clock support of the entire
loyalty solution to ensure that all of our clients' customer-facing
systems are operational. We also offer a broad range of maintenance,
upgrade and performance monitoring services to establish a benchmark for
our client's operations and to identify opportunities for continual
improvement. In 1999, we received the Solution Integrator of the Year
Award for New Business.

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- EXPERIENCED PROJECT TEAMS

Our differentiated delivery model uses a team of between ten and fifteen
principals and senior consultants, providing a solid core of experience.
This group is led by two to three Vice Presidents and complemented by a
similar number of supporting consultants. We believe this model provides
us with an advantage over some of our competitors, who prefer a pyramid
model of pairing one partner with many less experienced professionals.

Many of our consultants have held senior management positions including
Chief Executive Officer, Chief Financial Officer and Chief Information
Officer. Our 100 Vice Presidents average 20 years of relevant industry
experience and are distinguished in their ability to manage and deploy
complex and multi-channel solutions. The average years of experience for
our other professionals is 12 years. This level of experience has helped
us to realize an average billing rate of $211 per hour and $215 per hour
for the nine months and three months ended September 30, 1999,
respectively.

- ABILITY TO SERVE CLIENTS ON AN INTERNATIONAL BASIS

We are an international company with a large presence in North America and
we also have offices in London, Cologne, Paris, Sydney and Toronto. We
have an established presence in Europe and are now expanding in Asia
Pacific. For the nine month period ended September 30, 1999, 22.5% of our
revenues were derived from our international operations.

Through our Loyalty Lab and knowledge base of shared projects,
methodologies and best practices, we have demonstrated to our
multi-national clients our ability to provide loyalty solutions tailored
to their local needs and requirements.

STRATEGY

Our objective is to be the leading international provider of loyalty
solutions. We intend to substantially increase our revenues and profitability
and to create an international brand name. Our strategy to achieve these goals
includes the following:

- FOCUS ON THE BUSINESS BENEFITS WE DELIVER TO OUR CLIENTS

We focus on highly strategic projects that are designed to improve the
profitability of our clients. We identify customer loyalty goals and
design business rules that prescribe a specific set of actions used by the
client to increase customer loyalty. We perform detailed financial
analysis to calculate the expected return on investment from implementing
our loyalty solutions. Based upon our experience to date, we believe that
the expected business benefits derived from using our loyalty solutions
will measurably improve our clients' profitability.

We may from time to time offer clients a value-based pricing model for our
solutions based upon these expected business benefits. We believe that
this pricing model (which we call Guaranteed Business Benefits) will be of
significant interest to our clients and differentiate us from our
competitors.

Under this model, we may reduce our billing rates or limit our fees in
exchange for a share of the expected economic benefits to our clients from
implementing our solutions. By sharing in the cost savings, profitability
and increased revenues that result from our solutions, we anticipate that
we will experience greater client satisfaction, higher revenues and
increased profitability.

- EXTEND OUR TECHNOLOGY INNOVATION AND THOUGHT LEADERSHIP

We will continue to invest the necessary resources to develop leading-edge
loyalty solutions. The investment is directed in two main areas: emerging
eCRM technology and business thought leadership that we define as
leading-edge research on customer behavior.

To be at the forefront of emerging technology, specifically the Internet,
we will continue to maintain and develop relationships with leading
software vendors. We have strategically invested in

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a talented group of technology experts that focus exclusively on creating
innovative loyalty solutions. Our Loyalty Lab is the focal point for these
activities in addition to providing a demonstration center for our
competencies.

We plan to advance our business thought leadership and education on the
concepts of customer loyalty. We intend to explore areas including brand
impact, customer perception and satisfaction, the interdependency of
multiple interactions to ensure that our loyalty solutions reflect and
extend the most forward-thinking business ideas. We believe that our
technology and business capabilities will significantly enhance our
competitive position by enabling us to deliver more complete solutions.

- CONTINUE TO ENHANCE OUR LOYALTY SOLUTIONS

We currently have two separate initiatives to enhance our loyalty
solutions: extend our current Loyalty Support services and introduce our
Loyalty Hosting offering. We have been providing our clients with our
Loyalty Support service to ensure that our implementations result in
continued business value to our clients. We provide around-the-clock
maintenance, support and upgrade services. We intend to additionally
provide business performance monitoring to identify opportunities for
continual improvement of their loyalty solutions.

We intend to offer additional flexibility to our clients with our Loyalty
Hosting offering. This offering will provide remote subscription to our
loyalty solutions for those clients who desire to reduce risk, time and
initial investment in their effort to use a sophisticated design to
realize the on-going value of our loyalty solutions.

- BUILD STRATEGIC VENDOR RELATIONSHIPS

We will continue our investment in two kinds of strategic vendor
relationships. First, we plan to collaborate with the leading-edge
technology and application vendors to gain access to new products at an
early stage of release. This early access allows us to rapidly develop the
necessary implementation and integration skills required in our loyalty
solutions. Second, we intend to establish vendor relationships as part of
our overall sales efforts including joint lead development and sales
calls. The purpose of these relationships is to give us alternate channels
for developing new business. We have been collaborating with Lucent
Technologies and DST Systems and are in the process of establishing more
formal arrangements with them.

- CONTINUE TO BUILD BRAND AWARENESS

A successful brand results in a greater ability to attract new clients and
employees as well as to improve competitive positioning. We will continue
to invest in marketing programs to build brand awareness through regular
publications, award sponsorship, communications with analysts, trade
shows, industry events and marketing material. In 1999, eLoyalty received
Solutions Integrator magazine's SI Impact Award for Solution Integrator of
the Year. In addition, our Loyalty Support services received the SI Impact
Award for New Business. We are the founder and a sponsor of the
prestigious Computerworld Smithsonian 21st Century Pioneer Awards Program
and the sponsor of Britain's Most Admired Company award.

- CONTINUE TO INVEST IN INFRASTRUCTURE

We plan to continue our strategic investments in operational and
management information systems. We have developed a sophisticated
web-based management information system, GetLoyal.com, that provides us
with a real-time global view of our staffing, pipeline, scheduling,
forecasting, accounting and client information. We will continue to refine
and upgrade our management systems so that we can optimize our resource
allocation and achieve our target operational measures.

- CONTINUE TO ATTRACT AND RETAIN EMPLOYEES

Our key assets are our employees. We will continue to invest in the
necessary resources to attract and retain highly qualified and motivated
personnel. We have concentrated on fostering an energetic
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working environment that facilitates and rewards initiative and
achievement. In keeping with this goal, we are developing our Employee
Loyalty program, an enterprise-wide human resources management program.
The Employee Loyalty program is designed to create a culture that
engenders communication, recognize significant employee achievements and
provide training on new technology. In addition, we intend to make
available to all of our employees stock options and other
performance-based incentives.

In our five years of operation, the success of our human resources
management is reflected in the average tenure of our employees. As of
September 30, 1999 the average tenure of our senior management was about
52 months, Vice Presidents about 44 months and other professionals about
27 months.

- EXPAND OUR INTERNATIONAL PRESENCE

We expect our plans for international expansion will allow us to
capitalize on high-growth geographic regions and further diversify our
revenue base. We also believe this will enable us to develop closer
relationships with our multi-national clients who are increasingly seeking
service providers with experience in addressing their needs and
requirements on an international basis. We are committed to ensuring the
consistency and quality of our loyalty solutions worldwide through our
Loyalty Lab and knowledge base of shared projects, methodologies and best
practices.

THE eLOYALTY SOLUTION

We believe that our ability to deliver successful loyalty solutions to our
clients results from our approach, our competencies and the software that we
develop in-house. Our approach is a methodology that we adopt to define,
identify and articulate the various elements that create a successful loyalty
solution. Our competencies allow us to address the business needs of our client.
These competencies include strategic consulting skills, business value analysis,
business process redesign, technical system design and integration of various
technologies and software applications and post-implementation support. Our
software enables us to complement the functional gaps of existing technology and
eCRM applications and helps reduce time to implementation, reduce deployment
risks and increase the functionality of our loyalty solutions.

Approach

eLoyalty has developed a four-step methodology to translate high-level
strategy into an implementation design:

- DEFINE: Identify the specific situation of a customer at any point in
time;

- RECOGNIZE: Create rules that prescribe the actions to be taken by the
client when these specific circumstances have been identified;

- EXECUTE: Enable the client to execute these actions across any of the
various ways that companies communicate with their customers each time a
contact with the customer occurs; and

- MEASURE: Report and diagnose the effectiveness of these actions on
customer loyalty.

By executing this approach, organizations can influence behavior resulting in
greater customer loyalty.

Competencies

Successful loyalty solutions generally require a combined knowledge of
business strategy and technology application. To provide our clients with a
complete solution, we have developed capabilities in many key business
consulting disciplines, technology integration and system design. Our
competencies

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include repeatable methodologies and proprietary tools that should increase the
success and effectiveness of our projects. The following list highlights our
core competencies:

- ASSESSMENT -- Working with our clients, we evaluate their efficiency and
effectiveness in handling customer interactions. We use our Loyalty
Observer, a proprietary software tool, to help with this process. The
Loyalty Observer enables our professionals to capture and analyze the
performance measures of each customer interaction, including the number
of legacy systems used to handle the situation, interaction time, reason
for interaction and actions taken to resolve any customer issues. We use
these results to influence the Business Process Design.

- STRATEGIC CONSULTING -- Through our strategic consulting competency,
which we call Loyalty Strategy, we assist our clients in identifying
their most valuable customers through detailed segmentation of their
customer base. We use this segmentation to target high-value customers to
receive special offers or service levels designed to increase their
loyalty to our client. Enhanced loyalty results in increased purchases,
reduced cost of sales and additional customer referrals.

- BUSINESS CASE -- Based on the results of our strategic consulting and
operational assessment, we perform a detailed financial analysis to
calculate the expected return on investment for the implementation of our
loyalty solutions. Our Business Case also establishes goals, alternatives
and priorities and assigns client accountability throughout resulting
projects.

- BUSINESS PROCESS DESIGN -- Following our Business Case analysis, we
select the appropriate loyalty solution for our client. The
implementation of our loyalty solutions can lead to significant
organizational, structural, operational and staffing changes. Our Loyalty
Process Design is the method we employ to determine the changes in
business processes and organizational structure required to implement our
loyalty solutions. Our clients implement these changes because of the
tangible business benefits identified by our Business Case analysis.

- TECHNICAL DESIGN AND SYSTEMS INTEGRATION -- This competency allows us to
implement the technical aspects of our loyalty solutions. We design a
loyalty solution to integrate a variety of software applications from
third-party vendors and our own Loyalty Suite. The applications we
integrate include channel management, customer segmentation, CRM
applications, eCommerce, back office and call center technology.

- SUPPORT AND HOSTING -- Through our Loyalty Support capabilities, we
provide ongoing maintenance, technical upgrades, benchmarking and we
monitor our solutions to ensure high quality service and efficiency. We
intend to offer hosting services of our loyalty solutions on behalf of
our clients. Loyalty Hosting will provide our clients with remote access
to our loyalty solutions. By using this solution, our clients will
experience less risk, time and initial investment in their effort to
enhance customer loyalty.

Software

The Loyalty Suite is a set of software applications that we license to our
clients. Our software ties together the critical components of the loyalty
solution. The Loyalty Suite provides sophisticated real-time information,
allowing the client to handle each customer interaction in a consistent manner
throughout the enterprise. As of September 30, 1999, we had implemented
components of our Loyalty Suite to over 30 of our clients as part of our
solution. The Loyalty Suite currently consists of the following:

- LOYALTY COCKPIT -- The Loyalty Cockpit is a desktop portal providing
real-time customer information collected throughout the enterprise. The
application is designed for employees that interact with customers. The
user benefits from an enterprise view of the customer. A sophisticated
scripting feature assists the user to navigate quickly to the multiple
point solutions required to effectively manage the interaction. This is
accomplished by automating the sequence and the access to various CRM
applications and back office systems.

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- LOYALTY REPOSITORY -- The customer information contained in the Loyalty
Repository enhances and extends existing data stored in CRM applications,
legacy systems and marketing databases. The information is used to
determine customer loyalty indicators such as customer value, preference
and potential sales opportunities. Unlike traditional application
databases, the Loyalty Repository is specifically designed for optimum
use in real-time for quickly accessing multiple pieces of customer
information. The data model is highly flexible allowing companies to
define specific parameters for their loyalty indicators in real-time. For
example, the levels at which customer value is segmented are assigned
using the Loyalty Rules Configurator, and can be changed dynamically to
reflect a company's loyalty goals.

- LOYALTY RULES CONFIGURATOR -- The Loyalty Rules Configurator is the user
interface for the Loyalty Decision Engine. It is designed for the
business user, allowing non-technical managers to define key
characteristics of their customers, employees, events and actions.
Business managers can then decide which resources and actions to select
for specific customer profiles and in specific situations. These
decisions are stored as "rules" by the application and reflect the
multi-dimensional aspects of the customer relationship strategy.

- LOYALTY DECISION ENGINE -- The Loyalty Decision Engine is the brain of
the Loyalty Suite. It is a powerful, efficient, server-based application
that applies loyalty business rules across multiple channels and
enterprise applications.

- LOYALTY OUTCOME MANAGER -- The Loyalty Outcome Manager is a web-based
application that enables companies to streamline their data collection
and measurement processes. It enables companies to test and report on
their performance through measurement and analysis of key customer, event
and resource information that is collected over time. The Loyalty Outcome
Manager reduces the time and cost to provide companies with a customer
loyalty scorecard.

- LOYALTY CHANNEL INFLUENCER -- The Loyalty Channel Influencer pulls
information from customer interactions across the Internet, e-mail,
web-chat, fax and interactive voice response systems. This information is
then stored in the Loyalty Repository for use with future customer
interactions.

- LOYALTY WAREHOUSE -- The Loyalty Warehouse is a database that stores
information about customers, human resources, events, actions and
customer interactions. It is a chronological history of information that
reflects patterns and trends of customer loyalty data over time. The
Loyalty Warehouse is a flexible model that is able to continually respond
to the dynamic nature of a company's customer relationship and loyalty
information. This data model is specifically designed for optimum
processing of large data requests such as batch reporting.

CLIENTS

For the nine months and three months ended September 30, 1999, eLoyalty's
five largest clients accounted for 21.8% and 23.6% of our revenue, respectively;
our twenty largest clients accounted for 54.8% and 62.4%, respectively, of our
revenue. No single client accounted for more than 10% of our total revenue in
any quarter during that period. For the nine months ended September 30, 1999, 34
clients each accounted for over $1 million of revenues.

For the three months ended September 30, 1999, 89.9% and 51.1% of our
revenues came from clients who were also clients during the three months ended
June 30, 1999 and the three months ended September 30, 1998, respectively.

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<PAGE> 43

The following is a representative list of companies for which we were
providing solutions on November 30, 1999:

- ADAC Laboratories, Inc.
- A&E Signature Services, a Division of Montgomery Wards
- Agilent Technologies, Inc.
- Allina Health System
- Allstate Insurance Company
- Axel Springer Verlag AG
- Bank of America Corporation
- British Broadcasting Corporation (BBC)
- Club Mediterranee (Club Med)
- Deutsche Telekom AG
- Federal Kemper Life Assurance Company
- General Motors Corporation
- Intuit Inc.
- Lucent Technologies, Inc.
- News Limited
- Penn Treaty American
Corporation
- Sprint Communications Company, L.P.
- Union Bank of California, N.A.
- USA Group, Inc.
- U S WEST Communications, Inc.
- Virgin Atlantic Airways Limited
- Xerox Canada Ltd.

CASE STUDIES

The following are examples of actual client services we have provided. In
each case the client has given us permission to describe the solution that we
provided for them. These case studies therefore illustrate some of the solutions
that we have created for our clients.

PENN TREATY AMERICAN CORPORATION

CHALLENGE

To help our client improve its competitive position and to make their sales
agents more effective in building long-term relationships with their customers
by providing alternative channels to improve the sales and accuracy of
processing sales orders and increase their on-line marketing capabilities.

SOLUTION

- Developed an on-line system for our client's national independent agency
network for access to real-time information on insurance quotes and
status of pending customer policies and applications.

- Created a solution that simplified and streamlined the sales process.
This new solution enabled agents to complete their customer policy
applications in real-time, thereby creating a competitive advantage.

- Defined and implemented an overall technical design to support these new
systems and their customer relationship strategy.

- Currently creating individual web sites for all the agents that will
allow them to have a direct relationship with their customers and engage
in eCommerce. We intend to link these web sites to the on-line system,
enabling agents to obtain real-time insurance quotes and status on
pending customer policies and applications directly from their individual
web sites. This will significantly improve the marketing capability of
these agents.

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<PAGE> 44

FEDERAL KEMPER LIFE ASSURANCE COMPANY

CHALLENGE

Help our client achieve the following objectives: (1) streamline the
management of their customer interactions; (2) develop a consistent mechanism
for handling their customers; and (3) support the roll-out of new channels for
their customer interactions.

SOLUTION

- Developed a methodology and set of business rules that supported target
marketing and proactive selling to their customers based upon the
knowledge of each customer and distribution channel. A pilot campaign
increased outbound sales call productivity between 30% and 50%.

- Deployed the overall solution including software developed in our Loyalty
Lab that enabled a multi-channel management of customer interactions.

- Automated numerous manual functions and integrated the solution with back
office processing systems resulting in a more efficient sales and
fulfillment process.

- Provided support services to maintain and support the customized
technology environment.

- By implementing a consistent technical design throughout our client's
enterprise, we were able to help our client share valuable information
about their customers across multiple divisions. This improved our
client's ability to up-sell and cross-sell their products and services to
their customers.

- Our solution is credited with helping our client to realize multi-million
dollar cost savings and increased sales as well as a significant
reduction in employee attrition partially due to the introduction of
easy-to-use customer service desktops powered by the Loyalty Cockpit.

AXEL SPRINGER VERLAG AG

CHALLENGE

Help our client achieve the following objectives: (1) reduce operational
costs; (2) increase sales; and (3) strengthen their competitive position.

SOLUTION

- Developed an effective strategy to facilitate and improve our client's
customer relationships by deploying multimedia customer interaction
centers that handled e-mail, fax, telephone calls and written
correspondence. By defining the overall strategy and technical design
that integrated a number of customer contact channels, our client could
more cost-effectively influence their customer's experience and focus on
additional selling opportunities.

- Created a set of best practices for each of the various ways that
companies communicate with their customers to ensure high quality service
and consistent management of their customers.

- Integrated the solution with the third-party order processing software
from SAP AG and legacy systems resulting in a seamless and consistent
technical design throughout our client's company. This provided the
ability for our client to handle multiple customer requests across
different divisions.

- Developed a web-based transaction processing application that captured
real-time information about customer inquiries. Our client used this
information to increase up-selling and cross-selling opportunities for
its products across all customer channels.

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<PAGE> 45

- Implemented our software to allow our client to collect detailed
information about their customer's needs and preferences. This
information was used to tailor their products and services to increase
sales and to increase up-selling and cross-selling opportunities.

- Centralized customer contacts relating to more than 20 different product
lines into two multimedia centers offering around-the-clock access for
their customers.

SALES AND MARKETING

Our sales and marketing efforts are performed by our senior level
professionals, the majority of whom are also responsible for managing the
implementation of our solutions. We have recently created two new sales and
marketing groups, the business development team and the solutions marketing
group. Our business development team consists of experienced industry
professionals who focus on new client opportunities. Our solutions marketing
group establishes relationships with select vendors and leverages their
distribution networks to accelerate the acquisition of new clients. Our goal is
to maintain long-term relationships with our clients in order to generate
recurring revenues.

BUSINESS DEVELOPMENT TEAM -- Our business development team targets Global
2000 companies. This team is a set of senior professionals with an average
industry experience of 12 years. These professionals develop executive level
relationships with our clients. As of September 30, 1999, eLoyalty had 17
business developers, each dedicated to a specific region.

SOLUTIONS MARKETING -- We are in the process of establishing more formal
arrangements with companies such as Lucent Technologies and DST Systems. We
expect that these relationships will provide us with alternative channels for
identifying prospective clients. We intend to develop more of these
relationships to increase our market share.

In addition, our solutions marketing group seeks to communicate a
consistent message to our professionals on the availability, use, pricing and
integration of our solutions and leverage the benefits of our Loyalty Lab. This
communication results in the reduction of technical risk, time and cost
associated with the delivery of our solutions.

AGGRESSIVE BRAND DEVELOPMENT -- Following the launch of the eLoyalty brand,
we continue to expand our strategic initiatives to create greater awareness of
our solutions. We have conducted aggressive marketing and branding programs that
include the development and launch of our new web site, frequent press releases
and new marketing material. Our Journal of Customer Loyalty, a quarterly
publication featuring articles by industry professionals, has a distribution
list of over 19,000 and is supplemented by a monthly e-mail campaign entitled
"All Roads Lead to Loyalty." We also have direct mail campaigns, joint
marketing, industry and investment analyst relations and trade show
participation and sponsorship.

We are also a sponsor of two awards that recognize individuals and
companies on their quality of operations. We established the Computerworld
Smithsonian 21st Century Pioneer Awards Program to honor prestigious companies
and individuals that leverage technology to benefit society. Management Today's
"Britain's Most Admired Companies" researches companies from several sectors to
find the one that has the best reputation among its competitors based on
categories such as quality of marketing, use of corporate assets, quality of
products/services and many others. These award programs give eLoyalty the
opportunity to promote its name recognition globally and continue its
positioning as an industry thought leader.

RESEARCH AND DEVELOPMENT

The market we operate in is constantly evolving due to changing business
needs and the increasing number of software products that are available. We
believe that it is necessary to invest in research and development to remain
competitive. In 1998, we formally established our Loyalty Lab as a center for
our research and development group. The lab is an important part of our strategy
and we have made

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significant investments to build our research and development over the last four
years and we plan to continue these investments. As of September 30, 1999, 37
employees were working in our Loyalty Lab.

Our software, called the Loyalty Suite, provides our clients with
functionality that is not currently available from third party software vendors
as part of their standard product offering without additional development. Our
software helps to tie the components of the loyalty solution together and
capture important customer loyalty information. The Loyalty Suite has been
designed using the experience we have gained from developing loyalty solutions
for our clients over the past five years.

The objectives of our Loyalty Lab are as follows:

- to enhance the Loyalty Architecture through research and evaluation of
emerging technologies;

- to work closely with technology partners to decrease the time and
difficulty of integration;

- to develop and enhance the Loyalty Suite;

- to be a center for demonstrating loyalty solutions to our current and
prospective clients; and

- to train our employees on our solutions.

eLoyalty's research and development expenditures for fiscal 1997 and 1998
were approximately $1.7 million and $2.4 million, respectively. We spent $2.9
million on research and development for the seven month period ended December
31, 1998, and $3.6 million for the nine months ended September 30, 1999.

TECHNOLOGY EXPERIENCE -- We have collaborated with vendors to allow us to
more effectively integrate their software into our solutions. This experience
enhances our ability to provide a more complete solution. The relationships that
we have with these vendors are non-exclusive. The following list is an example
of some of these vendors:

- BroadVision, Inc.
- Cisco Systems, Inc.
- Clarify, Inc.
- DST Systems, Inc.
- eFusion, Inc.
- E.piphany Incorporated
- Genesys Corporation
- Kana Communications, Inc.
- Lucent Technologies, Inc.
- Nuance Communications, Inc.
- Oracle Corporation
- RightPoint Software, Inc.
- SAP AG
- Servicesoft Technologies, Inc.
- Silknet Corporation
- Speechworks International, Inc.
- Siebel Systems, Inc.
- TriVida Corporation
- Vantive Corporation
- Vignette Corporation
- Webline Communications Corporation

COMPETITION

Although the CRM market has been in existence for some time, the eCRM
market in which we compete is relatively new and very competitive. We expect
competition to intensify even further as this market evolves. Many of our
competitors have longer operating histories, more clients, longer relationships
with their clients, greater brand or name recognition and significantly greater
financial, technical, marketing and public relations resources than we do. As a
result, our competitors may be in a better position to respond quickly to new or
emerging technologies and changes in client requirements. They may also develop
and promote their products and services more effectively than we do. These risks
are especially pronounced in our industry where we will face major challenges
from other companies including:

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- Internet and eCommerce services companies such as Scient Corporation,
Viant Corporation, Proxicom, Inc., AppNet Inc., Tanning Technology
Corporation and Razorfish, Inc.;

- large information technology services companies such as Computer Sciences
Corporation and Perot Systems Corporation;

- management consulting firms such as Bain & Company, Booz, Allen &
Hamilton, Boston Consulting Group, Inc. and McKinsey & Company; and

- internal information technology departments of current and potential
clients.

New market entrants pose a threat to our business. We do not own any
patented technology that precludes or inhibits competitors from entering this
market or from providing solutions similar to ours. Existing or future
competitors may develop or offer solutions that are comparable or superior to
ours at a lower price. In addition, several competitors have announced their
intention to offer a broader range of services than they currently provide. Many
of our competitors focus on the implementation of CRM applications.

We believe that we are differentiated from our competition by our ability
to provide a complete loyalty solution. We believe that this involves a
combination of several different and specialized skills including:

- strategic business consulting to define a company's policies for managing
customers in each division and group within the organization;

- technical knowledge in each of the different products that a company
needs to communicate with their customers using the Internet, telephone,
e-mail and fax;

- integration techniques to enable each of these software products to be
tied together; and

- ongoing support of their loyalty solution to meet changing business
requirements and emerging technology.

INTELLECTUAL PROPERTY RIGHTS

A majority of our clients require that we grant to them all proprietary and
intellectual property rights with respect to the work product resulting from our
performance of solutions, including the intellectual property rights to any
custom software developed by us for them. Each grant of proprietary and
intellectual property rights limits our ability to reuse work product components
and work product solutions with other clients. In a limited number of such
situations, we have obtained, and in the future may attempt to obtain, an
ownership interest or a license from our clients to permit us to market custom
software to other clients. These arrangements may be nonexclusive or exclusive,
and licensors to us may retain the right to sell products and services that
compete with those of eLoyalty.

We also develop core software and methodologies, such as the Loyalty Suite,
that are owned by us and licensed to our clients. We regard these software and
methodologies as proprietary and intend to protect our rights, where
appropriate, with registered copyrights, patents, registered trademarks, trade
secret laws and contractual restrictions on disclosure and transferring title.

In addition, to protect our proprietary information, we rely upon a
combination of trade secret and common law, employee nondisclosure policies and
third-party confidentiality agreements.

EMPLOYEES

As of September 30, 1999, eLoyalty had 653 employees of which 515 were
billable employees. Of the 653 employees, 534 were located in North America, 102
in Europe and 17 in Australia. Our business is mainly of professional services
and is inherently people intensive. We believe we have a satisfactory
relationship with our employees. Our average annualized turnover of billable
employees was 17.9% and 16.6% for the nine months and three months ended
September 30, 1999, respectively. None of our
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employees is represented by a union. Most of our European employees have
employment agreements generally requiring three months' notice of termination by
us. In addition, the laws and regulations of the foreign countries in which we
operate may increase the cost of terminating employees in those countries. We
maintain various programs and strategies to retain and recruit employees.

FACILITIES

eLoyalty's principal executive office is located at 205 North Michigan
Avenue, Suite 1500, Chicago, Illinois. It consists of approximately 15,000
square feet of leased office space. We expect that on or about March 1, 2000 we
will move our headquarters to Two Conway Park, 150 Field Drive, Lake Forest,
Illinois 60045. Our offices there will consist of approximately 20,816 square
feet. We also lease office space throughout the United States and abroad, in
some cases pursuant to subleases with Technology Solutions Company. Our domestic
offices are located in Austin, Texas, San Francisco, California and Waltham,
Massachusetts. Our international offices are located in London, Cologne, Paris,
Sydney and Toronto. Pursuant to the reorganization agreement between us and
Technology Solutions Company, we will also have the ability to use, subject to
some restrictions, Technology Solutions Company offices in Atlanta, Georgia,
Dallas, Texas, Los Angeles, California, Minneapolis, Minnesota and New York City
through June 30, 2000 for no charge. Technology Solutions Company also has
comparable rights to use our domestic branch offices for the same period and
subject to the same terms, conditions and restrictions.

LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with eLoyalty's
Financial Statements and Notes and the other financial information appearing in
this information statement/prospectus. In addition to historical information,
the following discussion and other parts of this information
statement/prospectus contain forward-looking information that involves risks and
uncertainties. eLoyalty's actual results could differ materially from those
anticipated by such forward-looking information for many reasons, including
competitive factors, risks associated with eLoyalty's expansion plans,
transitional service agreements with Technology Solutions Company and other
factors discussed under "Risk Factors" and elsewhere in this information
statement/prospectus. Effective beginning December 31, 1998, we changed our
fiscal year end from May 31 to December 31. The seven month transition period of
June 1, 1998 through December 31, 1998 precedes the start of the new fiscal
year. References in this section to a fiscal year mean the fiscal year ended May
31.

OVERVIEW

Our revenue consists of fees generated for professional services and
support services, as well as license revenue generated from sales of in-house
developed software, all of which we collectively sell as solutions to our
customers. To date, revenues from software have not exceeded 3.0% of our total
revenues in any quarter and were 1.4% and 1.5% of our total revenues for the
first nine months of 1999 and the twelve months ended December 31, 1998,
respectively. We expect this split of revenues between professional services and
software to remain relatively constant in the foreseeable future.

Revenues from our support services were less than 1.5% of our total
revenues for the first nine months of 1999 and the twelve months ended December
31, 1998. Our revenues from support services may increase in the future. In
addition, we intend to offer hosting services for our loyalty solutions, which
would generate a recurring revenue stream. For selected clients, and after the
completion of a detailed financial analysis, we may from time to time price
engagements on a value-based model under which we reduce our billing rates or
limit our fees in exchange for a share of the expected economic benefit to our
clients of implementing our solutions. Our failure to accurately estimate
variables in pricing engagements on these terms could reduce the profitability
of, or result in a loss on, those projects and could damage our client
relationships and our reputation.

To date, we have provided professional services to our clients principally
on a time and materials basis. We have, on limited occasions, contracted phases
of our projects on a fixed fee basis. We expect that we will continue to provide
most of our professional services on a time and materials basis. Under time and
materials contracts, we recognize revenue as services are provided. We are
generally reimbursed for reasonable expenses under our contracts.

Our revenue from international operations represents revenue from
engagements with our clients outside of the United States. Currently, we have
international operations in Europe and Australia. We intend to expand our
Australian operations and establish a presence in Asia. Revenue from
international operations has made an increasing contribution to our total
revenues and we anticipate that in the future our revenues from international
operations will account for a greater percentage of our total revenues.
International operations are subject to a number of additional risks and our
international sales growth will be limited if we are unable to manage those
risks. International operations represented 22.5% and 22.0% of total revenues in
the first nine months of 1999 and in the twelve months ended December 31, 1998,
respectively. International operations represented 10.3% and 12.5% of income
before income taxes in the first nine months of 1999 and in the twelve months
ended December 31, 1998, respectively.

We typically experience seasonal fluctuations in our revenues and earnings
on a global basis in the fourth quarter because of the reduced number of billing
days due to holidays. In addition, we have experienced a slight decrease in
revenues from our European operations in the third quarter because of extended
vacation periods. Although those decreases in revenue have not been significant
in the past, they may increase as we expand internationally.
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Revenues from our operations in the United Kingdom, Germany, Switzerland,
France, Australia and Canada are currently denominated in U.S. dollars and
various other local currencies such as Pound Sterling, Deutsche Marks, French
Francs, Swiss Francs, Euros, Australian dollars and Canadian dollars. We believe
that an increasing portion of our international revenue and costs will be
denominated in foreign currencies in the future. Non-U.S. currency denominated
revenue represented 15.2% and 17.5% of revenues for the first nine months of
1999 and the twelve months ended December 31, 1998, respectively. Historically,
we have not experienced material fluctuations in our results of operations due
to foreign currency exchange rate changes.

We have a diversified client base and revenues from our top five and top 20
clients represented 21.8% and 54.8%, respectively, of revenues in the first nine
months of 1999 and 22.6% and 54.9%, respectively, of revenues in the twelve
months ended September 30, 1999. No single client accounted for more than 10% of
our total revenue in any quarter during those periods. We do not expect that our
revenues from our top clients as a percentage of our total revenues will
increase.

Project personnel costs represent our most significant expense. These costs
consist primarily of salaries, incentive compensation and employee benefits for
company personnel available for client assignments as well as fees paid to
subcontractors for work performed on our projects. Our revenues from using
subcontractors were 4.6% of total revenues in the first nine months of 1999 and
2.7% of total revenues in the twelve months ended December 31, 1998. We
anticipate that we will continue to use subcontractors from time to time,
although we expect that the extent to which we use subcontractors will remain
constant or decrease as a percentage of revenues.

Gross profits represent our revenues less project personnel costs ("Gross
Profit"). We anticipate that to the extent we have additional software and
hosting services revenues, the margin on our Gross Profits will increase. Gross
Profit margins are negatively impacted by several factors, including the use of
subcontractors and non-billable time incurred by project personnel.

Sales and marketing expenses consist primarily of salaries, incentive
compensation and employee benefits for dedicated sales and marketing personnel
in our marketing, business development and solutions marketing groups (prior to
May 1999 this also included an allocation from Technology Solutions Company for
their corporate sales and marketing). Sales and marketing expenses do not
include sales and marketing expenses associated with other employees who are not
part of the sales and marketing group. In addition, sales and marketing expenses
include promotional and brand development costs, business development staff
recruiting costs, travel expenses and depreciation expenses. We expect that our
sales and marketing expenses will increase as a percentage of revenues in the
future as we invest in brand development.

Research and development expenses consist primarily of salaries, incentive
compensation and employee benefits for dedicated personnel, staff recruiting
costs, administrative costs, travel expenses and depreciation expenses. Expenses
of establishing our Loyalty Lab in fiscal year 1998 are included in research and
development expenses beginning in the second quarter of 1998. Our Loyalty Lab is
the center for our research and development activities. It is an important part
of our strategy which we believe improves the effectiveness of our loyalty
solutions. The objectives of our Loyalty Lab are to enhance our loyalty
solutions, to allow us to work closely with emerging technology and to be a
demonstration center for our clients' senior executives. Our research and
development expenses as a percentage of revenues have decreased slightly to 3.3%
for the first nine months of 1999 from 3.5% for the twelve months ended December
31, 1998. We anticipate that research and development expenses will continue at
approximately the same percentage of revenues for the foreseeable future.

General and administrative support expenses consist of salaries, incentive
compensation and benefits for our managerial and administrative staff (including
senior and regional management) as well as provisions for doubtful receivables.
The provisions for doubtful receivables have historically been approximately 1%
of total revenues with the exception of the 1998 transition period. Because we
established a provision for doubtful receivables related to revenues generated
during the 1998 transition period (largely from clients of The Bentley Group),
the total provisions for doubtful receivables rose to approximately 4.1% of
total revenues. Other overhead expenses consist of employee costs for training,
some
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travel expenses, laptop computer leases and other non-billable expenses not
directly related to projects, sales or research and development.

Technology Solutions Company corporate services allocation expenses relate
to all shared services provided to us by Technology Solutions Company, including
legal, information systems, finance and accounting, insurance, human resources,
benefits administration, stockholder services and corporate managerial services.
Technology Solutions Company corporate services allocation expenses also include
the Chicago headquarters for all periods and all other directly allocated
offices prior to April 30, 1999. In addition, labor costs associated with
recruiting were also included in this expense item prior to April 30, 1999. From
January 1 through June 30, 2000, these services will be allocated as part of the
Shared Services Agreement described under "eLoyalty's Relationship with
Technology Solutions Company After the Spin-Off -- Shared Services Agreement."
Although we have never operated as a stand-alone company and have limited
historical basis for our cost estimates, we anticipate our combined general and
administrative and corporate services allocation expenses will decrease as a
percentage of total revenues; however, we expect short term increases as we
build our infrastructure to manage these functions as a separate company. We
expect that by the third quarter of 2000 we will be able to provide for
ourselves the services currently provided by Technology Solutions Company. After
that time we expect that the costs for these services will be reflected in
general and administrative expenses.

Since May 1, 1999, our recruiting and some office expenses have been
transferred from Technology Solutions Company corporate services allocation
expenses to general and administrative expenses as the management of those
functions was transferred to us from Technology Solutions Company. The expenses
for facilities are attributable to facilities specifically allocated to us.

Goodwill amortization expenses relate to our acquisitions of The Bentley
Group in June 1997, Geising International in February 1997 and Aspen Consultancy
Ltd. in May 1996. The goodwill amortization for The Bentley Group acquisition is
approximately $1.0 million per quarter and is being amortized over a five year
period (1997 to 2002). The goodwill amortization associated with The Bentley
Group acquisition currently represents approximately 80% of our total goodwill
amortization costs.

Historically, our effective tax rate has fluctuated significantly and for
some periods our effective tax rate was unusually high. The high effective tax
rates were due primarily to pre-tax losses being generated in low tax-rate
jurisdictions and pre-tax earnings being generated in high tax-rate
jurisdictions. Our effective tax rate of 47.5% and 61.0% for the nine months
ended September 30, 1999 and the twelve months ended December 31, 1998,
respectively, was adversely impacted by nondeductible goodwill and expenses as
well as foreign tax rate differences. As we implement tax planning strategies
for our business as a stand-alone entity, we expect our effective tax rates to
be less than these historical levels.

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The following tables present the relative composition of revenue and
expenses.

eLOYALTY

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE NINE MONTH FOR THE SEVEN MONTH
PERIODS ENDED FOR THE PERIODS FROM JUNE 1 TO
SEPTEMBER 30, YEAR ENDED DECEMBER 31, FOR THE YEARS ENDED MAY 31,
------------------- DECEMBER 31, ---------------------- ------------------------------
1999 1998 1998 1998 1997 1998 1997 1996
-------- -------- ------------ -------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES................... $107,652 $ 77,685 $105,235 $ 64,415 $ 43,668 $ 84,488 $ 43,181 $ 26,516
Project personnel.......... (52,586) (37,464) (50,687) (31,302) (22,329) (41,329) (18,078) (11,674)
-------- -------- -------- -------- -------- -------- -------- --------
REVENUES LESS PROJECT
PERSONNEL................ 55,066 40,221 54,548 33,113 21,339 43,159 25,103 14,842
-------- -------- -------- -------- -------- -------- -------- --------
OTHER COSTS AND EXPENSES
Sales and marketing........ 6,185 3,197 4,894 3,456 994 2,429 1,663 1,032
Research and development... 3,599 2,231 3,635 2,889 1,393 2,383 1,689 46
General and administrative
support.................. 22,554 18,912 26,326 16,438 10,641 20,216 11,539 5,559
Technology Solutions
Company corporate
services allocation...... 10,769 9,225 12,769 7,698 5,544 10,671 5,028 3,298
Equity in net loss of
unconsolidated
investee................. 463 -- 412 412 -- -- -- --
Goodwill amortization...... 3,748 2,704 3,794 2,450 1,856 3,201 376 --
-------- -------- -------- -------- -------- -------- -------- --------
47,318 36,269 51,830 33,343 20,428 38,900 20,295 9,935
-------- -------- -------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS).... 7,748 3,952 2,718 (230) 911 4,259 4,808 4,907
-------- -------- -------- -------- -------- -------- -------- --------
OTHER INCOME (EXPENSE)
Net investment income...... 83 56 95 116 39 68 15 --
Interest expense........... (55) (65) (74) (31) (53) (92) -- --
-------- -------- -------- -------- -------- -------- -------- --------
28 (9) 21 85 (14) (24) 15 --
-------- -------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES.................... 7,776 3,943 2,739 (145) 897 4,235 4,823 4,907
INCOME TAX PROVISION....... 3,690 1,929 1,672 398 562 2,022 1,897 1,857
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS).......... $ 4,086 $ 2,014 $ 1,067 $ (543) $ 335 $ 2,213 $ 2,926 $ 3,050
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

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<PAGE> 53

eLOYALTY

STATEMENTS OF OPERATIONS
PERCENTAGE OF REVENUES

<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTH FOR THE SEVEN MONTH PERIOD
PERIODS ENDED YEAR ENDED FROM JUNE 1 TO FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, MAY 31,
---------------- ------------ ------------------- -----------------------
1999 1998 1998 1998 1997 1998 1997 1996
----- ----- ------------ ----- ----------- ----- ----- -----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Project personnel.................... (48.8)% (48.2)% (48.2)% (48.6)% (51.1)% (48.9)% (41.9)% (44.0)%
----- ----- ----- ----- ----- ----- ----- -----
REVENUES LESS PROJECT PERSONNEL...... 51.2% 51.8% 51.8% 51.4% 48.9% 51.1% 58.1% 56.0%
----- ----- ----- ----- ----- ----- ----- -----
OTHER COSTS AND EXPENSES
Sales and marketing.................. 5.7% 4.1% 4.6% 5.4% 2.3% 2.9% 3.9% 3.9%
Research and development............. 3.3% 2.9% 3.5% 4.5% 3.2% 2.8% 3.9% 0.2%
General and administrative support... 21.0% 24.3% 25.0% 25.5% 24.3% 24.0% 26.6% 21.0%
Technology Solutions Company
corporate services allocation...... 10.0% 11.9% 12.1% 12.0% 12.7% 12.6% 11.6% 12.4%
Equity in net loss of unconsolidated
investee........................... 0.4% 0.0% 0.4% 0.5% 0.0% 0.0% 0.0% 0.0%
Goodwill amortization................ 3.5% 3.5% 3.6% 3.8% 4.3% 3.8% 0.9% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
44.0% 46.7% 49.2% 51.7% 46.8% 46.1% 46.9% 37.5%
----- ----- ----- ----- ----- ----- ----- -----
OPERATING INCOME (LOSS).............. 7.2% 5.1% 2.6% (0.3)% 2.1% 5.0% 11.2% 18.5%
----- ----- ----- ----- ----- ----- ----- -----
OTHER INCOME (EXPENSE)
Net investment income................ 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% 0.0%
Interest expense..................... (0.1)% (0.1)% (0.1)% 0.0% (0.1)% (0.1)% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES.... 7.2% 5.1% 2.6% (0.2)% 2.1% 5.0% 11.2% 18.5%
INCOME TAX PROVISION................. 3.4% 2.5% 1.6% 0.6% 1.3% 2.4% 4.4% 7.0%
----- ----- ----- ----- ----- ----- ----- -----
NET INCOME (LOSS).................... 3.8% 2.6% 1.0% (0.8)% 0.8% 2.6% 6.8% 11.5%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1998

This section discusses the first nine months of 1999 compared with the same
period in 1998. The first nine months of 1999 were significant as we launched
the eLoyalty brand and continued to focus on improving our operational
management systems. We also increased our investment in research and development
to increase our focus on the use of emerging technology.

REVENUES

Our revenues increased $30.0 million, or 38.6%, to $107.7 million in the
first nine months of 1999 from $77.7 million in the first nine months of 1998.
Revenues from professional services increased $28.6 million, or 36.9%, to $106.2
million in the first nine months of 1999 from $77.6 million in the first nine
months of 1998. Revenues generated using subcontractors was 4.6% of revenues for
the first nine months of 1999 compared to 2.7% in the first nine months of 1998.
Revenues from software were $1.5 million in the first nine months of 1999,
representing 1.4% of revenues in that period. We had revenues of $0.1 million
from sales of software in the first nine months of 1998.

The increase in our revenues of $30.0 million reflected increases in both
the size and number of client projects as well as higher average billing rates.
During the first nine months of 1999 our billable employees increased to 515, or
28.1%, from 402 for the first nine months of 1998. Our average billing rate for
the first

48
<PAGE> 54

nine months of 1999 increased by 5.7% from the first nine months of 1998.
Revenues from Europe and Australia increased to approximately 17.1% of our total
revenues in the first nine months of 1999, compared to 14.2% of total revenues
in the first nine months of 1998.

PROJECT PERSONNEL COSTS

Our project personnel costs increased $15.1 million, or 40.4%, to $52.6
million in the first nine months of 1999 from $37.5 million in the first nine
months of 1998. The increase in project personnel costs in the first nine months
of 1999 was primarily due to an increase in the use of subcontractors that were
required to meet demand. We expect that our use of subcontractors will decline
as we operate as a separate business. Our Gross Profit margin decreased slightly
to 51.2% in the first nine months of 1999 from 51.8% in the comparable period in
1998.

SALES AND MARKETING EXPENSES

Our sales and marketing expenses increased $3.0 million, or 93.8%, to $6.2
million in the first nine months of 1999 from $3.2 million in the first nine
months of 1998. The increase in sales and marketing expenses was primarily the
result of our decision to invest in brand building with respect to the launch of
our new identity as eLoyalty and to formalize our business development group. We
increased our sales and marketing staff with the launch of our solutions
marketing group at the beginning of calendar year 1999. As a result of the
foregoing, sales and marketing expenses increased as a percentage of total
revenues to 5.7% in the first nine months of 1999 from 4.1% in the comparable
period in 1998.

RESEARCH AND DEVELOPMENT EXPENSES

Our research and development expenses increased $1.4 million, or 63.6%, to
$3.6 million in the first nine months of 1999 from $2.2 million in the first
nine months of 1998. Research and development expenses increased as a percentage
of total revenues to 3.3% in the first nine months of 1999 from 2.9% for the
comparable period in 1998. In the first nine months of 1999, we substantially
increased our investment in our Loyalty Lab by hiring additional developers and
purchasing additional software and hardware.

GENERAL AND ADMINISTRATIVE SUPPORT EXPENSES

Our general and administrative support expenses increased $3.7 million, or
19.6%, to $22.6 million in the first nine months of 1999 from $18.9 million in
the first nine months of 1998. General and administrative expenses decreased as
a percentage of total revenues to 21.0% in the first nine months of 1999 from
24.3% for the comparable period in 1998. This decrease resulted from greater
leverage of our regional management, particularly in Europe, who are responsible
for general and administrative functions. This more than offset an increase in
general and administrative support expenses resulting from the reallocation of
recruiting and some office expenses from Technology Solutions Company corporate
services allocation expenses as the management of those functions was
transferred to us from Technology Solutions Company. In addition, we were able
to eliminate the duplication of expenses associated with The Bentley Group.

TECHNOLOGY SOLUTIONS COMPANY CORPORATE SERVICES ALLOCATION EXPENSES

Technology Solutions Company corporate services allocation expenses
increased $1.6 million, or 17.4%, to $10.8 million in the first nine months of
1999 from $9.2 million in the first nine months of 1998. Technology Solutions
Company corporate services allocation expenses decreased as a percentage of
total revenues to 10.0% in the first nine months of 1999 from 11.9% for the
comparable period in 1998. This decrease was a result of the reallocation of
recruiting and some office expenses into general and administrative support
expenses as described above.

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<PAGE> 55

GOODWILL AMORTIZATION

Our goodwill amortization expenses increased $1.0 million or 37.0%, to $3.7
million in the first nine months of 1999 from $2.7 million in the first nine
months of 1998. This increase was due to the contingent purchase price payments
related to the acquisition of The Bentley Group and Aspen Consultancy Ltd.

PROVISION FOR INCOME TAXES

Income tax expense represents combined federal, state and foreign taxes.
Our income tax provision increased to $3.7 million on pre-tax profits of $7.8
million at the end of the first nine months of 1999 compared to $1.9 million on
pre-tax profits of $3.9 million at the end of the comparable period in 1998. Our
effective tax rate was 47.5% in the first nine months of 1999 and 48.9% in the
comparable period in 1998. This decrease in the effective tax rate was primarily
the result of a lower proportion of pre-tax earnings being generated in foreign,
high tax-rate jurisdictions.

SEVEN MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1998 COMPARED WITH THE SEVEN
MONTH PERIOD ENDED DECEMBER 31, 1997

This section discusses the seven-month transition period ended December 31,
1998, resulting from our change from a May 31 fiscal year end to a December 31
fiscal year end beginning December 31, 1998. The 1998 transition period was
significant for the company due to a number of events including the integration
of the Bentley Group, which was previously acquired by Technology Solutions
Company, the integration of the telecom business unit of Technology Solutions
Company and investments in Europe and Australia. During this period we
established a direct sales force and began a dedicated sales effort in Europe
and Australia. We also undertook a significant restructuring to support our
focus on large multi-channel engagements.

REVENUES

Our revenues increased $20.7 million, or 47.4%, to $64.4 million in the
transition period ended December 31, 1998, from $43.7 million in the seven month
period ended December 31, 1997. Revenues generated from using subcontractors was
2.2% of revenues in the transition period ended December 31, 1998 compared with
1.7% of revenues in the comparable period in the prior year. Revenues from sales
of software were $1.0 million in the transition period ended December 31, 1998
representing 1.6% of revenues in that period. We had revenues of $0.2 million
from sales of software in the transition period ended December 31, 1997.

The increase in our revenues of $20.7 million reflected increases in both
the size and number of client projects as well as higher average billing rates.
The increase in revenues from our international operations also significantly
contributed to this increase in revenue. In addition, The Bentley Group
acquisition contributed approximately $7.8 million of revenues in the transition
period ended December 31, 1997.

PROJECT PERSONNEL COSTS

Our project personnel costs increased $9.0 million, or 40.4%, to $31.3
million in the transition period ended December 31, 1998 from $22.3 million in
the prior year period. The increase in project personnel costs was primarily due
to an increase in billable employees, as well as higher salaries. Our Gross
Profit margin increased to 51.4% for the transition period ended December 31,
1998 from 48.9% for the comparable period in 1997, principally due to higher
utilization of project personnel.

SALES AND MARKETING EXPENSES

Our sales and marketing expenses increased $2.5 million, or 250.0%, to $3.5
million in the transition period ended December 31, 1998 from $1.0 million in
the comparable period in the prior year. The increase in sales and marketing
expenses was primarily the result of establishing our business development group
in North America and beginning our sales activities in Europe and Australia. By
the end of 1998 we

50
<PAGE> 56

had hired more than 10 people as dedicated business developers in North America.
Sales and marketing expenses increased as a percentage of total revenues to 5.4%
in the transition period ended December 31, 1998 from 2.3% in the comparable
period in the prior year because of the significant growth in our new business
regions.

RESEARCH AND DEVELOPMENT EXPENSES

Our research and development expenses increased $1.5 million, or 107.1%, to
$2.9 million in the transition period ended December 31, 1998 from $1.4 million
in the comparable period in the prior year. Research and development expenses
increased as a percentage of total revenues to 4.5% in the transition period
ended December 31, 1998 from 3.2% in the comparable period in the prior year.
This increase resulted from the significant expansion of the scope and
operations of our Loyalty Lab. We increased our development staff from nine
employees to 28 employees and established quality assurance, documentation and
full time research and demonstration groups to broaden our capabilities and
leverage this investment throughout our business. In addition, the increase
includes increased capitalized software costs that resulted in increased
amortization expense in this period.

GENERAL AND ADMINISTRATIVE SUPPORT EXPENSES

Our general and administrative support expenses increased $5.8 million, or
54.7%, to $16.4 million in the transition period ended December 31, 1998 from
$10.6 million for the comparable period in the prior year. General and
administrative expenses increased as a percentage of total revenues to 25.0% in
the transition period ended December 31, 1998 from 24.3% in the comparable
period in the prior year. We launched our operations group to manage
utilization, hourly billing rate, revenue per billable employee, employee
turnover and day-to-day project pipeline development. During this period, we
also increased the support level for our operations in Europe and Australia.
Prior to the end of 1998, The Bentley Group included their own operational and
management infrastructure that duplicated our capabilities. By the end of the
1998 transition period we significantly eliminated the duplication and related
expenses. In addition, we established a $2.7 million provision for uncollectible
accounts receivable related to revenues generated during the transition period,
largely from clients of The Bentley Group.

TECHNOLOGY SOLUTIONS COMPANY CORPORATE SERVICES ALLOCATION EXPENSES

Technology Solutions Company corporate services allocation expenses
increased $2.2 million, or 40.0% to $7.7 million in the transition period ended
December 31, 1998 from $5.5 million in the comparable period in the prior year.
Technology Solutions Company corporate services allocation expenses decreased as
a percentage of total revenue to 12.0% in the transition period ended December
31, 1998 from 12.7% in the comparable period in the prior year. This decrease
was due to the transition of some management expenses related to The Bentley
Group to general and administrative expenses.

GOODWILL AMORTIZATION

Our goodwill amortization expenses increased $0.6 million or 31.6%, to $2.5
million in the transition period ended December 31, 1998 from $1.9 million in
the comparable period in the prior year. This increase was because of the
contingent purchase price payments related to the acquisitions of The Bentley
Group and Aspen Consultancy Ltd.

PROVISION FOR INCOME TAXES

Our income tax provision decreased to $0.4 million on a pre-tax loss of
$0.1 million at the end of the transition period ended December 31, 1998
compared to $0.6 million on pre-tax profits of $0.9 million at the end of the
comparable period in the prior year. This unusual income tax provision for the
transition period ended December 31, 1998 resulted from the impact of
nondeductible goodwill and expenses as well as foreign tax rate differences.
During the seven months ended December 31, 1998, operations in some foreign
jurisdictions incurred taxable losses while other foreign jurisdictions had
taxable income. Since

51
<PAGE> 57

deferred tax assets are based on the individual tax jurisdictions in which
eLoyalty operates, net operating losses were generated during the period.

FISCAL 1998 COMPARED WITH FISCAL 1997

REVENUES

Our revenues increased $41.3 million, or 95.6%, to $84.5 million in the
fiscal year ended May 31, 1998 from $43.2 million in the fiscal year ended May
31, 1997. The increase in our revenues reflected increases in both the size and
number of client projects. The Bentley Group acquisition contributed $16.4
million of revenues in fiscal year 1998. Our internal compound annual growth
rate less the revenue associated with The Bentley Group acquisition was 57.6%
for fiscal year 1998 compared with 62.8% compound annual growth rate for the
previous year.

PROJECT PERSONNEL COSTS

Our project personnel costs increased $23.2 million, or 128.2%, to $41.3
million in fiscal 1998 from $18.1 million in fiscal 1997. The increase in
project personnel costs in fiscal 1998 was primarily due to an increase in
billable employees, as well as higher salaries. Our Gross Profit margin
decreased to 51.1% in fiscal 1998 from 58.1% in fiscal 1997. This decrease in
Gross Profit margin resulted from a substantial increase in our available
billable employees who we were not able to immediately deploy. The increase in
available billable resources was necessary to respond to the growing demand in
our North American business.

SALES AND MARKETING EXPENSES

Our sales and marketing expenses increased $0.7 million, or 41.2%, to
approximately $2.4 million in fiscal 1998 from $1.7 million in fiscal 1997. The
increase in sales and marketing expenses was primarily the result of our
decision to expand our sales and marketing effort in North America. Sales and
marketing expenses decreased as a percentage of total revenues to 2.9% in fiscal
1998 from 3.9% in fiscal 1997. This decrease reflected the maturity of our North
American business and our ability to leverage our existing sales and marketing
functions in fiscal 1998.

RESEARCH AND DEVELOPMENT EXPENSES

Our research and development expenses increased $0.7 million, or 41.2%, to
approximately $2.4 million in fiscal 1998 from $1.7 million in fiscal 1997.
Research and development expenses decreased as a percentage of total revenues to
2.8% in fiscal 1998 from 3.9% in fiscal 1997. This decrease resulted from our
significant revenue growth in fiscal 1998 and the redeployment of our
development staff as billable employees to meet the demands of our expanding
North American business.

GENERAL AND ADMINISTRATIVE SUPPORT EXPENSES

Our general and administrative support expenses increased $8.7 million, or
75.7%, to $20.2 million in fiscal 1998 from $11.5 million in fiscal 1997.
General and administrative support expenses decreased as a percentage of total
revenues to 24.0% in fiscal 1998 from 26.6% in fiscal 1997. This decrease also
reflects the generation of additional revenue in North America without a
proportional increase in general and administrative support expenses.

TECHNOLOGY SOLUTIONS COMPANY CORPORATE SERVICES ALLOCATION EXPENSES

Technology Solutions Company corporate services allocation expenses
increased $5.7 million, or 114.0%, to $10.7 million in fiscal 1998 from $5.0
million in fiscal 1997. Technology Solutions Company corporate services
allocation expenses increased slightly as a percentage of total revenues at
12.6% in fiscal 1998 and 11.6% in fiscal 1997. This increase was as a result of
Technology Solutions Company's international expansion.

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<PAGE> 58

GOODWILL AMORTIZATION

Our goodwill amortization expenses increased $2.8 million to $3.2 million
in fiscal 1998 from $0.4 million in fiscal 1997. The increase in goodwill
amortization as a percentage of revenues to 3.8% in fiscal 1998 from 0.9% in
fiscal 1997 was primarily a result of The Bentley Group acquisition in June
1997.

PROVISION FOR INCOME TAXES

Our income tax provision increased to $2.0 million on pre-tax profits of
$4.2 million at the end of fiscal 1998 compared to $1.9 million on pre-tax
profits of $4.8 million at the end of fiscal 1997. Our effective tax rate was
47.7% in fiscal 1998 and 39.3% in fiscal 1997. The increased effective tax rate
was primarily the result of earning income in jurisdictions with relatively
higher tax rates as we expanded our international operations.

FISCAL 1997 COMPARED WITH FISCAL 1996

REVENUES

Our revenues increased $16.7 million, or 63.0%, to $43.2 million in the
fiscal year ended May 31, 1997 from $26.5 million in the fiscal year ended May
31, 1996.

The increase in our revenues of $16.7 million reflected a significant
increase in domestic billable hours and our expansion into international
operations. During fiscal 1997 we began our operations in Europe and Canada and
in May 1996 made an acquisition of Aspen Consultancy Ltd. in the United Kingdom.

PROJECT PERSONNEL COSTS

Our project personnel costs increased $6.4 million, or 54.7%, to $18.1
million in fiscal 1997 from $11.7 million in fiscal 1996. The increase in
project personnel costs in fiscal 1997 was primarily due to an increase in
billable employees and higher salaries. Our Gross Profit margin increased to
58.1% in fiscal 1997 from 56.0% in fiscal 1996, primarily as a result of better
utilization.

SALES AND MARKETING EXPENSES

Our sales and marketing expenses increased $0.7 million, or 70.0%, to $1.7
million in fiscal 1997 from $1.0 million in fiscal 1996. The increase in sales
and marketing expenses resulted from expansion of our international sales effort
to generate revenue growth. Overall sales and marketing expenses remained
constant as a percentage of revenues at 3.9% for both fiscal 1997 and fiscal
1996.

RESEARCH AND DEVELOPMENT EXPENSES

Our research and development expenses increased $1.6 million to $1.7
million in fiscal 1997 from $0.1 million in fiscal 1996. Research and
development expenses increased as a percentage of total revenues to 3.9% in
fiscal 1997 from 0.2% in fiscal 1996. During fiscal 1997 we invested in research
and development to differentiate our solutions by increasing the size of our
development group from one employee in fiscal 1996 to eight employees in fiscal
1997.

GENERAL AND ADMINISTRATIVE SUPPORT EXPENSES

Our general and administrative support expenses increased $5.9 million, or
105.4%, to $11.5 million in fiscal 1997 from $5.6 million in fiscal 1996.
General and administrative support expenses increased as a percentage of total
revenues to 26.6% in fiscal 1997 from 21.0% in fiscal 1996. This increase was
largely due to launching our business in Europe and decentralizing our
management functions in our North American region into four regions.

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<PAGE> 59

TECHNOLOGY SOLUTIONS COMPANY CORPORATE SERVICES ALLOCATION EXPENSES

Our corporate services allocation expenses increased $1.7 million, or
51.5%, to $5.0 million in fiscal 1997 from $3.3 million in fiscal 1996.
Corporate services allocation expenses decreased as a percentage of total
revenues to 11.6% in fiscal 1997 from 12.4% in fiscal 1996. This decrease was a
result of increased leverage of management and operational expenses and
effective cost management by Technology Solutions Company.

GOODWILL AMORTIZATION

Our goodwill amortization expenses were $0.4 million in fiscal 1997. We had
no goodwill amortization expenses in fiscal 1996. This goodwill is related to
the acquisition of Aspen Consulting.

PROVISION FOR INCOME TAXES

Our income tax provision was $1.9 million on pre-tax profits of $4.8
million for fiscal 1997 compared to $1.9 million on pre-tax profits of $4.9
million for fiscal 1996. Our effective tax rate was 39.3% in fiscal 1997 and
37.8% in fiscal 1996.

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<PAGE> 60

QUARTERLY PERIODS

The following table presents our quarterly results of operations for
calendar year 1998 and the three quarters of calendar year 1999. We derived
these data from unaudited financial statements and, in the opinion of
management, they include all adjustments, consisting of only normal recurring
adjustments, considered necessary for a fair presentation of such information.
The operating results for the quarterly periods are not necessarily indicative
of the results that may be expected for the entire year.

eLOYALTY

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED (UNAUDITED)
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............... $ 23,643 $ 25,998 $ 28,044 $ 27,550 $ 31,491 $ 36,145 $ 40,016
Project personnel...... (11,710) (12,143) (13,611) (13,223) (15,276) (17,849) (19,461)
-------- -------- -------- -------- -------- -------- --------
REVENUES LESS PROJECT
PERSONNEL............ 11,933 13,855 14,433 14,327 16,215 18,296 20,555
-------- -------- -------- -------- -------- -------- --------
OTHER COSTS AND
EXPENSES
Sales and marketing.... 758 1,194 1,245 1,697 1,801 1,972 2,412
Research and
development.......... 466 649 1,116 1,404 1,086 1,221 1,292
General and
administrative
support.............. 5,645 6,044 7,223 7,414 6,080 7,368 9,106
Technology Solutions
Company corporate
services
allocation........... 2,806 3,377 3,042 3,544 4,385 3,555 2,829
Equity in net loss of
unconsolidated
investee............. -- -- -- 412 141 111 211
Goodwill
amortization......... 794 860 1,050 1,090 1,252 1,249 1,247
-------- -------- -------- -------- -------- -------- --------
10,469 12,124 13,676 15,561 14,745 15,476 17,097
-------- -------- -------- -------- -------- -------- --------
OPERATING INCOME
(LOSS)............... 1,464 1,731 757 (1,234) 1,470 2,820 3,458
OTHER (EXPENSE)
INCOME............... (7) 5 (7) 30 (1) 16 13
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES......... 1,457 1,736 750 (1,204) 1,469 2,836 3,471
INCOME TAX PROVISION
(BENEFIT)............ 629 842 458 (257) 742 1,356 1,592
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)...... $ 828 $ 894 $ 292 $ (947) $ 727 $ 1,480 $ 1,879
======== ======== ======== ======== ======== ======== ========
</TABLE>

STOCK-BASED COMPENSATION

We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for our employee stock options. Under Accounting Principles Board
Opinion No. 25, because the exercise prices of our employee stock options equal
the fair market value of the underlying stock on the date of grant, no
compensation expense is recorded. We have

55
<PAGE> 61

adopted the disclosure-only provisions of the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 123.

LIQUIDITY AND CAPITAL RESOURCES

Our principal capital requirements are to fund working capital needs and
capital expenditures in order to support revenue growth. Historically, these
capital requirements have been satisfied by funds provided by Technology
Solutions Company. Technology Solutions Company has performed cash management
services for us, whereby our cash flow was directed to Technology Solutions
Company and Technology Solutions Company provided cash to us to fund our
operating expenses and capital expenditures. Following the spin-off, we will no
longer participate in Technology Solutions Company's cash management system and
Technology Solutions Company will no longer be obligated, and does not intend,
to provide additional funds to us to finance our operations or (except as
described under "eLoyalty Financing") provide guarantees of our financial or
other obligations.

In the first nine months of 1999, net cash used in operating activities
totaled $11.4 million. Cash was provided by $4.1 million of net income, $5.0
million from depreciation and amortization and $3.8 million related to an
increase in accrued compensation. This was offset by an $19.6 million increase
in receivables. The increase in receivables was mainly due to growth in
revenues. Receivables related to amounts billed to clients increased from $23.7
million to $38.4 million, or 61.6% from December 31, 1998 to September 30, 1999.
Receivables related to engagements in process increased from $4.3 million to
$7.7 million or 76.6% from December 31, 1998 to September 30, 1999. The increase
in engagements in process resulted from an increase in contracts that were
invoiced based on the completion of phases of a project as opposed to our
standard monthly billing. This trend may continue in the future. In the first
nine months of 1998, net cash used in operating activities was $10.6 million,
driven by $2.0 million of net income and $3.9 million of depreciation and
amortization and offset by a $13.4 million increase in receivables.

Capital expenditures for the first nine months of 1999 were $1.6 million
for computer, furniture, equipment and leasehold improvements. Capital
expenditures may continue at the current rate throughout calendar year 1999. We
currently have no material commitments for capital expenditures.

In connection with the spin-off, we intend to enter into a revolving credit
facility with Bank of America which would be sufficient to provide the cash
needed for short term operating obligations. See "eLoyalty Financing" for a
description of the expected terms of that facility. We believe that the net
proceeds of the investment by the venture capital investors described under
"Certain Transactions," current cash and cash equivalents and additional cash to
be contributed by Technology Solutions Company to eLoyalty prior to the
spin-off, the revolving credit facility and cash flow from operations should be
sufficient to satisfy our cash requirements for the foreseeable future. We
intend to obtain additional equity financing in the next twelve months through a
public offering. In addition, we may obtain additional capital through a private
placement of equity with strategic or other investors or through additional debt
financing. We believe that in the future we will be able to access the capital
markets on terms and in amounts that will be satisfactory to us, although there
can be no assurance in that regard.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We provide our solutions to clients in a number of countries including the
United States, Canada, United Kingdom, Germany, France, Switzerland and
Australia. For the first nine months of 1999 and the twelve months ended
December 31, 1998, 15.2% and 17.5%, respectively, of our revenue was denominated
in foreign currencies such as Pound Sterling, Deutsche Marks, French Francs,
Swiss Francs, Euros, Australian dollars and Canadian dollars. We believe that an
increasing portion of our international revenue and costs will be denominated in
foreign currencies in the future. As a result of our exposure to foreign
currencies, our financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in those foreign
markets. Revenues of our foreign subsidiaries are currently realized or received
in U.S. dollars or in various foreign currencies. To the extent that we bill
clients in a currency other than their local currency, exchange rate
fluctuations that strengthen the

56
<PAGE> 62

currency in which we bill relative to their local currency could make our
services less competitive to those clients. Historically, we have not
experienced material fluctuations in our results of operations due to foreign
currency exchange rate changes.

RECENT ACCOUNTING PRONOUNCEMENTS

On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133," is effective for fiscal years beginning after June 15, 2000 (January 1,
2001 for eLoyalty). SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. We anticipate that the
adoption of SFAS No. 133 will not have a significant effect on our results of
operations or financial position.

YEAR 2000

Pursuant to a Shared Services Agreement with Technology Solutions Company,
we will be relying on Technology Solutions Company to provide a number of
transitional services to us, including among others accounting, tax, benefits
administration, human resources and information systems. Technology Solutions
Company will charge us for these services by allocating the portion of its total
costs for these functions that represents the proportion of our revenues or
employees, depending on the particular service, to those of Technology Solutions
Company. For a more detailed discussion of the terms governing these interim
services, see "eLoyalty's Relationship with Technology Solutions Company After
the Spin-Off -- Shared Services Agreement." As a result, Year 2000 problems
experienced by Technology Solutions Company could have a material adverse effect
on our business, financial condition or results of operations. The discussion of
the state of Technology Solutions Company's Year 2000 compliance efforts set
forth below is based on information furnished to us by Technology Solutions
Company.

Technology Solutions Company has advised us that it has conducted an
assessment of its computer information systems and has determined the nature and
extent of the work required to ensure that its internal systems are Year 2000
compliant. The majority of the software used by Technology Solutions Company has
been purchased as packaged software. Technology Solutions Company's internal
systems can be grouped into three principal categories: its accounting and human
resources software, its legacy systems that perform a variety of processes and
its office automation software products. With respect to the suite of software
products licensed by Technology Solutions Company and relied upon in the
administration of accounting and human resources functions, the licensor has
indicated to Technology Solutions Company that the version presently employed by
Technology Solutions Company is not currently Year 2000 compliant and,
therefore, Technology Solutions Company has advised us that it has replaced the
production and development versions with newer ones that are Year 2000
compliant. Technology Solutions Company has also advised us that it plans to
apply future patches to address the Year 2000 issue as they are made available.
Based on currently available information, Technology Solutions Company believes
the expense associated with these efforts will not be material. Technology
Solutions Company expects that additional issues concerning Year 2000 compliance
will be reported by the licensor to Technology Solutions Company and updates
will be provided by the licensor. Technology Solutions Company has received the
most recent updates and enhancements pursuant to a software support service
agreement presently in place with the licensor. Provided that the licensor gives
such assurances concerning the updates and enhancements to its software product
suite, Technology Solutions Company does not expect

57
<PAGE> 63

that it will incur additional expense aside from the cost of the software
support service agreement in order to bring its accounting and human resources
software package into Year 2000 compliance.

Other important internal business processes of Technology Solutions Company
that we will rely upon in whole or in part during the term of the Shared
Services Agreement between us and Technology Solutions Company, such as time and
expense reporting and labor distribution (and their associated back office
functions), are performed by legacy systems that Technology Solutions Company
has re-written to be Year 2000 compliant. Technology Solutions Company's
remaining office automation products have been inventoried and each vendor has
been contacted by Technology Solutions Company for the product's Year 2000
status. All identified products have either been upgraded, entirely replaced,
determined to be Year 2000 compliant, or shown to possess no date-associated
functions within the product. Technology Solutions Company estimates that it is
nearly completed with the compliance project effort and expects that the
identified systems will be compliant as of December 30, 1999. Technology
Solutions Company estimates that the cost associated with replacing or upgrading
these systems, excluding labor costs, will be less than $0.3 million, and has
provided for the replacement of these systems in its operating and capital
budgets for calendar year 1999.

Technology Solutions Company has contacted vendors of the standard software
packages and secured patches and/or newer versions of the applications.
Distribution of the patches and newer versions of the software occurred in the
third quarter and will occur in the fourth quarter of calendar year 1999.

Technology Solutions Company has advised us that, based on presently
available information, it believes that any necessary compliance efforts
concerning its internal systems will not have a material adverse effect on its
business, operating results and financial condition. However, if compliance
efforts of which Technology Solutions Company is not currently aware are
required and are not completed on time, or if the cost of any required updating,
modification or replacement of Technology Solutions Company's information
systems exceeds its estimates, the Year 2000 issue could have a material adverse
impact on Technology Solutions Company's business, operating results and
financial condition, which in turn could have a material adverse impact on our
business, operating results and financial condition.

In addition to Technology Solutions Company's internal systems, Technology
Solutions Company relies on third-party vendors in the conduct of its business.
For example, third-party vendors handle the payroll function for Technology
Solutions Company and Technology Solutions Company also relies on the services
of telecommunication companies, banks, utilities and commercial airlines, among
others. We also will rely on third-party vendors for comparable services in the
conduct of our business. Technology Solutions Company has sought assurances from
its material vendors and suppliers that there will be no interruption of service
as a result of the Year 2000 issue and, to the extent such assurances have not
been given, Technology Solutions Company is finalizing contingency plans to
mitigate the effects on the conduct of Technology Solutions Company's business
in the event the Year 2000 issue results in the unavailability of services. We
are relying on Technology Solutions Company's contingency plans with respect to
the availability of the transitional services covered by the Shared Services
Agreement, and are finalizing plans of our own for other potential Year 2000
issues that may affect our business. There can be no assurance that any
contingency plans will prevent any such service interruption on the part of one
or more of our respective third-party suppliers from having a material adverse
effect on our business, operating results and financial condition.

In addition, the failure on the part of the accounting systems of our
clients due to the Year 2000 issue could result in a delay in the payment of our
invoices for services and expenses. A failure of the accounting systems of a
significant number of our clients would have a material adverse effect on our
business, operating results and financial condition.

We have generally refrained from performing Year 2000 remediation services
for our clients. It is possible, however, that former, present and future
clients could assert that services performed by us from time to time involve, or
are related to, the Year 2000 issue. We have recommended, implemented and
customized various third-party software packages for our clients and, to the
extent that such software programs may not be Year 2000 compliant, we could be
subjected to claims as a result. Since our
58
<PAGE> 64

inception as a business unit within Technology Solutions Company, we have also
designed and developed software and systems for our clients, and licensed our
proprietary software. Due to the large number of engagements we have undertaken
over the years, there can be no assurance that all such software programs and
systems will be Year 2000 compliant, which could also result in the assertion of
claims against eLoyalty.

Our policy has been to endeavor to secure provisions in our client
contracts that, among other things, disclaim implied warranties, limit the
duration of our express warranties, relate our liability to the amount of fees
paid to us by the client in connection with the project and disclaim any
liability arising from third-party software that we implemented, customized or
installed. There can be no assurance that we will be able to secure contractual
protections in agreements concerning future projects, or that any contractual
protections we have secured in agreements governing pending and completed
projects will dissuade the other party from asserting claims against us with
respect to the Year 2000 issue.

Due to the complexity of the Year 2000 issue, upon any failure of critical
client systems or processes that may be directly or indirectly connected or
related to systems or software designed, developed, licensed, customized or
implemented as described above, we may be subjected to claims regardless of
whether the failure is related to the services we provided or our proprietary
software. There can be no assurance that we would be able to establish that we
did not cause or contribute to the failure of a critical client system or
process. There also can be no assurance that the contractual protections, if
any, we secure in connection with any past, present or future clients will
operate to insulate us from, or limit the amount of, any liability arising from
claims asserted against eLoyalty. If asserted, the resolution of such claims
(and the associated defense costs) could have a material adverse effect on our
business, operating results and financial condition.

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<PAGE> 65

eLOYALTY CAPITALIZATION

The following table sets forth, as of September 30, 1999, (a) the
historical capitalization of eLoyalty; (b) the pro forma capitalization to give
effect to the issuance of 41.4 million shares of eLoyalty to Technology
Solutions Company and the sale of 2.4 million shares to venture capital
investors as described in "Certain Transactions" and the contribution of $20
million from Technology Solutions Company to eLoyalty and (c) the pro forma as
adjusted capitalization giving effect to the spin-off, the sale of the shares to
the venture capital investors and the expiration of eLoyalty's obligation to
repurchase such shares described in note (1) below and under "Certain
Transactions" and the contribution of $20 million from Technology Solutions
Company to eLoyalty. You should read the information set forth below in
conjunction with "eLoyalty Selected Financial Data," our historical financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

eLOYALTY

CAPITALIZATION
(IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999 (UNAUDITED)
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
<S> <C> <C> <C>
Cash........................................................ $10,654 $ 39,468 $ 39,468
------- -------- --------
Redeemable Common Stock, $.01 par value: 2,400,000 shares
authorized; no shares issued and outstanding on an actual
basis; 2,400,000 shares issued and outstanding on a pro
forma basis; no shares issued and outstanding on a pro
forma as adjusted basis(1)................................ $ -- $ 8,400 $ --
Stockholders' Equity:
Common Stock, $.01 par value: 100,000,000 shares authorized;
100 shares issued and outstanding on an actual basis;
41,400,000 issued and outstanding on a pro forma basis;
43,800,000 shares issued and outstanding on a pro forma as
adjusted basis(2)......................................... -- 414 438
Additional paid-in capital(3)............................... -- 91,439 99,815
Net advances from Technology Solutions Company.............. 71,439 -- --
Accumulated other comprehensive loss........................ (150) (150) (150)
------- -------- --------
Total stockholders' equity.................................. 71,289 91,703 100,103
------- -------- --------
Total capitalization.............................. $71,289 $100,103 $100,103
======= ======== ========
</TABLE>

- ---------------

(1) As described under "Certain Transactions," venture capital investors agreed
on June 22, 1999 to purchase an aggregate of 2.4 million shares of our
common stock at $3.50 per share. Such purchase is subject to the receipt of
a private letter ruling from the IRS to the effect that the spin-off will be
tax-free to Technology Solutions Company and its stockholders for United
States Federal income tax purposes and other customary conditions. If those
investors purchase our shares of common stock and the spin-off does not
occur by August 13, 2000, we could become obligated to repurchase such
shares at a premium totalling $1.2 million over the price paid by the
investors for such shares. Because those shares may be repurchased prior to
the spin-off, we have classified those shares as redeemable common stock
until the spin-off occurs.

(2) Excludes 5,046,000 shares of Common Stock issuable upon exercise of options
outstanding as of September 30, 1999 and shares issuable upon exercise of
options to be issued in substitution of existing Technology Solutions
Company options as of the date of the spin-off, the number of which will not
be ascertainable until the spin-off. See "eLoyalty's Management -- Incentive
Plans," "eLoyalty's Relationship with Technology Solutions Company After the
Spin-Off -- Technology Solutions Company Stock Options" and Note 8 of the
Notes to Consolidated Financial Statements.

(3) Technology Solutions Company has committed to contribute $20 million to
eLoyalty at the time of the spin-off.

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<PAGE> 66

eLOYALTY FINANCING

In connection with the spin-off, we intend to enter into a revolving credit
facility which would allow us to borrow up to $10 million from time to time. We
expect that Bank of America will commit to provide the financing for the
revolving credit facility on an unsecured basis. We expect that the credit
facility will automatically renew on an annual basis. Although, at the date of
this information statement/prospectus, we do not anticipate borrowing under the
facility, after the spin-off borrowings may be made under the facility for
general corporate purposes.

We believe that borrowings under the revolving credit facility will bear
interest at a rate not to exceed the prime rate plus 1%. We expect the credit
facility to contain customary representations, warranties, covenants and default
provisions, including working capital commitments and debt to equity ratios. The
revolving credit facility may be guaranteed by Technology Solutions Company
through December 31, 2000 in exchange for an appropriate fee to be paid by us to
Technology Solutions Company in an amount to be agreed upon by us and Technology
Solutions Company.

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<PAGE> 67

eLOYALTY SELECTED FINANCIAL DATA

The following tables summarize selected financial data of eLoyalty. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the historical
financial statements and notes thereto included elsewhere in this information
statement. The statement of operations data for the seven month period ended
December 31, 1998 and for each of the three years ended May 31, 1998, 1997 and
1996 and the balance sheet data as of December 31, 1998 and May 31, 1998 and
1997 below are derived from the audited combined financial statements included
in this information statement/prospectus. They should be read in conjunction
with those financial statements and the notes. The statement of operations data
for the nine month periods ended September 30, 1999 and 1998, for the seven
month period ended December 31, 1997, for the year ended December 31, 1998, and
for the years ended May 31, 1995 and 1994 and the balance sheet data as of
September 30, 1999 and May 31, 1996, 1995 and 1994 are derived from unaudited
combined financial statements.

The historical financial information may not be indicative of eLoyalty
future performance and does not necessarily reflect what the financial position
and results of operations of eLoyalty would have been had eLoyalty operated as a
separate, stand-alone entity during the period covered.

eLOYALTY

STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE
MONTH PERIODS FOR THE YEAR SEVEN MONTH PERIODS
ENDED ENDED FROM JUNE 1 TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------------- ------------ ----------------------
1999 1998 1998 1998 1997
-------- -------- ------------ -------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES........................ $107,652 $ 77,685 $105,235 $ 64,415 $ 43,668
Project personnel.............. (52,586) (37,464) (50,687) (31,302) (22,329)
-------- -------- -------- -------- --------
REVENUES LESS PROJECT
PERSONNEL...................... 55,066 40,221 54,548 33,113 21,339
-------- -------- -------- -------- --------
OTHER COSTS AND EXPENSES:
Sales and marketing............ 6,185 3,197 4,894 3,456 994
Research and development....... 3,599 2,231 3,635 2,889 1,393
General and administrative..... 22,554 18,912 26,326 16,438 10,641
Technology Solutions Company
corporate services
allocation................... 10,769 9,225 12,769 7,698 5,544
Equity in net loss of
unconsolidated investee...... 463 -- 412 412 --
Goodwill amortization.......... 3,748 2,704 3,794 2,450 1,856
-------- -------- -------- -------- --------
47,318 36,269 51,830 33,343 20,428
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS)......... 7,748 3,952 2,718 (230) 911
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE).......... 28 (9) 21 85 (14)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... 7,776 3,943 2,739 (145) 897
INCOME TAX PROVISION
(BENEFIT)...................... 3,690 1,929 1,672 398 562
-------- -------- -------- -------- --------
NET INCOME (LOSS)............... $ 4,086 $ 2,014 $ 1,067 $ (543) $ 335
======== ======== ======== ======== ========

FOR THE YEARS ENDED MAY 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES........................ $ 84,488 $ 43,181 $ 26,516 $ 6,132 $1,333
Project personnel.............. (41,329) (18,078) (11,674) (3,137) (715)
-------- -------- -------- ------- ------
REVENUES LESS PROJECT
PERSONNEL...................... 43,159 25,103 14,842 2,995 618
-------- -------- -------- ------- ------
OTHER COSTS AND EXPENSES:
Sales and marketing............ 2,429 1,663 1,032 312 40
Research and development....... 2,383 1,689 46 -- --
General and administrative..... 20,216 11,539 5,559 1,335 482
Technology Solutions Company
corporate services
allocation................... 10,671 5,028 3,298 1,527 197
Equity in net loss of
unconsolidated investee...... -- -- -- -- --
Goodwill amortization.......... 3,201 376 -- -- --
-------- -------- -------- ------- ------
38,900 20,295 9,935 3,174 719
-------- -------- -------- ------- ------
OPERATING INCOME (LOSS)......... 4,259 4,808 4,907 (179) (101)
-------- -------- -------- ------- ------
OTHER INCOME (EXPENSE).......... (24) 15 -- -- --
-------- -------- -------- ------- ------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... 4,235 4,823 4,907 (179) (101)
INCOME TAX PROVISION
(BENEFIT)...................... 2,022 1,897 1,857 (51) (103)
-------- -------- -------- ------- ------
NET INCOME (LOSS)............... $ 2,213 $ 2,926 $ 3,050 $ (128) $ 2
======== ======== ======== ======= ======
</TABLE>

62
<PAGE> 68
<TABLE>
<CAPTION>
FOR THE NINE FOR THE
MONTH PERIODS FOR THE YEAR SEVEN MONTH PERIODS
ENDED ENDED FROM JUNE 1 TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------------- ------------ ----------------------
1999 1998 1998 1998 1997
-------- -------- ------------ -------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic net income (loss) per
common share(1)................ $ 0.10 $ 0.05 $ 0.03 $ (0.01) $ 0.01
Diluted net income (loss) per
common share(1)................ $ 0.09 $ 0.04 $ 0.02 $ (0.01) $ 0.01
Shares used to calculate basic
net income (loss) per share (in
millions)(1)................... 41.4 41.4 41.4 41.4 41.4
Shares used to calculate diluted
net income (loss) per share (in
millions(1).................... 47.6 46.5 46.6 41.4 45.8

FOR THE YEARS ENDED MAY 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic net income (loss) per
common share(1)................ $ 0.05 $ 0.07 $ 0.07 $ (0.00) $ 0.00
Diluted net income (loss) per
common share(1)................ $ 0.05 $ 0.06 $ 0.0 7 $ (0.00) $ 0.00
Shares used to calculate basic
net income (loss) per share (in
millions)(1)................... 41.4 41.4 41.4 41.4 41.4
Shares used to calculate diluted
net income (loss) per share (in
millions(1).................... 46.8 46.6 45.5 41.4 46.0
</TABLE>

- ---------------

(1) In December 1999, eLoyalty issued 41.4 million shares to Technology
Solutions Company. Basic earnings per share have been computed by dividing
the net income/(loss) for each period presented by the 41.4 million shares.
Diluted net earnings per share was computed by dividing the net
income/(loss) for each period presented by the 41.4 million shares plus the
estimated effect of dilutive stock options using the "treasury stock"
method. See Note 8 to the Notes to the Combined Financial Statements for a
discussion of stock options.

eLOYALTY

BALANCE SHEET DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF AS OF AS OF MAY 31,
SEPTEMBER 30, DECEMBER 31, -----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------- ------------ ------- ------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash................. $10,654 $ 4,411 $ 4,726 $ 4,130 $ 321 $ -- $ --
Working capital...... $51,932 $26,231 $23,840 $13,506 $ 6,249 $3,130 $1,316
Total assets......... $92,792 $63,904 $54,118 $24,188 $14,008 $4,351 $2,119
Stockholder's
equity............. $71,289 $47,888 $40,893 $17,147 $ 9,312 $3,169 $1,346
</TABLE>

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<PAGE> 69

eLOYALTY'S RELATIONSHIP WITH TECHNOLOGY SOLUTIONS COMPANY
AFTER THE SPIN-OFF

The spin-off, and the transactions being undertaken in connection with the
spin-off, are being effected according to a Reorganization Agreement between
eLoyalty and Technology Solutions Company. In addition, we have entered into or
will enter into ancillary agreements contemplated by the Reorganization
Agreement and other agreements that will govern various ongoing relationships
between us and Technology Solutions Company.

Below is a summary description of the Reorganization Agreement and some of
the ancillary agreements. This description, which summarizes the material terms
of those agreements, does not purport to be complete and is qualified in its
entirety by reference to the full text of the agreements. Some of these
agreements, including the Reorganization Agreement and the forms of Shared
Services Agreement and Tax Sharing and Disaffiliation Agreement, have been filed
with the Securities and Exchange Commission as exhibits to the registration
statement of which this information statement/prospectus is a part.

REORGANIZATION AGREEMENT

The Reorganization Agreement will provide for, among other things, the
principal corporate transactions required to effect the separation of eLoyalty's
business from the remaining Technology Solutions Company business, the spin-off
and other agreements governing the relationship between eLoyalty and Technology
Solutions Company after the spin-off.

Pursuant to the Reorganization Agreement, Technology Solutions Company will
transfer to eLoyalty substantially all of the assets, and eLoyalty will assume
substantially all of the corresponding liabilities, of eLoyalty's business. The
assets of eLoyalty's business will be transferred to eLoyalty on an "as is,
where is" basis and no representations or warranties will be made by Technology
Solutions Company regarding those assets. Some international, intellectual
property, real property and other assets relating primarily to the business of
eLoyalty may still be held by Technology Solutions Company or its affiliates at
the time of the distribution of the eLoyalty common stock pending receipt of
consents or approvals or satisfaction of other applicable requirements necessary
for the transfer of such assets to eLoyalty. These assets and operations are
not, individually or in the aggregate, material to eLoyalty. However, the
information included in this information statement/prospectus, including our
financial statements, assumes the completion of all such transactions.

The Technology Solutions Company board will have the sole discretion to
determine the date of the spin-off. The spin-off is conditioned on, among other
things, declaration of the spin-off by the Technology Solutions Company board of
directors. Other conditions to the spin-off include:

- Technology Solutions Company's receipt of the private letter ruling from
the IRS described under "The Spin-Off -- Material Federal Tax
Consequences (which has been received);"

- receipt by Technology Solutions Company's board of directors of an
opinion of Technology Solutions Company's financial advisor regarding the
fairness to stockholders of Technology Solutions Company of the spin-off
and the viability of Technology Solutions Company and eLoyalty after the
spin-off (which opinions have been received);

- receipt of all material approvals and consents necessary to consummate
the spin-off;

- the absence of any prohibition of the spin-off by any law or governmental
authority;

- registration of our common stock under the Securities Act and the
Exchange Act (which registration has not yet been effected);

- approval for listing on The Nasdaq National Market of our common stock
(which approval has been received);

64
<PAGE> 70

- no other events or developments shall have occurred that, in the judgment
of the Technology Solutions Company board, would result in the spin-off
having a material adverse effect on Technology Solutions Company or on
the stockholders of Technology Solutions Company; and

- final approval by Technology Solutions Company's board of directors of
the spin-off.

Even if all of the conditions to the spin-off are satisfied, Technology
Solutions Company has reserved the right to amend or terminate the
Reorganization Agreement and the related transactions. The Technology Solutions
Company board of directors has not attempted to identify or establish objective
criteria for evaluating the particular events or conditions that would cause the
Technology Solutions Company board of directors to consider amending or
terminating the spin-off. Although the conditions described above may be waived
by Technology Solutions Company to the extent permitted by law, the Technology
Solutions Company board of directors presently has no intention to proceed with
the spin-off unless each of these conditions is satisfied.

Subject to some exceptions, the Reorganization Agreement will provide for
cross-indemnities principally designed to place financial responsibility for the
liabilities of eLoyalty's business with eLoyalty and financial responsibility
for the obligations and liabilities of Technology Solutions Company's retained
business with Technology Solutions Company. Specifically, eLoyalty has agreed to
assume liability for, and to indemnify Technology Solutions Company against, any
and all liabilities associated with eLoyalty's business. These liabilities
include any litigation, proceedings or claims relating to the products, services
and operations thereof whether or not the underlying basis for such litigation,
proceeding or claim arose prior to or after the date of the transfer of the
eLoyalty business by Technology Solutions Company to eLoyalty. Technology
Solutions Company has agreed to indemnify eLoyalty against any and all
liabilities associated with Technology Solutions Company's retained business.

The Reorganization Agreement will provide for the allocation of benefits
between Technology Solutions Company and eLoyalty under existing insurance
policies after the date of the spin-off for claims made or occurrences prior to
the date of the spin-off and sets forth procedures for the administration of
insured claims. In addition, the Reorganization Agreement provides that
Technology Solutions Company will use its reasonable efforts to maintain
directors' and officers' insurance at substantially the level of Technology
Solutions Company's current directors' and officers' insurance policy for a
period of three years with respect to the directors and officers of Technology
Solutions Company who will become directors and officers of eLoyalty as of the
date of the spin-off for acts relating to periods prior to the date of the
spin-off.

The Reorganization Agreement will also provide that each of Technology
Solutions Company and eLoyalty will be granted access to some records and
information in the possession of the other. This requires the retention by
Technology Solutions Company and eLoyalty, for a period of seven years following
the spin-off, of the information in its possession relating to the other.
Further, the party in possession of the information must use commercially
reasonable efforts to notify the other party of its intention to dispose of such
information and, with respect to tax information, the period shall be extended
to one year after the expiration of the applicable statute of limitations.

The Reorganization Agreement will also provide that for 18 months starting
December 1, 1999, neither Technology Solutions Company nor eLoyalty can solicit
or recruit any of the employees of the other. Further, the Reorganization
Agreement will address the treatment of employee benefit matters and other
compensation arrangements for some former and current eLoyalty employees and
their beneficiaries and dependents. These provisions of the Reorganization
Agreement contemplate that eLoyalty will establish retirement savings and
welfare plans. The Reorganization Agreement will provide that the account
balances (including outstanding loans) of all eLoyalty employees participating
in Technology Solutions Company's deferred compensation and 401(k) plans will be
transferred to eLoyalty's new deferred compensation and 401(k) plans and assets
held in trust related to such account balances will be transferred to new trusts
established by eLoyalty. The Reorganization Agreement will also generally
provide that, after the spin-off, eLoyalty will assume all liabilities for
benefits under any welfare plans related to eLoyalty employees, other than
specified claims incurred on or before the spin-off. Moreover,
65
<PAGE> 71

the Reorganization Agreement will provide that, effective as of the spin-off,
eLoyalty will become responsible for all other liabilities to eLoyalty
employees. The Reorganization Agreement will also provide that eLoyalty will
issue stock options in substitution of outstanding options to purchase
Technology Solutions Company common stock and will maintain an employee stock
purchase plan substantially similar to Technology Solutions Company's 1995
employee stock purchase plan.

The Reorganization Agreement contains provisions that govern the resolution
of disputes, controversies or claims that may arise between or among the
parties. These provisions contemplate that efforts will be made to resolve
disputes, controversies and claims by escalation of the matter to senior
management (or other mutually agreed) representatives of the parties. Disputes
remaining unresolved are then to be submitted to mandatory mediation. If such
efforts are not successful, any party may submit the dispute, controversy or
claim to mandatory, binding arbitration, subject to the provisions of the
Reorganization Agreement. The Reorganization Agreement contains procedures for
the selection of a sole arbitrator of the dispute, controversy or claim and for
the conduct of the arbitration hearing, including limitations on discovery
rights of the parties. These procedures are intended to produce an expeditious
resolution of any such dispute, controversy or claim.

TECHNOLOGY SOLUTIONS COMPANY STOCK OPTIONS

eLoyalty Employees and Directors. Technology Solutions Company and eLoyalty
have agreed that as of the spin-off, each outstanding option to purchase
Technology Solutions Company common stock held by a person who will be an
employee or director of eLoyalty immediately after the spin-off (and who will
not also be a director of Technology Solutions Company) will be converted into a
substitute option to purchase eLoyalty common stock. The substitute option will
preserve the intrinsic value of the option and the ratio of the exercise price
to the fair market value of the stock by adjusting the number of shares
purchasable and the exercise price, based on a comparison of the trading price
of Technology Solutions Company common stock before the spin-off, which includes
the value of eLoyalty common stock, and the trading price of eLoyalty common
stock after the spin-off. The substitute option will take into account all
employment with both Technology Solutions Company and eLoyalty for purposes of
determining when the option becomes exercisable and when it terminates. All
other terms of the substitute option will be the same as the current Technology
Solutions Company option. As of December 31, 1999, there were outstanding
options to purchase 3,138,385 shares of Technology Solutions Company stock that
would be converted in this manner.

Technology Solutions Company Employees and Directors, and Former Employees
and Directors. Each outstanding nonqualified Technology Solutions Company option
granted before June 22, 1999 to a person who will continue as an employee or
director of Technology Solutions Company after the spin-off, or who will not be
an employee or director of either Technology Solutions Company or eLoyalty after
the spin-off, will be converted into both an adjusted Technology Solutions
Company option and a substitute eLoyalty option. These Technology Solutions
Company options will be converted in a manner that preserves the aggregate
exercise price of each option, which will be allocated between the adjusted
Technology Solutions Company option and the substitute eLoyalty option based on
a comparison of the trading price of Technology Solutions Company common stock
and the trading price of eLoyalty common stock after the spin-off. Both options,
when combined, will preserve the intrinsic value of the existing option, and
each will preserve the ratio of the exercise price to the fair market value of
the stock subject to the option.

Specifically, the number of shares of Technology Solutions Company common
stock subject to an adjusted Technology Solutions Company option will be the
same as the number of shares subject to the existing Technology Solutions
Company option, and the current exercise price will be multiplied by the
following fraction:

Technology Solutions Company Stock Price (after the spin-off)
- --------------------------------------------------------------------------------
Technology Solutions Company Stock Price (before the spin-off)

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The number of shares subject to a substitute eLoyalty option will equal the
number of shares of eLoyalty common stock that would have been received in the
spin-off with respect to the shares of Technology Solutions Company common stock
subject to the existing Technology Solutions Company option. The exercise price
of the substitute eLoyalty option will equal the exercise price of the existing
Technology Solutions Company option multiplied by the following ratio:

eLoyalty Stock Price (after the spin-off)
- --------------------------------------------------------------------------------
TSC Stock Price (before the spin-off)

Employment with Technology Solutions Company will be taken into account in
determining when each substitute eLoyalty option becomes exercisable and when it
terminates, and in all other respects the terms of the substitute option will be
substantially the same as the existing Technology Solutions Company option. As
of December 31, 1999, there were outstanding options to purchase 4,236,768
shares of Technology Solutions Company stock that would be converted in this
manner.

Options Granted After June 21, 1999. Each outstanding nonqualified
Technology Solutions Company option granted after June 21, 1999 to a person who
will continue as an employee or director of Technology Solutions Company after
the spin-off, or who will not be an employee or director of either Technology
Solutions Company of eLoyalty after the spin-off will not be adjusted as
described above, but instead will continue solely as an option to purchase
shares of Technology Solutions Company common stock. Each of these options will
be adjusted to reflect the spin-off, based on a comparison of the trading price
of Technology Solutions Company common stock before the spin-off and the trading
price of Technology Solutions Company common stock after the spin-off and will
preserve the intrinsic value of the option and the ratio of the exercise price
to the fair market value of the stock.

TAX SHARING AND DISAFFILIATION AGREEMENT

The Technology Solutions Company and eLoyalty Tax Sharing and
Disaffiliation Agreement will set forth the rights and obligations of Technology
Solutions Company and eLoyalty with respect to taxes imposed on their respective
businesses both before and after the spin-off and with respect to "Restructuring
Taxes." For purposes of the Tax Sharing and Disaffiliation Agreement,
"Restructuring Taxes" are, in effect taxes and other liabilities imposed as a
result of a determination that (1) the contribution of the eLoyalty assets to
eLoyalty failed to qualify for tax-free treatment, (2) the spin-off failed to
qualify as a tax-free spin-off under Section 355 of the Code, or (3) Technology
Solutions Company, under special rules, was subject to tax as a result of the
spin-off even though the spin-off generally qualified for tax-free treatment
under Section 355 of the Code.

General Taxes. Under the Tax Sharing and Disaffiliation Agreement, eLoyalty
will be liable for and indemnify Technology Solutions Company against any taxes
(other than Restructuring Taxes) that are attributable to the business carried
on by eLoyalty. eLoyalty will indemnify Technology Solutions Company against
these taxes even though they may have been incurred prior to the formation of
eLoyalty. Technology Solutions Company will indemnify eLoyalty against any taxes
(other than Restructuring Taxes) that are attributable to the business retained
by Technology Solutions Company. The Tax Sharing and Disaffiliation Agreement
sets forth rules for determining taxes attributable to the eLoyalty business and
taxes attributable to the business retained by Technology Solutions Company.

Restructuring Taxes. Under the Tax Sharing and Disaffiliation Agreement, we
will, in general, be liable for any Restructuring Taxes imposed by reason of any
"eLoyalty Tainting Act," which means:

- any inaccuracy or breach of specified representations, warranties, or
covenants in the IRS ruling and the material submitted to the IRS in
connection with that ruling, in each case, describing the eLoyalty Group
(generally, our affiliates and us) or the eLoyalty business;

- any action (or failure to take any reasonably available action) by any
member of the eLoyalty Group; or

- any acquisition or other transaction involving the capital stock of
eLoyalty (other than the distribution of the capital stock of eLoyalty in
the spin-off).

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Under that agreement, Technology Solutions Company will, in general, be
liable for any Restructuring Taxes imposed by reason of any "Technology
Solutions Company Tainting Act," which means:

- any inaccuracy or breach of specified representations, warranties, or
covenants in the IRS ruling and the materials submitted to the IRS in
connection with that ruling, in each case, describing the Technology
Solutions Company Group (generally, Technology Solutions Company and its
affiliates) or the business retained by Technology Solutions Company;

- any action (or failure to take any reasonably available action) by any
member of the Technology Solutions Company Group; or

- any acquisition or other transaction involving the capital stock of
Technology Solutions Company (other than the distribution of the capital
stock of eLoyalty in the spin-off).

Under that agreement, eLoyalty and Technology Solutions Company are each
liable for 50% of Restructuring Taxes that are not imposed as a result of either
an eLoyalty Tainting Act or a Technology Solutions Company Tainting Act. If a
Restructuring Tax is imposed where there is both an eLoyalty Tainting Act and a
Technology Solutions Company Tainting Act, and each of the eLoyalty Tainting Act
and the Technology Solutions Company Tainting Act would alone be sufficient to
result in the imposition of such Restructuring Tax, eLoyalty and Technology
Solutions Company are each liable for 50% of such Restructuring Tax. Finally, in
the case of a Restructuring Tax that would not have been imposed but for the
existence of both an eLoyalty Tainting Act and a Technology Solutions Company
Tainting Act, eLoyalty and Technology Solutions Company are each liable for such
Restructuring Tax to the extent the eLoyalty Tainting Act and the Technology
Solutions Company Tainting Act, respectively, contributed to the imposition of
such Restructuring Tax.

Option Deductions. Under the Tax Sharing and Disaffiliation Agreement,
Technology Solutions Company will generally be liable to us for an amount equal
to (A) any actual federal income tax reduction realized by Technology Solutions
Company as a result of a "Net Option Deduction," which term, in general, means
any federal income tax deduction or loss (to the extent in excess of any income
or gain) recognized by the Technology Solutions Company Affiliated Group
(generally, Technology Solutions Company and its subsidiaries that file on a
consolidated basis) upon the exercise of eLoyalty stock options by employees of
any member of such group minus (B) any employment (or similar) taxes borne by
any member of the Technology Solutions Company Affiliated Group with respect to
such taxable year as a result of the exercise of eLoyalty stock options by
employees of any member of the Technology Solutions Company Affiliated Group.
This liability arises only with respect to eLoyalty options exercised after the
date eLoyalty provides Technology Solutions Company with an opinion of tax
counsel concluding that a Net Option Deduction is available to the Technology
Solutions Company Affiliated Group. Technology Solutions Company may condition
its liability with respect to a taxable year upon confirmation from tax counsel
that no change in law or other circumstance has rendered the original tax
opinion's conclusion incorrect. We will be liable to Technology Solutions
Company for losses or expenses attributable to the reduction, elimination or
deferral of a Net Option Deduction for which Technology Solutions Company has
previously made payment to us.

Administrative matters. The Tax Sharing and Disaffiliation Agreement will
also set forth the obligations of eLoyalty and Technology Solutions Company with
respect to the filing of tax returns, the administration of tax contests and
other matters.

SHARED SERVICES AGREEMENT

Technology Solutions Company and eLoyalty will enter into a Shared Services
Agreement, pursuant to which Technology Solutions Company will provide to
eLoyalty administrative services that may be necessary to eLoyalty's business.
Technology Solutions Company will provide eLoyalty with, among other things,
accounting, tax, benefits administration, human resources, information systems,
insurance and legal services. This agreement will expire on June 30, 2000 unless
the parties mutually agree upon a renewal. For benefits administration, human
resources and information systems services Technology Solutions Company will
charge eLoyalty based on its percentage of the total number of Technology
Solutions Company and eLoyalty employees. For accounting, tax and insurance
services Technology Solutions

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Company will charge eLoyalty based on its percentage of the total revenues of
Technology Solutions Company and eLoyalty.

TECHNOLOGY SOLUTIONS COMPANY INTELLECTUAL PROPERTY LICENSE AGREEMENT

Technology Solutions Company and eLoyalty will enter into a Technology
Solutions Company Intellectual Property Agreement, pursuant to which Technology
Solutions Company will grant to eLoyalty a nonexclusive, royalty-free,
worldwide, perpetual license in and to intellectual properties, processes, know-
how and technical information of Technology Solutions Company which are not used
primarily in connection with eLoyalty's business but which are used in
connection with eLoyalty's business as of the date of the spin-off.

eLOYALTY INTELLECTUAL PROPERTY LICENSE AGREEMENT

eLoyalty and Technology Solutions Company will enter into an eLoyalty
Intellectual Property Agreement, pursuant to which eLoyalty will grant to
Technology Solutions Company a nonexclusive, royalty-free, worldwide, perpetual
license in and to intellectual properties, processes, know-how and technical
information which were assigned to eLoyalty, which are used primarily in
connection with eLoyalty's business, and which were also used in connection with
Technology Solutions Company's businesses other than eLoyalty's business as of
the date of the spin-off.

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eLOYALTY'S MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

Set forth below is information concerning the executive officers, other key
employees and members of our board of directors upon completion of the spin-off.

The ages listed below are as of September 1, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kelly D. Conway....................... 43 Director, President and Chief Executive Officer
Tench Coxe............................ 41 Director and Chairman of the Board of Directors
Jay C. Hoag........................... 41 Director
John T. Kohler........................ 52 Director
Michael J. Murray..................... 55 Director
John R. Purcell....................... 67 Director
Michael R. Zucchini................... 53 Director
Timothy J. Cunningham................. 46 Senior Vice President and Chief Financial Officer
Craig B. Lashmet...................... 39 Senior Vice President -- North American
Operations
Arthur J. Bird........................ 46 Senior Vice President -- European Operations
Chris J. Danson....................... 32 Senior Vice President -- Development and Support
Julie M. Fitzpatrick.................. 32 Senior Vice President -- Marketing
Jackie L. Hilt........................ 42 Senior Vice President -- Employee Loyalty
Kevin J. Kraft........................ 34 Senior Vice President -- Solutions Marketing
Stephen D. Mayers..................... 42 Senior Vice President -- Australian Operations
Michael Weintraub..................... 40 Senior Vice President -- Operations
</TABLE>

KELLY D. CONWAY has been our President and Chief Executive Officer and a
Director of eLoyalty since our incorporation in May 1999. Mr. Conway joined
Technology Solutions Company in November 1993 as Senior Vice President, assumed
the position of Executive Vice President in July 1995 and became Group President
of Technology Solutions Company in October 1998. Prior to joining Technology
Solutions Company, he was a partner in the management consulting firm of
Spencer, Shenk and Capers from 1991 to 1993. From 1989 to 1991, he was President
and Chief Executive Officer of Telcom Technologies, a leading manufacturer of
automatic call distribution equipment. From 1984 to 1989, he held the positions
of Vice President of Finance and Vice President of Marketing for Telcom
Technologies. From 1980 to 1984, he was a consultant with Deloitte, Haskins and
Sells. In 1998, he became a board member of Edify Corporation.

TENCH COXE is our Chairman of the board of directors. Mr. Coxe has served
as a managing director of the general partner of Sutter Hill Ventures, a venture
capital company located in Palo Alto, California, since 1989. From 1984 to 1987,
Mr. Coxe served as Director of Marketing and in other management positions with
Digital Communications Associates. Mr. Coxe is currently on the Board of
Directors of Clarus Corporation, Copper Mountain Networks, Inc., Edify
Corporation, NVidia Corporation, Alteon WebSystems, Inc. and various private
companies.

JAY C. HOAG has been, since June 1995, a general partner of Technology
Crossover Ventures, a venture capital group located in Palo Alto, California.
From 1985 to 1994, he was a managing director with Chancellor Capital
Management, Inc. Mr. Hoag serves on the board of directors of Onyx Software
Corporation, Autoweb.com, Inc., iVillage, Inc. and several privately held
companies.

JOHN T. KOHLER has been a Director of eLoyalty since May 1999. Mr. Kohler
is currently Technology Solutions Company's President and Chief Executive
Officer and has been a Director of Technology Solutions Company since June 1994.
He joined Technology Solutions Company as Senior Vice President in June 1992,
was promoted to Executive Vice President and named to the Office of the Chairman
in September 1993, became President and Chief Operating Officer in January 1994
and became Chief

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Executive Officer in June 1995. From 1986 to 1992, he was Senior Vice President
and Chief Information Officer of Kimberly-Clark Corporation. From 1983 to 1986,
he was a partner and regional practice director for the Midwest Region
consulting practice of Arthur Young. He is also currently serving as a Director
of Follett Corporation and Infosis Corp.

MICHAEL J. MURRAY has been a Director of eLoyalty since June 1999 and a
Director of Technology Solutions Company since July 1988. Mr. Murray is
President of Global Corporate and Investment Banking at Bank of America
Corporation and a member of their Policy Committee. Reporting to Mr. Murray are
the Global Capital Raising and Global Markets, International Corporate Banking
Group, United States & Canada Group and Principal Investing. From March 1997
until the BankAmerica-NationsBank merger in 1998, Mr. Murray headed BankAmerica
Corporation's Global Wholesale Bank and was responsible for its business with
large corporate, international and government clients around the world. Mr.
Murray was named a BankAmerica vice chairman and head of the United States and
International Groups in September 1995. He had been responsible for
BankAmerica's United States Corporate Group since BankAmerica's merger with
Continental Bank Corporation in September 1994. Prior to the BankAmerica-
Continental Bank merger, he was vice chairman and head of Corporate Banking for
Continental Bank, which he joined in 1969. He is also currently serving as a
Director of CNF Transportation Inc., a transportation company located in Palo
Alto, California.

JOHN R. PURCELL has been a Director of eLoyalty since June 1999 and a
Director of Technology Solutions Company since July 1988. He has served as
Chairman and Chief Executive Officer of Grenadier Associates, Ltd., a venture
banking, merger and acquisition consulting firm, since 1989. From February 1991
until 1997, he served as Chairman of Donnelley Marketing, Inc., a direct
marketing company. From 1987 until 1990, he served as Chairman of Mindscape,
Inc., an educational entertainment computer software company. From 1982 until
1986, he served as Chairman and President of SFN Companies, Inc., a
communications company. He previously served as Executive Vice President of CBS,
Inc. and Senior Vice President, Finance of Gannett Co., Inc. He is also
currently serving as a Director of Bausch & Lomb, Inc., Omnicom Group Inc. and
Journal Register Company.

MICHAEL R. ZUCCHINI has been a Director of eLoyalty since June 1999 and a
Director of Technology Solutions Company since October 1997. He has served as
Chief Technology Officer of Fleet Financial Group, a financial services company,
since April 1997 and as Vice Chairman since 1993. Since January 1997, he has
served as Chairman of the Bankers Roundtable Subcommittee on Legislation and
Regulation charged with interacting with Congress on issues related to
technology. He is also currently serving as a Director of Visa U.S.A., Inc., a
credit card company.

TIMOTHY J. CUNNINGHAM has been eLoyalty's Senior Vice President and Chief
Financial Officer since November 15, 1999. From October 1998 until November 1999
he held the position of Vice President -- Finance and Chief Financial Officer of
CTS Corporation, a publicly traded electronics and communications company. Prior
to joining CTS, Mr. Cunningham served as Vice President -- Finance of the Moore
Document Solutions division of Moore Corporation from July 1996 to September
1998, and from 1995 to 1996, he was the Group Controller for the ConAgra
Refrigerated Foods group of ConAgra, Inc. Prior to that, Mr. Cunningham served
as Chief Financial Officer -- North America for British Steel Inc., a U.S. based
subsidiary of a large European industrial products company, where he was
employed from 1989 to 1994.

CRAIG B. LASHMET is the Senior Vice President of eLoyalty with overall
responsibility for Sales and Delivery in North America, which represents our
largest revenue base. Mr. Lashmet first joined Technology Solutions Company in
October 1995 as Senior Vice President. Prior to joining Technology Solutions
Company he was a partner with Grant Thornton LLP, an international accounting
and consulting firm, where he managed the advanced technology consulting
practice for nine years.

ARTHUR J. BIRD is eLoyalty's Senior Vice President responsible for Sales
and Delivery in Europe. Mr. Bird joined Technology Solutions Company in October
1997 as a Senior Vice President initially responsible for Sales and Delivery in
the United Kingdom and, beginning in November 1998, all of Europe. Mr. Bird
previously worked for CSC Computer Sciences, where he was European Director at
the
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JP Morgan Pinnacle Alliance in London from June 1995 to October 1997. Prior to
working for CSC, Mr. Bird spent two years with Energis plc, a wholly-owned
subsidiary of The National Group, where he held positions as Director of
Customer Service and Director of Corporate Sales.

CHRIS J. DANSON leads eLoyalty's Development and Support as Senior Vice
President, and his responsibilities include managing the Loyalty Lab in Austin,
Texas and our Loyalty Support offering. Mr. Danson first joined Technology
Solutions Company in 1993 as a senior consultant, and became a Senior Vice
President in September, 1998. He managed several large projects and helped
develop our European operations.

JULIE M. FITZPATRICK is Senior Vice President of Marketing for eLoyalty.
Ms. Fitzpatrick joined Technology Solutions Company in 1996 as a principal,
after a seven-year career at IBM Corporation. While at IBM, she held several
positions, including account systems engineer, product marketing manager and
product manager for strategic call center and middleware technologies.

JACKIE L. HILT is our Senior Vice President responsible for employee
Loyalty, which includes recruiting and human resources functions with a specific
emphasis on employee relationships. Ms. Hilt has been with Technology Solutions
Company for ten years, most recently as the Senior Vice President of Technology
Solutions Company's international recruiting organization, a role she assumed in
1994. Prior to joining Technology Solutions Company, she was part of Arthur
Young's Midwest Consulting Practice.

KEVIN J. KRAFT is a Senior Vice President of eLoyalty responsible for
Solutions Marketing. Mr. Kraft joined Technology Solutions Company in 1995 as a
Senior Principal, became a Vice President in 1996, and assumed the role of
Senior Vice President, Solutions Marketing in December 1997. Prior to joining
Technology Solutions Company, Mr. Kraft was a senior manager in Grant Thornton
LLP's advanced technology consulting practice.

STEPHEN D. MAYERS is eLoyalty's Senior Vice President responsible for Sales
and Delivery in Australia. Mr. Mayers joined Technology Solutions Company's ECM
division in July 1998. Previously he worked for two years with the Colonial
Limited Group, a large Australian-based financial services group, as General
Manager-Strategic Development for its retail financial services business through
both its insurance and banking divisions. From 1994 to 1996, Mr. Mayers was
Assistant General Manager for Commonwealth Bank of Australia responsible for
marketing and product development in the retail banking sector.

MICHAEL WEINTRAUB is a Senior Vice President of eLoyalty responsible for
Operations since June 1998. Mr. Weintraub joined Technology Solutions Company in
October 1997 as a Vice President in charge of The Bentley Group acquisition.
From September 1993 to September 1997, Mr. Weintraub was Vice President &
General Manager of The MEDSTAT Group, a health care strategy business offering
consulting, applications technology, and information services.

Messrs Kohler, Murray and Purcell intend to resign from the Technology
Solutions Company board of directors at the time of the spin-off.

BOARD COMPOSITION

Our board is divided into three classes that serve in staggered terms.
Directors in each class will be elected to serve for three-year terms and until
their successors are elected and qualified. Each year, the directors of one
class will stand for election as their terms of office expire. We expect that,
after the spin-off, Messrs. Coxe, Kohler and Purcell will be Class I directors,
with their terms of office expiring in 2003; Messrs. Hoag and Zucchini will be
Class II directors, with their terms of office expiring in 2001; and Messrs.
Conway and Murray will be Class III directors, with their terms of office
expiring in 2002.

The authorized number of directors may be changed only by resolution of the
board of directors adopted by a majority of the whole board. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors.

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BOARD COMMITTEES

Prior to completion of the spin-off, our board intends to create an audit
committee and a compensation committee.

The audit committee will review the internal accounting procedures of
eLoyalty and consult with and review the services provided by eLoyalty's
independent accountants. Following the completion of the spin-off, the audit
committee is expected to consist of Messrs. Murray and Hoag.

The compensation committee will review and recommend to the board the
compensation and benefits of all executive officers of eLoyalty, administer
eLoyalty's stock-based incentive plans and establish and review general policies
relating to compensation and benefits of employees of eLoyalty. Following the
completion of the spin-off, the compensation committee is expected to consist of
Messrs. Purcell and Coxe.

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

None of our officers, directors or director nominees owns any of our common
stock. To the extent they own shares of Technology Solutions Company common
stock at the time of the spin-off, they will participate in the spin-off and
receive shares of our common stock on the same terms as other holders of
Technology Solutions Company's common stock.

As described more fully under "Certain Transactions" we have agreed to sell
1,200,000 shares of our common stock to Sutter Hill Ventures and an aggregate of
1,200,000 shares of our common stock to Technology Crossover Ventures. We expect
to issue these shares prior to the spin-off. Mr. Coxe is a managing director of
the general partner of Sutter Hill Ventures and as such, may be deemed to
beneficially own the shares to be acquired by Sutter Hill Ventures. Mr. Coxe
disclaims beneficial ownership of those shares, except to the extent of his
interest in the partnership. Mr. Hoag is a co-managing member of Technology
Crossover Management III, L.L.C. and as such, may be deemed to beneficially own
the shares to be acquired by the entities controlled by it. Mr. Hoag disclaims
beneficial ownership of those shares, except to the extent that he has a
pecuniary interest in such shares by virtue of his interest in Technology
Crossover Management III, L.L.C.

Some executives, including the executive officers named in the Summary
Compensation Table in the "-- Executive Compensation" section below, have been
awarded options to purchase shares of eLoyalty common stock. For a more complete
discussion of stock options awards, see "-- Outstanding eLoyalty Stock Options."

In connection with the spin-off, each nonqualified option to purchase
Technology Solutions Company common stock held by an employee or director of
eLoyalty (1) who will not also be a director of Technology Solutions Company,
will be converted into a substitute option to purchase eLoyalty common stock,
and (2) who will also be a director of Technology Solutions Company, will be
converted into a substitute option to purchase eLoyalty common stock and an
adjusted Technology Solutions Company option. In addition, each incentive stock
option, within the meaning of section 422 of the Code, held by an employee of
eLoyalty will be converted into an option to purchase eLoyalty common stock. See
"eLoyalty's Relationship with Technology Solutions Company After the
Spin-Off -- Technology Solutions Company Stock Options" for a more complete
discussion of the treatment of options to purchase Technology Solutions Company
common stock in connection with the spin-off.

The following table shows the number of shares of our common stock that we
expect will be beneficially owned by each person who will be a director or
executive officer and all persons who will be directors, and executive officers
of eLoyalty after the spin-off, as a group. Except as otherwise noted, the
individual director or executive officer or his family members has or have sole
voting and investment power

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with respect to his or their shares. This information is based on our knowledge
of the number of shares of Technology Solutions Company common stock owned by
the persons as of January 1, 2000.

<TABLE>
<CAPTION>
PERCENTAGE OF
NAME NUMBER OF SHARES OUTSTANDING SHARES
- ---- ---------------- ------------------
<S> <C> <C>
Kelly D. Conway............................................. 510,118(1) 1.0%
Tench Coxe.................................................. 278,750(2) *
Jay C. Hoag................................................. 428,750(3) *
John T. Kohler.............................................. 699,487(4) 1.4%
Michael J. Murray........................................... 361,461(5) *
John R. Purcell............................................. 807,812(6) 1.6%
Michael R. Zucchini......................................... 40,177(7) *
Timothy J. Cunningham....................................... --(8) --
Craig B. Lashmet............................................ 128,448(9) *
All Directors and Executive Officers as a group (9
persons).................................................. 3,255,003(10) 6.6%
</TABLE>

- ---------------

* Less than one percent

(1) Includes 492,963 shares Mr. Conway has the right to acquire under options
which are currently exercisable or which will be exercisable within 60
days. Mr. Conway has indicated that he may sell up to 100,000 shares of
common stock of Technology Solutions Company after January 1, 2000 and
prior to the spin-off. The share amounts do not reflect that possible sale.

(2) Includes 278,750 shares beneficially owned by Sutter Hill Ventures, a
venture capital company. Mr. Coxe serves as a managing director of the
general partner of Sutter Hill Ventures and, by virtue of such position,
has shared voting power with respect to shares owned by Sutter Hill
Ventures. Mr. Coxe disclaims beneficial ownership of the shares held by
Sutter Hill Ventures except to the extent of his interest in the
partnership.

(3) Includes shares beneficially owned by the following four entities
controlled by Technology Crossover Management III, L.L.C. ("TCM III"): TCV
III (GP), TCV III, L.P., TCV III (Q), L.P. and TCV III Strategic Partners,
L.P. (the "Funds"). Mr. Hoag serves as a managing member of Technology
Crossover Management III, L.L.C., and by virtue of such position has,
together with one other managing member, sole investment control with
respect to TCM III and, therefore, the Funds. Mr. Hoag disclaims beneficial
ownership of the shares held by TCM III and the Funds except to the extent
that he has pecuniary interest in such shares by virtue of his interest in
TCM III.

(4) Includes 460,432 shares Mr. Kohler has the right to acquire under options
which are currently exercisable or which will be exercisable within 60
days. Mr. Kohler has indicated that he may sell up to 552,500 shares of
common stock of Technology Solutions Company after January 1, 2000 and
prior to the spin-off. The share amounts do not reflect that possible sale.

(5) Includes 95,625 shares Mr. Murray has the right to acquire under options
which are currently exercisable or which will be exercisable within 60
days. Mr. Murray has indicated that he may sell up to 75,000 shares of
common stock of Technology Solutions Company after January 1, 2000 and
prior to the spin-off. The share amounts do not reflect that possible sale.

(6) Includes 95,625 shares Mr. Purcell has the right to acquire under options
which are currently exercisable or which will be exercisable within 60
days. Includes 33,437 shares held by Mr. Purcell's wife and 93,750 shares
held by the Purcell Foundation. Mr. Purcell has indicated that he may sell
up to 100,000 shares of common stock of Technology Solutions Company after
January 1, 2000 and prior to the spin-off. The share amounts do not reflect
that possible sale.

(7) Includes 32,625 shares Mr. Zucchini has the right to acquire under options
which are currently exercisable or which will be exercisable within 60
days. Includes 1,687 shares held by Mr. Zucchini's wife.

(8) Mr. Cunningham's employment began November 15, 1999.

(9) Includes 125,778 shares Mr. Lashmet has the right to acquire under options
which are currently exercisable or which will be exercisable within 60
days.

(10) Includes 1,303,048 shares all of the directors, director designees and
executive officers as a group (9 persons) have the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.

DIRECTOR COMPENSATION

Each of our directors who is not also an employee of eLoyalty or its
subsidiaries will receive $1,000 for each board and committee meeting that he or
she attends. These non-employee directors will also receive options to purchase
shares of our common stock under our 1999 Stock Incentive Plan. For more detail
regarding the options to be granted to non-employee directors, see "-- 1999
Stock Incentive Plan" below. All other directors will receive no additional
compensation for serving as a director. All of our

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<PAGE> 80

directors will be reimbursed for out-of-pocket expenses incurred in connection
with attending board and committee meetings.

EXECUTIVE COMPENSATION

The following table sets forth compensation information paid by Technology
Solutions Company for our Chief Executive Officer and the two other executive
officers of eLoyalty. All information set forth in this table reflects
compensation earned by these individuals for services with Technology Solutions
Company and its subsidiaries. The people listed in the table below are sometimes
referred to as Named Executive Officers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ------ -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Kelly D. Conway........................ 1999 $480,000 $ -- (3) 625,000(4) 382,503(7)
President and Chief 1998(1) 266,667 120,000 65,000 --
Executive Officer 1998(2) 440,000 100,000 135,000 --
Craig B. Lashmet....................... 1999 $400,000 $ -- (3) 350,000(4) --
Senior Vice President, 1998(1) 266,667 90,000 97,750(5) --
North America 1998(2) 340,000 95,000 33,750(6) --
</TABLE>

- ---------------

(1) The compensation figures reported cover the transition period from June 1,
1998 through December 31, 1998.

(2) The compensation figures reported cover the fiscal year ended May 31, 1998.

(3) The amount of bonus earned in this year have not been determined as of the
date of this prospectus/information statement.

(4) Subject to option provisions regarding termination of employment, one third
of these options become exercisable on July 1, 2000 and 1/36 of these
options become exercisable on the last day of each calendar month for 24
months.

(5) 47,750 of the 97,750 options reported for the transition period ended
December 31, 1998 were granted pursuant to a stock option repricing program
offered by Technology Solutions Company to all of its employees other than
its executive officers.

(6) The 33,750 options reported for the fiscal year ended May 31, 1998 were
surrendered pursuant to the stock option repricing program described in
footnote 5.

(7) The other compensation consisted of principal and interest forgiven under a
Promissory Note dated November 12, 1998.

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<PAGE> 81

OPTION GRANTS IN LAST FISCAL YEAR

The following tables show all grants of options to acquire shares of
eLoyalty common stock granted to the Named Executive Officers in the year ended
December 31, 1999. In connection with the spin-off, each nonqualified option to
purchase Technology Solutions Company common stock held by an employee or
director of eLoyalty (1) who will not also be a director of Technology Solutions
Company, will be converted into a substitute option to purchase eLoyalty common
stock, and (2) who will also be a director of Technology Solutions Company, will
be converted into a substitute option to purchase eLoyalty common stock and an
adjusted Technology Solutions Company option. In addition, each incentive stock
option, within the meaning of section 422 of the Code, held by an employee of
eLoyalty will be converted into an option to purchase shares of eLoyalty common
stock. See "eLoyalty's Relationship with Technology Solutions Company After the
Spin-Off -- Technology Solutions Company Stock Options" for a more complete
discussion of the treatment of options to purchase Technology Solutions Company
common stock in connection with the spin-off.

OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------
PERCENT OF
NUMBER TOTAL POTENTIAL REALIZED VALUE
OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM
OPTIONS IN FISCAL BASE PRICE EXPIRATION ---------------------------
NAME GRANTED YEAR (PER SHARE) DATE 5%(3) 10%(3)
- ---- ---------- ---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kelly D. Conway............. 625,000(2) 12% 3.50 7/1/09 $ 1,375,707 $ 3,486,312
Craig B. Lashmet............ 350,000(2) 7% 3.50 7/1/09 770,396 1,952,335
</TABLE>

- ---------------

(1) Upon a sale of substantially all of the business and assets of the company,
the board may accelerate the exercise date of these options.

(2) Subject to option provisions regarding termination of employment, one third
of these options become exercisable on July 1, 2000 and 1/36 of these
options become exercisable on the last day of each calendar month for 24
months.

(3) Amounts reflect assumed rates of appreciation set forth in the SEC's
executive compensation disclosure rules. Actual gains, if any, on stock
option exercises depend on future performance of our common stock and
overall stock market conditions. No assurance can be given that the amounts
reflected in these columns will be achieved.

EXERCISES OF STOCK OPTIONS AND FISCAL YEAR END OPTION VALUES

The following table shows aggregate exercises of options to purchase
Technology Solutions Company and eLoyalty common stock in the year ended
December 31, 1999 by the Named Executive Officers and other information
concerning the options to purchase Technology Solutions Company and eLoyalty
common stock held by each of them at the end of such period.

In connection with the spin-off, each nonqualified option to purchase
Technology Solutions Company common stock held by an employee or director of
eLoyalty (1) who will not also be a director of Technology Solutions Company,
will be converted into a substitute option to purchase eLoyalty common stock,
and (2) who will also be a director of Technology Solutions Company, will be
converted into a substitute option to purchase eLoyalty common stock and an
adjusted Technology Solutions Company option. In addition, each incentive stock
option, within the meaning of section 422 of the Code, held by an employee of
eLoyalty will be converted into an option to purchase shares of eLoyalty common
stock. See "eLoyalty's Relationship with Technology Solutions Company After the
Spin-Off -- Technology Solutions Company Stock Options" for a more complete
discussion of the treatment of options to purchase TSC common stock in
connection with the spin-off.

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<PAGE> 82

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1999 AT DECEMBER 31, 1999
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kelly D. Conway
Technology Solutions
Company Options......... -- -- 481,849 54,980 $11,348,742 $ 760,603
eLoyalty Options........ -- -- -- 625,000 -- $12,143,750
Craig B. Lashmet
Technology Solutions
Company Options......... -- -- 120,346 58,407 $ 2,938,809 $ 1,360,497
eLoyalty Options........ -- -- -- 350,000 -- $ 6,800,500
</TABLE>

INCENTIVE PLANS

1999 STOCK INCENTIVE PLAN

Officers, directors, key employees, consultants, independent contractors
and agents of eLoyalty and its subsidiaries are eligible to participate in the
1999 Stock Incentive Plan. The 1999 Stock Incentive Plan provides for the grant
of non-statutory stock option awards, incentive stock option awards, stock
appreciation rights awards, restricted stock awards, bonus stock awards and
performance share awards. An aggregate of 5,340,000 shares of eLoyalty common
stock will be initially reserved for issuance under the 1999 Stock Incentive
Plan for all awards other than any awards issued in connection with the spin-off
in substitution of previously granted options to purchase shares of Technology
Solutions Company common stock. See "eLoyalty's Relationship with Technology
Solutions Company After the Spin-Off -- Technology Solutions Company Stock
Options" for a more complete description of the treatment of options to purchase
Technology Solutions Company common stock in connection with the spin-off. The
aggregate number of shares of eLoyalty common stock available for issuance under
the 1999 Stock Incentive Plan will be increased as of the first day of each
fiscal year of eLoyalty beginning on or after January 1, 2000, by an amount
equal to 5% of the total number of shares of eLoyalty common stock then
outstanding. Subject to adjustments set forth in the 1999 Stock Incentive Plan,
the maximum number of shares of eLoyalty common stock that may be granted to any
person during (1) the 1999 fiscal year is 750,000 and (2) any other fiscal year
of eLoyalty is 300,000.

The 1999 Stock Incentive Plan also provides that each non-employee director
will receive an option to purchase 25,000 shares of common stock when he or she
commences service as a director. Each current non-employee director (other than
a non-employee director who received an option grant on July 1, 1999) received
such an option. In addition, on the day following the date of each annual
stockholders' meeting beginning with the stockholders' meeting to be held in
2000, each non-employee director (other than a non-employee director who
receives an initial grant at that meeting) will receive an option to purchase
6,000 shares of eLoyalty common stock. If the non-employee director received an
initial grant since the previous annual meeting, the annual grant will be
reduced proportionately. The stock options granted to non-employee directors
will (1) have an exercise price per share equal to the fair market value of a
share of eLoyalty common stock on the grant date, (2) expire ten years after the
grant date and (3) become exercisable in 48 equal monthly installments,
commencing with the last day of the calendar month following the calendar month
in which the option is granted.

1999 STOCK PURCHASE PLAN

eLoyalty's 1999 Employee Stock Purchase Plan was adopted by our board of
directors in October, 1999. The stock purchase plan will terminate automatically
if our stockholders do not approve the plan within 12 months after its adoption.

All of our employees (including our directors who are employees and all
employees of any participating subsidiaries) who have been continuously employed
for at least three months, and whose

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<PAGE> 83

customary employment is more than 20 hours per week and more than five months in
any calendar year, are eligible to participate in the stock purchase plan.
Employees who own 5% or more of the total combined voting power or value of our
stock or any subsidiary are not eligible to participate.

During each designated payroll deduction period, or purchase period, each
eligible employee may authorize us to deduct between 1% and 15% (in increments
of 1%) of his or her base pay. We will credit these deductions to a non-interest
bearing account for each participating employee. On the last business day of the
purchase period we will use the amount in each participating employee's account
to buy shares of eLoyalty common stock for the employee at a purchase price
equal to 85% of the average of the high and low transaction prices of a share of
eLoyalty common stock, as reported on The Nasdaq Stock Market, on either (1) the
first business day of the purchase period or (2) the last business day of the
purchase period, whichever is lower. No employee is allowed to buy shares of
common stock worth more than $25,000, based on the fair market value of the
common stock on the first day of the applicable purchase period, in any calendar
year under the plan. Each purchase period will last for three months and will
coincide with each calendar quarter. The first purchase period will begin on the
first day on which eLoyalty common stock is traded on a "when-issued" basis (or
the first business day after the record date of the spin-off, if later) and will
end on the last business day of the same calendar quarter. A purchase period
will end automatically upon termination of the plan by the board of directors or
upon a change in control of the company.

An employee must be a participant on the last day of a purchase period in
order to purchase stock under the plan. An employee's participation terminates
prior to the last day of a purchase period upon:

- the employee's withdrawal of the balance accumulated in his or her
account;

- termination of employment;

- retirement;

- death;

- transfer to a subsidiary of the company that does not participate in the
plan; or

- the subsidiary for which the employee works no longer being a subsidiary
of the company.

Upon the termination of an employee's participation, the balance in the
employee's account will be refunded to the employee. In the event of the
employee's death, the balance in the employee's account will be refunded to the
employee's beneficiary or the executor or administrator of the employee's
estate.

Because participation in the plan is voluntary, we cannot now determine the
number of shares of our common stock to be purchased by any of our current
executive officers, by all of our current executive officers as a group or by
our non-executive employees as a group.

EMPLOYMENT AGREEMENTS

Technology Solutions Company has entered into an employment agreement with
Mr. Kelly D. Conway to serve as its Group President. In connection with the
spin-off, this agreement will be assigned to, and assumed by, eLoyalty at which
time it will be amended to reflect Mr. Conway's position as our President and
Chief Executive Officer. The agreement does not have a fixed expiration date and
may be terminated by either party on 90 days' written notice. If Mr. Conway's
employment is terminated by eLoyalty, he will be entitled to receive his salary,
bonus and health insurance benefits for a two-year period following the
termination, or until he is re-employed. If, following a change in control of
eLoyalty (1) Mr. Conway's title, position, duties or salary are diminished and
he resigns within 90 days thereafter, or (2) his employment with eLoyalty is
terminated following his refusal to relocate for a period in excess of six
months to any location outside of the metropolitan area where he resides, he
will be entitled to receive his salary, bonus and health insurance benefits for
a two-year period following the termination. Each of Mr. Conway's options that
is not then fully exercisable will become exercisable in full upon a change in
control of eLoyalty. If Mr. Conway's employment with eLoyalty is terminated
because of his
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<PAGE> 84

death or disability, he or his designated beneficiary will be entitled to
receive his salary, bonus and health insurance benefits for a one-year period
following the termination. Mr. Conway's current annual salary is $480,000.

TSC has entered into an employment agreement with Mr. Craig B. Lashmet to
serve as a Senior Vice President. In connection with the spin-off, this
agreement will be assigned to, and assumed by, eLoyalty. The agreement does not
have a fixed expiration date and may be terminated by either party on 90 days'
written notice. If Mr. Lashmet's employment is terminated by the Company, he
will be entitled to receive his salary, bonus and health insurance benefits for
a one-year period following the termination, or until he is re-employed. If Mr.
Lashmet's employment with eLoyalty is terminated because of his death or
disability, he or his designated beneficiary will be entitled to receive his
salary, bonus and health insurance benefits for a one-year period following the
termination. Mr. Lashmet's current annual salary is $400,000.

TSC has entered into an employment agreement with Timothy J. Cunningham to
serve as a Senior Vice President and Chief Financial Officer of eLoyalty.

OWNERSHIP OF eLOYALTY COMMON STOCK BY CERTAIN BENEFICIAL OWNERS

Prior to the sale of common stock to the investors described under "Certain
Transaction," all of the outstanding shares of our common stock will be owned by
Technology Solutions Company. In the spin-off, Technology Solutions Company
stockholders will receive one share of eLoyalty common stock per share of
Technology Solutions Company Common Stock. The following table lists information
about people that we expect to hold more than 5% of our common stock upon
completion of the spin-off based on a review of reports filed with the SEC as of
January 1, 2000 by holders of more than 5% of Technology Solutions Company's
common stock.

<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK OWNED(1) OUTSTANDING SHARES(1)
------------------------------------ ---------------- ---------------------
<S> <C> <C>
Massachusetts Financial Services Company.................. 4,806,779 11.1%
500 Boylston Street, Boston, MA 02116(2)
Dresdner Bank AG.......................................... 3,973,450 9.2%
Jurgen-Ponto-Platz 1, 60301 Frankfurt, Germany
Dresdner RCM Global Investors
Dresdner RCM Global Investors LLC
Four Embarcadero Center, San Francisco, California
94111(3)
GeoCapital LLC............................................ 3,172,149 7.3%
767 Fifth Ave-45th Fl, New York, NY 10153-4590(4)
Brookside Capital Partners Fund, L.P. .................... 2,718,800 6.3%
Two Copley Place, Boston, Massachusetts 02116(5)
</TABLE>

- ---------------

(1) Calculated on the basis of the actual number of outstanding shares of
Technology Solutions Company common stock as of January 1, 2000.
(2) Based on the most recent report on Schedule 13G/A filed with the SEC on
February 11, 1999, Massachusetts Financial Services Company is expected to
have sole voting power with respect to 4,675,854 shares of Technology
Solutions Company common stock and sole dispositive power with respect to
4,806,779 shares of Technology Solutions Company common stock.
(3) Based on the most recent joint report on Schedule 13G, filed with the SEC on
February 16, 1999, Dresdner Bank AG is expected to have sole voting power
with respect to 2,726,000 shares of Technology Solutions Company common
stock and dispositive power with respect to 3,973,450 shares of Technology
Solutions Company common stock; each of Dresdner RCM Global Investors and
Dresdner RCM Global Investors LLC is expected to have sole voting power with
respect to 2,611,050 shares of TSC common stock and dispositive power with
respect to 3,858,450 shares of Technology Solutions Company common stock.
(4) Based on the most recent report on Schedule 13G, filed with the SEC on
February 10, 1999, GeoCapital LLC is expected to have sole dispositive power
with respect to 3,172,149 shares of Technology Solutions Company common
stock.
(5) Based on the most recent report on Schedule 13G, filed with the SEC on March
29, 1999, Brookside Capital Partners Fund, L.P. is expected to have sole
voting power with respect to 2,718,800 shares of Technology Solutions
Company common stock and sole dispositive power with respect to 2,718,800
shares of Technology Solutions Company common stock.

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<PAGE> 85

DESCRIPTION OF eLOYALTY CAPITAL STOCK

The authorized capital stock of eLoyalty consists of 100,000,000 shares of
common stock, $0.01 par value and 10,000,000 shares of preferred stock, $0.01
par value. Immediately following the spin-off, approximately 43,350,000 shares
of common stock will be outstanding.

THE FOLLOWING DESCRIPTIONS ARE SUMMARIES OF THE MATERIAL TERMS OF OUR
CERTIFICATE OF INCORPORATION AND BYLAWS. REFERENCE IS MADE TO THE MORE DETAILED
PROVISIONS OF, AND SUCH DESCRIPTIONS ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO, THE eLOYALTY CERTIFICATE OF INCORPORATION AND BYLAWS, COPIES OF
WHICH ARE FILED WITH THE SEC AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH
THIS INFORMATION STATEMENT/PROSPECTUS IS A PART, AND APPLICABLE LAW.

COMMON STOCK

Holders of our common stock will be entitled to one vote per share with
respect to each matter presented to stockholders for vote. Except as may be
provided in connection with any eLoyalty preferred stock, or as may otherwise be
required by law or the certificate of incorporation, the common stock will be
the only capital stock of eLoyalty entitled to vote in the election of directors
and on all other matters presented to the stockholders of eLoyalty; provided
that holders of common stock, as such, will not be entitled to vote on any
matter that relates solely to the terms of any outstanding series of preferred
stock or the number of shares of such series and does not affect the number of
authorized shares of preferred stock or the powers, privileges and rights
pertaining to the common stock. The common stock will not have cumulative voting
rights, which means that the holders of a majority of the outstanding shares of
common stock can elect all of the directors then standing for election.

Subject to the prior rights of holders of preferred stock, if any, holders
of common stock are entitled to receive such dividends as may be lawfully
declared from time to time by our board of directors. Upon any liquidation,
dissolution or winding up of eLoyalty, whether voluntary or involuntary, holders
of common stock will be entitled to receive the assets that are legally
available for distribution to stockholders after there shall have been paid or
set apart for payment the full amounts necessary to satisfy any preferential or
participating rights to which the holders of each outstanding series of
preferred stock are entitled by the express terms of such series.

The common stock distributed in the spin-off will not have any preemptive,
subscription or conversion rights. Additional shares of authorized common stock
may be issued, as determined by our board from time to time, without stockholder
approval, except as may be required by applicable Nasdaq requirements.

Our common stock has been approved for listing on The Nasdaq National
Market, subject to notice of issuance, under the symbol "ELOY."

ChaseMellon Shareholder Services, L.L.C. will serve as the transfer agent
and registrar for our common stock.

PREFERRED STOCK

Subject to Delaware law, our board may, without approval of the
stockholders, cause shares of preferred stock to be issued from time to time in
one or more series. The board will determine the number of shares of each series
as well as the designation, powers, privileges, preferences and rights of the
shares of that series. Among the specific matters that may be determined by the
board are:

- the designation of each series;

- the number of shares of each series;

- the rate of dividends, if any;

- whether dividends, if any, will be cumulative or non-cumulative;

- the terms of redemption, if any;

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<PAGE> 86

- the terms of any sinking fund providing for the purchase or redemption of
shares of each series;

- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of eLoyalty;

- rights and terms of conversion or exchange, if any;

- restrictions on the issuance of shares of the same series or any other
series, if any; and

- voting rights, if any.

ANTITAKEOVER EFFECTS

Our amended certificate of incorporation and bylaws contain provisions that
could make the acquisition of eLoyalty more difficult by means of a tender
offer, proxy contest or otherwise.

Classified board of directors. Our amended certificate of incorporation
provides that our board of directors will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible, and
with each class serving a staggered three-year term.

The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the board of directors. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of our board. Such a delay may help ensure that
the directors, if confronted by a stockholder attempting to force a proxy
contest, a tender or exchange offer or an extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interest of eLoyalty. The classification provisions will apply to every election
of directors, however, regardless of whether a change in the composition of our
board would be beneficial to eLoyalty and our stockholders and whether a
majority of our stockholders believe that such a change would be desirable.

The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of eLoyalty, even though such an attempt might be
beneficial to us and our stockholders. Accordingly, the classification of our
board could increase the likelihood that incumbent directors will retain their
position.

Number of directors; removal; filling vacancies. The amended certificate of
incorporation provides that, subject to any rights of holders of eLoyalty
preferred stock to elect additional directors under specific circumstances, the
number of directors will be fixed by resolution of the board of directors
adopted by a majority of the whole board. In addition, the amended certificate
of incorporation and the bylaws provide that, subject to any rights of holders
of preferred stock, and unless the board of directors otherwise determines, any
vacancies, or newly created directorships, will be filled only by the
affirmative vote of a majority of the remaining directors, though it may be less
than a quorum. Accordingly, stockholders will not be able to increase the size
of the board in order to fill the newly created directorships with stockholder
nominees.

Under Delaware law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. The amended certificate of incorporation and the
bylaws provide that directors may be removed only for cause and only upon the
affirmative vote of holders of at least 80% of the voting power of the then
outstanding shares of our stock, voting together as a single class.

No stockholder action by written consent; limitations on the calling of
special meetings. The amended certificate of incorporation and the bylaws
provide that, subject to the rights of any holders of preferred stock to elect
additional directors under specific circumstances, effective from and after date
of the spin-off stockholder action can be taken only at an annual or special
meeting of stockholders. This provision prohibits stockholder action by written
consent in lieu of a meeting. The bylaws further provide that, subject to the
rights of holders of any series of preferred stock to elect additional directors
under specific circumstances, special meetings of stockholders can be called
only by the board pursuant to a resolution

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<PAGE> 87

adopted by a majority of the whole board. Stockholders are not permitted to call
a special meeting or to require that the board call a special meeting of
stockholders. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting
pursuant to the notice of special meeting given by eLoyalty.

The provisions of the amended certificate of incorporation and the bylaws
prohibiting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by a majority of the whole board. These
provisions would also prevent the holders of a majority of the voting power of
our stock from unilaterally using the written consent procedure to take
stockholder action. Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the board by calling a
special meeting of stockholders prior to the time a majority of the whole board
believes such consideration to be appropriate.

Advance notice provisions for stockholder nominations and stockholder
proposals. The bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors, or bring other
business before an annual meeting of our stockholders. Only persons who are
nominated by, or at the direction of, our board, or by a stockholder who has
given timely written notice to our Secretary prior to the meeting at which
directors are to be elected, will be eligible for election as directors of
eLoyalty. The business to be conducted at an annual meeting will be limited to
business brought before the meeting by, or at the direction of, the board or by
a stockholder who has given timely written notice to the Secretary of his or her
intention to bring such business before such meeting.

Notice of a stockholder nomination or other business to be brought before
an annual meeting will be timely only if it is delivered to eLoyalty not earlier
than the close of business on the 100th calendar day nor later than the close of
business on the 75th calendar day prior to the first anniversary of the
preceding year's annual meeting. However, if the date of the annual meeting is
more than 30 calendar days before or more than 75 calendar days after that
anniversary date, notice by the stockholder to be timely must be delivered to
eLoyalty not earlier than the close of business on the 100th calendar day prior
to the annual meeting and not later than the close of business on the later of
(1) the 75th calendar day prior to the annual meeting and (2) the 10th calendar
day after public announcement is first made by eLoyalty of the date of the
annual meeting. Notwithstanding the foregoing, in the event that the number of
directors to be elected to the eLoyalty board is increased and there is no
public announcement by eLoyalty naming all of the nominees for directors or
specifying the size of the increased board made at least 80 calendar days prior
to the first anniversary of the preceding year's annual meeting, a stockholder's
notice will be timely, but only with respect to nominees for any new positions
created by the increase, if it is delivered to eLoyalty not later than the close
of business on the 10th calendar day after the public announcement is first
made. Notice of a stockholder nomination to be made at a special meeting at
which directors are to be elected will be timely only if it is delivered to us
not earlier than the close of business on the 100th calendar day prior to the
special meeting, and not later than the close of business on the later of (1)
the 75th calendar day prior to the special meeting and (2) the 10th calendar day
after public announcement is first made by eLoyalty of the date of the special
meeting and of the nominees proposed by the eLoyalty board to be elected at the
special meeting.

A stockholder's notice proposing to nominate a person for election as a
director must contain specified information including, without limitation, the
identity and address of the nominating stockholder, the class and number of
shares of eLoyalty common stock that are owned by the stockholder and all
information regarding the proposed nominee that would be required to be included
in a proxy statement soliciting proxies for the proposed nominee. A
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain specified information about that business
and about the proposing stockholder, including, without limitation:

- a brief description of the business the stockholder proposes to bring
before the meeting;

- the reasons for conducting the business at the meeting;

- the name and address of the stockholder;

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- the class and number of shares of eLoyalty common stock beneficially
owned by the stockholder; and

- any material interest of the stockholder in the business so proposed.

If the chairman or other officer presiding at a meeting determines that a person
was not nominated or other business was not brought before the meeting in
accordance with the bylaw provisions summarized above, the person will not be
eligible for election as a director or the proposed business will not be
conducted at the meeting, as the case may be.

Although the bylaws do not give our board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed. Also, they may discourage or deter a third-party from
conducting a solicitation of proxies to elect its own slate of directors or to
approve its own proposal, without regard to whether consideration of such
nominees or proposals might be harmful or beneficial to eLoyalty and our
stockholders.

Preferred stock. The Series A Preferred Stock described under "-- Rights
Plan" below is a series of preferred stock that has been approved by our board
of directors. Although no shares of preferred stock are currently outstanding
and we have no current plans to issue preferred stock, the issuance of shares of
preferred stock, or the issuance of rights to purchase such shares, could be
used to discourage an unsolicited acquisition proposal. For example, a business
combination could be impeded by the issuance of a series of preferred stock
containing class voting rights that would enable the holder or holders of such
series to block any such transaction. Alternatively, a business combination
could be facilitated by the issuance of a series of preferred stock having
sufficient voting rights to provide a required percentage vote of the
stockholders. In addition, under some circumstances, the issuance of preferred
stock could adversely affect the voting power and other rights of the holders of
the common stock. Although our board of directors is required to make any
determination to issue any such stock based on its judgment as to the best
interests of the stockholders of eLoyalty, it could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a majority,
of the stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over prevailing market
prices. Our board of directors does not presently intend to seek stockholder
approval prior to any issuance of currently authorized stock, unless otherwise
required by law or applicable stock exchange requirements.

Rights to purchase securities and other property. The amended certificate
of incorporation authorizes the eLoyalty board to create and issue rights
entitling holders to purchase from us shares of stock or other securities of
eLoyalty or any other corporation. The times at which and terms upon which the
rights are to be issued would be determined by our board and set forth in the
contracts or other instruments that evidence those rights. The authority of the
board with respect to such rights includes, but is not limited to, determination
of:

- the initial purchase price per share or other unit of the stock or other
securities or property to be purchased upon exercise of the rights;

- provisions relating to the times at which and the circumstances under
which the rights may be exercised or sold or otherwise transferred,
either together with or separately from any other stock or other
securities of eLoyalty;

- provisions that adjust the number or exercise price of the rights or
amount or nature of the stock or other securities or property receivable
upon exercise of the rights in the event of a (1) combination, split or
recapitalization of any stock of eLoyalty, (2) a change in ownership of
eLoyalty's stock or other securities or (3) a reorganization, merger,
consolidation, sale of assets or other occurrence relating to eLoyalty or
any stock of eLoyalty, and provisions restricting the ability of eLoyalty
to enter into any such transaction absent an assumption by the other
party or parties thereto of the obligations of eLoyalty under such
rights;

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- provisions that deny the holder of a specified percentage of the
outstanding stock or other securities of eLoyalty the right to exercise
the rights and/or cause the rights held by such holder to become void;

- provisions that permit us to redeem or exchange the rights; and

- the appointment of the rights agent with respect to the rights.

This provision is intended to confirm the authority of the board to issue rights
to purchase shares of stock or other securities of eLoyalty or any other
corporation. For a discussion of the rights plan adopted by our board of
directors, see "-- Rights Plan."

Amendment of the certificate of incorporation and bylaws. Under Delaware
law, the stockholders of a corporation have the right to adopt, amend or repeal
the bylaws and, with the approval of the board of directors, the certificate of
incorporation of a corporation. In addition, under Delaware law if the
certificate of incorporation so provides, the bylaws may be adopted, amended, or
repealed by the board of directors. Our amended certificate of incorporation
provides that the affirmative vote of the holders of at least 80% of the voting
power of the outstanding shares of our stock, voting together as a single class,
is required to amend provisions of the certificate of incorporation relating to:

- the prohibition of stockholder action without a meeting;

- the number, election and term of directors;

- the removal of directors;

- the issuance of rights; and

- the adoption, amendment or repeal of the bylaws by the board of directors
or by the affirmative vote of the holders of at least 80% of the voting
power of the outstanding shares of our stock, voting together as a single
class.

The vote of the holders of a majority of the voting power of the outstanding
shares of our stock is required to amend all other provisions of our amended
certificate of incorporation. The amended certificate of incorporation further
provides that the bylaws may be amended by the eLoyalty board by a majority of
the whole board or by the affirmative vote of the holders of at least 80% of the
voting power of the outstanding shares of our stock, voting together as a single
class.

These 80% voting requirements will have the effect of making more difficult
any amendment by stockholders of the bylaws or of any of the provisions of the
certificate of incorporation described above, even if a majority of the
stockholders of eLoyalty believes that the amendment would be in their best
interests.

Other provisions. The amended certificate of incorporation expressly
authorizes the board to take such action as it may determine to be reasonably
necessary or desirable to encourage any person or entity to enter into
negotiations with our board and management respecting any transaction that may
result in a change in control of eLoyalty, and to contest or oppose any such
transaction that the eLoyalty board determines to be unfair, abusive or
otherwise undesirable to us, our businesses or our stockholders. In this
connection, the amended certificate of incorporation specifically permits the
board to adopt plans or to issue securities of eLoyalty (including common stock
or preferred stock, rights or debt securities), which securities may be
exchangeable or convertible into cash or other securities on such terms as the
board determines and may provide for differential and unequal treatment of
different holders or classes of holders. The existence of this authority or the
actions that may be taken by the board may deter potential acquirers from
proposing unsolicited transactions not approved by the board and might enable
the board to hinder or frustrate such a transaction if proposed. These
provisions are included in the amended certificate of incorporation to confirm
and support the authority of the board to take the various actions authorized
thereby. The certificate of incorporation is also designed to enable the board
to utilize such other tactics or mechanisms as are developed in the future to
carry out the general authorization set forth therein.
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RIGHTS PLAN

Our board of directors adopted a Stockholder Rights Plan (the "Rights
Plan") before the spin-off. Pursuant to the Rights Plan, one Right (a "Right")
will be issued and attached to each outstanding share of common stock. Each
Right entitles 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, $0.01 par value, (the "Series A Preferred Stock"), at an
exercise price per Right to be determined by our board of directors (or a
committee of our board of directors) at, or shortly after, the time of the
spin-off, 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. The following
description of the Rights is a summary and is qualified in its entirety by
reference to the Rights Agreement, the form of which has been filed with the SEC
as an exhibit to the registration statement of which this information
statement/prospectus is a part.

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. The Rights initially 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 our 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
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 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
ten years from their issuance 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
related parties, whose Rights will automatically become null and void) will have
the right to receive, upon exercise, common stock, or, in some 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 we have the ability to cause the Rights to be redeemed. Our
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 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.

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

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

- we are 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 our 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 specified 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 some 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. We may 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 Series A Preferred Stock will be issued.

We may redeem the Rights in whole, but not in part, at a price of $0.01 per
Right (subject to adjustment and payable in cash, common stock or other
consideration deemed appropriate by our board of directors) at any time until
ten days following the Stock Acquisition Date. Immediately upon the action of
our 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 our stockholders or us, stockholders may,
depending upon the circumstances, recognize taxable income after a Triggering
Event.

The terms of the Rights may be amended by our 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

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then known to us 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.

The Rights will have antitakeover effects. The rights will cause
substantial dilution to any person or group who attempts to acquire a
significant interest in eLoyalty without advance approval from our board of
directors. As a result, the overall effect of the Rights may be to render more
difficult or discourage any attempt to acquire eLoyalty, even if the acquisition
would be in the interest of our stockholders. Because we can redeem the Rights,
the Rights will not interfere with a merger or other business combination
approved by our board of directors.

Section 203 of the DGCL. We are subject to Section 203 of the Delaware
General Corporation Law, an antitakeover law. In general, Section 203 prohibits
a publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is a person
who is the owner of 15% or more of the outstanding voting stock of the
corporation, or an affiliate or associate of the corporation and was the owner
of 15% or more of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on which it is sought
to be determined whether such person is an interested stockholder. The existence
of this provision may have an antitakeover effect with respect to transactions
not approved in advance by the board of directors of eLoyalty, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such bylaw or
charter amendment shall not become effective until 12 months after the date it
is adopted. Neither the certificate of incorporation nor the bylaws of eLoyalty
contains any such exclusion.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

eLoyalty's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:

- breach of their duty of loyalty to the corporation or its stockholders;

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

- any transaction from which the director derived an improper personal
benefit.

The limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.

eLoyalty's bylaws provide that we will indemnify our directors and officers
to the fullest extent permitted by Delaware law, except that no indemnification
will be provided to a director, officer, employee or agent if the
indemnification sought is in connection with a proceeding initiated by such
person without the authorization of our board of directors. Our bylaws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any statute, provision of our certificate of
incorporation, bylaws, agreements, vote of stockholders or disinterested
directors or otherwise. Our bylaws also permit us to secure insurance on

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behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
bylaws permit such indemnification.

Our agreement with Sutter Hill Ventures and Technology Crossover Ventures,
pursuant to which we have agreed to sell them shares of our common stock, grants
each of Sutter Hill Ventures and Technology Crossover Ventures the right to
designate a nominee to our board of directors. The agreement also provides that
we will enter into indemnification agreements with these designees. We have not
yet entered into these indemnification agreements, but we expect to do so prior
to the spin-off. These agreements provide directors with, among other things,
specific contractual rights to the maximum indemnification permitted by Delaware
law.

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CERTAIN TRANSACTIONS

We have entered into a common stock purchase and sale agreement with Sutter
Hill Ventures and Technology Crossover Ventures. On June 22, 1999, the investors
agreed to purchase an aggregate of 2,400,000 shares of our common stock at $3.50
per share. That price was determined by the board of directors of Technology
Solutions Company to be the fair value of the eLoyalty common stock on June 22,
1999 (the date on which the investors agreed to purchase those shares). The
agreement with the investors provides that the proposed purchase of our common
stock is subject to the receipt of a private letter ruling from the IRS to the
effect that the spin-off will be tax-free to Technology Solutions Company and
its stockholders for United States federal income tax purposes and other
customary conditions. The purchase and sale of common stock to those investors
was exempt from registration under Section 4(2) of the Securities Act because
the transactions did not involve a public offering. The agreement with the
investors contains the following additional terms.

- If Technology Solutions Company receives a favorable private letter
ruling from the IRS regarding the spin-off and nevertheless fails to use
commercially reasonable efforts to complete the separation of the
eLoyalty business operations from Technology Solutions Company,
Technology Solutions Company could become obligated to make a liquidated
damages payment of $1.2 million to the investors.

- If the investors purchase our common stock and the spin-off does not
occur by August 13, 2000, eLoyalty could become obligated to repurchase
such shares then held by the investors at a premium totaling $1.2 million
over the price paid by the investors for such shares.

Following the completion of the sale of our common stock to the investors,
each of Sutter Hill Ventures and Technology Crossover Ventures will have the
right to designate a nominee to our board of directors. We expect Sutter Hill
Ventures to nominate Tench Coxe as its designee on our board, who will be our
chairman, and Technology Crossover Ventures to nominate Jay Hoag as its designee
on our board. For more information regarding Messrs. Coxe and Hoag, see
"eLoyalty's Management."

On November 12, 1998, Technology Solutions Company made a loan of
$1,200,000 to Mr. Conway with a five-year term that, to the extent not forgiven
in whole or in part as described below, is payable on demand upon the cessation
of Mr. Conway's employment with Technology Solutions Company or its affiliates.
The loan bears interest at the rate of 4.5% per annum and, so long as Mr. Conway
remains employed by us or our affiliates, the note provides that the principal
amount of the loan (and interest accrued thereon) is to be forgiven over a
five-year period as follows: 25% of the principal amount on November 12, 1999;
$25,000 in principal per month for the next twelve months; $20,000 in principal
per month for the next twenty-four months; and $10,000 in principal per month
for the next twelve months. In accordance with the terms of the note, as of
December 31, 1999, a total of $382,503 in principal and accrued interest has
been forgiven, and Mr. Conway's outstanding balance and accrued interest under
this note on that date was $875,299. On December 15, 1999, Technology Solutions
Company made an additional loan to Mr. Conway in the amount of $125,000. The
note representing this loan provides for an interest rate of 5.74% and a payment
date of March 1, 2000. We expect that the notes representing these loans will be
assigned to eLoyalty in connection with the separation of our business
operations from Technology Solutions Company.

The board of directors of eLoyalty intends to review and, if appropriate,
approve all material transactions between eLoyalty and its affiliates consistent
with the applicable provisions of Delaware law. In general, Delaware law
provides that eLoyalty may enter into a transaction with an affiliate as long
as:

- the transaction is fair to eLoyalty at the time the board authorizes it;
or

- the material facts as to a director's or officer's interest in the
transaction are disclosed to the board and a majority of the
disinterested directors approve the transaction.

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eLOYALTY'S 2001 ANNUAL MEETING OF STOCKHOLDERS

The eLoyalty bylaws provide that an annual meeting of stockholders will be
held each year on a date specified by our board of directors. The first annual
meeting of eLoyalty stockholders after the distribution will be held on a date
determined by the eLoyalty board of directors, or, if the board does not set a
date, the first Thursday in May, 2001. We expect that our board of directors
will set May 3, 2001 as the date for this annual meeting. In order to be
considered for inclusion in eLoyalty's proxy materials for the 2001 annual
meeting of stockholders, any proposals by stockholders must be received at
eLoyalty's principal executive offices at 205 North Michigan Avenue, Suite 1500,
Chicago, Illinois 60601, within a reasonable time before eLoyalty begins to
print and mail its proxy materials for the meeting. eLoyalty anticipates
commencing the mailing of proxies for the 2001 annual meeting of stockholders on
or about March 16, 2001. In addition, stockholders at the eLoyalty 2001 annual
meeting may consider stockholder proposals or nominations brought by a
stockholder of record on the record date for the 2001 annual meeting, who is
entitled to vote at such annual meeting and who has complied with the advance
notice procedures established by the eLoyalty bylaws. A stockholder proposal or
nomination intended to be brought before the eLoyalty 2001 annual meeting must
be received by the Secretary of eLoyalty on or after January 23, 2001 and on or
prior to February 19, 2001. For a more complete discussion regarding the
submission of stockholder proposals or nominations, see "Description of eLoyalty
Capital Stock -- Antitakeover Effects -- Advance notice provisions for
stockholder nominations and stockholder proposals."

LEGAL MATTERS

The validity of our common stock to be distributed in the spin-off will be
passed upon for us by Sidley & Austin, Chicago, Illinois.

EXPERTS

The financial statements of eLoyalty Corporation as of December 31, 1998
and May 31, 1998 and 1997, for the seven month period ended December 31, 1998
and for each of the three years in the period ended May 31, 1998 included in
this information statement/prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.

The financial statements of The Bentley Group, Inc. for the period from
January 1, 1997 to May 31, 1997 included in this information
statement/prospectus has been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The financial statements of NexCen Technologies, Inc. as of December 31,
1998 and for the period from July 17, 1998 (date of inception) to December 31,
1998 included in this information statement/prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

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ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the eLoyalty common stock to be distributed in
the spin-off. This information statement/ prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules filed with it. Although we have provided a summary of the material
terms of the contents of some contracts, agreements and other documents, the
summary does not describe all of the details of the contracts, agreements and
other documents. In each instance where a copy of the contract, agreement or
other document has been filed as an exhibit to the registration statement,
please refer to the registration statement. Each statement in this information
statement/prospectus regarding a contract, agreement or other document is
qualified in all respects by such exhibit.

You may read and copy all or any portion of the registration statement at
the SEC's public reference room, located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part of the registration statement may be
obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon the payment of the fees prescribed by the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. The SEC maintains an Internet site at http://www.sec.gov, that
contains reports, proxy and information statements and other information
regarding registrants, such as Technology Solutions Company and eLoyalty, that
file electronically with the SEC. Following the spin-off, eLoyalty will be
required to comply with the reporting requirements of the Exchange Act and will
file periodic reports, proxy statements and other information with the SEC.
These periodic reports, proxy statements and other information will be available
for inspection and copying at the SEC's public reference room and the SEC's
Internet site.

eLoyalty intends to furnish its stockholders with annual reports containing
consolidated financial statements (beginning with fiscal year 2000) audited by
independent accountants.

You should rely only on the information contained in this information
statement/prospectus and other documents referred to in this information
statement/prospectus. TSC and eLoyalty have not authorized anyone to provide you
with information that is different. This information statement/prospectus is
being furnished by Technology Solutions Company solely to provide information to
Technology Solutions Company stockholders who will receive eLoyalty common stock
in the spin-off. It is not, and is not construed as, an inducement or
encouragement to buy or sell any securities of Technology Solutions Company or
eLoyalty. Technology Solutions Company and eLoyalty believe that the information
presented herein is accurate as of the date hereof. Changes will occur after the
date hereof, and neither Technology Solutions Company nor eLoyalty will update
the information except to the extent required in the normal course of their
respective public disclosure practices and as required pursuant to the federal
securities laws.

eLoyalty maintains an Internet site at www.eloyaltyco.com. This website and
the information contained in it shall not be deemed to be incorporated into this
information statement/prospectus.

------------------------

eLoyalty, GetLoyal.com, Guaranteed Business Benefits, Loyalty Architecture,
Loyalty Cockpit, Loyalty Decision Engine, Loyalty Hosting, Loyalty Lab, Loyalty
Observer, Loyalty Process Design, Loyalty Repository, Loyalty Rules
Configurator, Loyalty Strategy, Loyalty Support, Loyalty Warehouse, Loyalty
Channel, Business Case, Channel Hosting and Loyalty Channel Influencer are all
trademarks or the subject of trademark applications of eLoyalty Corporation. All
other brand names or trademarks appearing in this information statement are the
property of their respective holders.

------------------------
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INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
eLOYALTY CORPORATION
Report of Independent Accountants........................... F-2
Combined Balance Sheets as of September 30, 1999
(unaudited), December 31, 1998, May 31, 1998 and 1997..... F-3
Combined Statements of Operations for the nine month periods
ended September 30, 1999 and 1998 (unaudited), the seven
month period from June 1, 1998 to December 31, 1998, the
seven month period from June 1, 1997 to December 31, 1997
(unaudited), and for each of the three years in the period
ended May 31, 1998........................................ F-4
Combined Statements of Cash Flows for the nine month periods
ended September 30, 1999 and 1998 (unaudited), the seven
month period from June 1, 1998 to December 31, 1998, the
seven month period from June 1, 1997 to December 31, 1997
(unaudited) and for each of the three years in the period
ended May 31, 1998, 1997 and 1996......................... F-5
Combined Statements of Changes in Stockholder's Equity and
Comprehensive Income (Loss) for the nine month period
ended September 30, 1999 (unaudited), the seven month
period ended December 31, 1998, and for each of the three
years in the period ended May 31, 1998.................... F-6
Notes to Combined Financial Statements...................... F-7
THE BENTLEY GROUP, INC.
Report of Independent Accountants........................... F-18
Statement of Operations and Accumulated Deficit for the
period from January 1, 1997 to May 31, 1997............... F-19
Statement of Cash Flows for the period from January 1, 1997
to May 31, 1997........................................... F-20
Notes to Financial Statements............................... F-21
NEXCEN TECHNOLOGIES, INC. (A DEVELOPMENT STAGE ENTERPRISE)
Report of Independent Accountants........................... F-24
Balance Sheet as of December 31, 1998....................... F-25
Statement of Operations for the period from July 17, 1998
(date of inception) to
December 31, 1998......................................... F-26
Statement of Stockholders' Deficit for the period from
July 17, 1998 (date of inception) to December 31, 1998.... F-27
Statement of Cash Flows for the period from July 17, 1998
(date of inception) to
December 31, 1998......................................... F-28
Notes to Financial Statements............................... F-29
SCHEDULES
Schedule II -- Valuation and Qualifying Accounts............ S-1
Report of Independent Accountants on Financial Statement
Schedule.................................................. S-2
</TABLE>

F-1
<PAGE> 98

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder
of eLoyalty Corporation

In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of cash flows and of changes in stockholder's
equity and comprehensive income (loss) present fairly, in all material respects,
the financial position of eLoyalty Corporation (the "Company") at December 31,
1998 and May 31, 1998 and 1997, and the results of its operations and its cash
flows for the seven month period ended December 31, 1998, and for each of the
three years in the period ended May 31, 1998, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

September 10, 1999
Chicago, Illinois

F-2
<PAGE> 99

eLOYALTY CORPORATION

COMBINED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MAY 31, MAY 31,
1999 1998 1998 1997
------------- ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................ $10,654 $ 4,411 $ 4,726 $ 4,130
Marketable securities............................ 6,714 4,486 3,656 1,560
Receivables, net of allowances of $2,369
(unaudited), $2,638, $475 and $198............. 43,658 25,443 23,898 11,748
Deferred income taxes............................ 8,954 4,711 1,311 513
Prepaid expenses................................. 2,588 2,175 2,508 1,463
Other current assets............................. 867 1,021 966 835
------- ------- ------- -------
Total current assets................... 73,435 42,247 37,065 20,249
COMPUTERS, FURNITURE AND EQUIPMENT, NET.......... 2,035 1,581 1,432 245
GOODWILL......................................... 13,397 17,201 12,614 2,194
DEFERRED INCOME TAXES............................ 2,434 1,054 1,022 --
INVESTMENT....................................... -- 463 -- --
LONG-TERM RECEIVABLES AND OTHER.................. 1,491 1,358 1,985 1,500
------- ------- ------- -------
Total assets........................... $92,792 $63,904 $54,118 $24,188
======= ======= ======= =======

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts payable................................. $ 739 $ 994 $ 347 $ 768
Accrued compensation and related costs........... 11,056 7,304 6,528 3,054
Deferred compensation............................ 6,714 4,486 3,656 1,560
Other current liabilities........................ 2,994 3,232 2,694 1,361
------- ------- ------- -------
Total current liabilities.............. 21,503 16,016 13,225 6,743
------- ------- ------- -------
DEFERRED INCOME TAXES............................ -- -- -- 298
COMMITMENTS AND CONTINGENCIES.................... -- -- -- --
------- ------- ------- -------
STOCKHOLDER'S EQUITY:
Net advances from Technology Solutions Company... 71,439 48,475 41,241 17,420
Accumulated other comprehensive loss............. (150) (587) (348) (273)
------- ------- ------- -------
Total stockholder's equity............. 71,289 47,888 40,893 17,147
------- ------- ------- -------
Total liabilities and stockholder's
equity............................... $92,792 $63,904 $54,118 $24,188
======= ======= ======= =======
</TABLE>

The accompanying Notes to Combined Financial Statements
are an integral part of this financial information.

F-3
<PAGE> 100

eLOYALTY CORPORATION

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE NINE MONTH FOR THE SEVEN MONTH
PERIODS ENDED PERIODS FROM
SEPTEMBER 30, JUNE 1 TO DECEMBER 31, FOR THE YEARS ENDED MAY 31,
------------------- ----------------------------- ------------------------------
1999 1998 1998 1997 1998 1997 1996
-------- -------- ------------- ------------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES.......................... $107,652 $ 77,685 $ 64,415 $ 43,668 $ 84,488 $ 43,181 $ 26,516
Project personnel............... (52,586) (37,464) (31,302) (22,329) (41,329) (18,078) (11,674)
-------- -------- -------- -------- -------- -------- --------
REVENUES LESS PROJECT PERSONNEL... 55,066 40,221 33,113 21,339 43,159 25,103 14,842
-------- -------- -------- -------- -------- -------- --------
OTHER COSTS AND EXPENSES:
Sales and marketing............. 6,185 3,197 3,456 994 2,429 1,663 1,032
Research and development........ 3,599 2,231 2,889 1,393 2,383 1,689 46
General and administrative...... 22,554 18,912 16,438 10,641 20,216 11,539 5,559
Technology Solutions Company
corporate services
allocation.................... 10,769 9,225 7,698 5,544 10,671 5,028 3,298
Equity in net loss of
unconsolidated investee....... 463 -- 412 -- -- -- --
Goodwill amortization........... 3,748 2,704 2,450 1,856 3,201 376 --
-------- -------- -------- -------- -------- -------- --------
47,318 36,269 33,343 20,428 38,900 20,295 9,935
-------- -------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS)........... 7,748 3,952 (230) 911 4,259 4,808 4,907
-------- -------- -------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Net investment income........... 83 56 116 39 68 15 --
Interest expense................ (55) (65) (31) (53) (92) -- --
-------- -------- -------- -------- -------- -------- --------
28 (9) 85 (14) (24) 15 --
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES........................... 7,776 3,943 (145) 897 4,235 4,823 4,907
INCOME TAX PROVISION.............. 3,690 1,929 398 562 2,022 1,897 1,857
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)................. $ 4,086 $ 2,014 $ (543) $ 335 $ 2,213 $ 2,926 $ 3,050
======== ======== ======== ======== ======== ======== ========
Basic net income (loss) per common
share........................... $ 0.10 $ 0.05 $ (0.01) $ 0.01 $ 0.05 $ 0.07 $ 0.07
Diluted net income (loss) per
common share.................... $ 0.09 $ 0.04 $ (0.01) $ 0.01 $ 0.05 $ 0.06 $ 0.07
Shares used to calculate basic net
income (loss) per share (in
millions)....................... 41.4 41.4 41.4 41.4 41.4 41.4 41.4
Shares used to calculate diluted
net income (loss) per share (in
millions)....................... 47.6 46.5 41.4 45.8 46.8 46.6 45.5
</TABLE>

The accompanying Notes to Combined Financial Statements
are an integral part of this financial information.

F-4
<PAGE> 101

eLOYALTY CORPORATION

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE NINE MONTH FOR THE SEVEN MONTH
PERIODS ENDED PERIODS FROM FOR THE YEARS ENDED
SEPTEMBER 30, JUNE 1 TO DECEMBER 31, MAY 31,
------------------------- --------------------------- ----------------------------
1999 1998 1998 1997 1998 1997 1996
----------- ----------- ------------ ------------ -------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................. $ 4,086 2,014 $ (543) $ 335 $ 2,213 $ 2,926 $ 3,050
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and amortization... 4,987 3,946 3,509 2,275 3,874 617 60
Provisions for doubtful
receivables................... 1,395 1,285 2,652 577 531 453 272
Equity losses of unconsolidated
investee...................... 463 -- 412 -- -- -- --
Deferred income taxes........... (5,622) (2,045) (3,432) (1,330) (2,118) (315) (4,306)
Changes in assets and
liabilities:
Receivables................... (19,610) (13,443) (4,197) (3,441) (10,217) (3,453) (136)
Purchases of trading
securities related to
deferred compensation
program..................... (2,228) (1,426) (830) (1,275) (2,096) (799) (761)
Other current assets.......... (259) (2,265) 278 211 (1,079) (1,177) (531)
Accounts payable.............. (255) (47) 647 (1,076) (1,184) 229 467
Accrued compensation and
related costs............... 3,751 413 776 1,202 2,674 (217) 1,115
Deferred compensation funds
from employees.............. 2,228 1,426 830 1,275 2,096 799 761
Other current liabilities..... (239) 924 538 (2,983) (2,383) 1,335 1
Other assets.................. (133) (1,423) (11) (309) (815) (339) (1,270)
-------- -------- ------- -------- -------- ------- -------
Net cash (used in) provided
by operating activities... (11,436) (10,641) 629 (4,539) (8,504) 59 (1,278)
-------- -------- ------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures.............. (1,637) (1,829) (570) (607) (1,065) (182) (127)
Investment in unconsolidated
investee........................ -- -- (875) -- -- -- --
Acquired businesses............... -- (4,849) (6,625) (10,360) (10,741) (940) (1,367)
-------- -------- ------- -------- -------- ------- -------
Net cash used in investing
activities................ (1,637) (6,678) (8,070) (10,967) (11,806) (1,122) (1,494)
-------- -------- ------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Transfers from Technology
Solutions Company............... 18,878 17,340 7,777 17,288 21,608 5,182 3,093
-------- -------- ------- -------- -------- ------- -------
Net cash provided by
financing activities...... 18,878 17,340 7,777 17,288 21,608 5,182 3,093
-------- -------- ------- -------- -------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS......... 438 (1,433) (651) (782) (702) (310) --
-------- -------- ------- -------- -------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................... 6,243 (1,412) (315) 1,000 596 3,809 321
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD......................... 4,411 5,130 4,726 4,130 4,130 321 --
-------- -------- ------- -------- -------- ------- -------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................ $ 10,654 $ 3,718 $ 4,411 $ 5,130 $ 4,726 $ 4,130 $ 321
======== ======== ======= ======== ======== ======= =======
</TABLE>

The accompanying Notes to Combined Financial Statements
are an integral part of this financial information.

F-5
<PAGE> 102

eLOYALTY CORPORATION

COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
(LOSS)
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADVANCES ACCUMULATED
(TO) FROM OTHER
TECHNOLOGY COMPREHENSIVE TOTAL
SOLUTIONS INCOME STOCKHOLDER'S
COMPANY (LOSS) EQUITY
---------- ------------- -------------
<S> <C> <C> <C>
Balance, May 31, 1995................................... $ 3,169 $ -- $ 3,169
------- ----- -------
Net income.............................................. 3,050 -- 3,050
-------
Comprehensive income.................................. 3,050
Net transfers from Technology Solutions Company......... 3,093 -- 3,093
------- ----- -------
Balance, May 31, 1996................................... 9,312 -- 9,312
------- ----- -------
Net income.............................................. 2,926 -- 2,926
Foreign currency translation............................ -- (273) (273)
-------
Comprehensive income.................................. 2,653
Net transfers from Technology Solutions Company......... 5,182 -- 5,182
------- ----- -------
Balance, May 31, 1997................................... 17,420 (273) 17,147
------- ----- -------
Net income.............................................. 2,213 -- 2,213
Foreign currency translation............................ -- (75) (75)
-------
Comprehensive income.................................. 2,138
Net transfers from Technology Solutions Company......... 21,608 -- 21,608
------- ----- -------
Balance, May 31, 1998................................... 41,241 (348) 40,893
------- ----- -------
Net loss................................................ (543) -- (543)
Foreign currency translation............................ -- (239) (239)
-------
Comprehensive loss.................................... (782)
Net transfers from Technology Solutions Company......... 7,777 -- 7,777
------- ----- -------
Balance, December 31, 1998.............................. 48,475 (587) 47,888
------- ----- -------
Net income (unaudited).................................. 4,086 -- 4,086
Foreign currency translation (unaudited)................ -- 437 437
-------
Comprehensive income (unaudited)...................... 4,523
Net transfers from Technology Solutions Company
(unaudited)........................................... 18,878 -- 18,878
------- ----- -------
Balance, September 30, 1999 (unaudited)................. $71,439 $(150) $71,289
======= ===== =======
</TABLE>

The accompanying Notes to Combined Financial Statements
are an integral part of this financial information.

F-6
<PAGE> 103

eLOYALTY CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
(INFORMATION PRESENTED AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTH PERIODS
ENDED
SEPTEMBER 30, 1999 AND 1998 AND FOR THE SEVEN MONTH PERIOD ENDED DECEMBER 31,
1997 IS UNAUDITED)

NOTE 1 -- THE COMPANY

eLoyalty Corporation ("eLoyalty") is a leading global information
technology services company focused on providing enterprise-wide solutions
across the Internet, e-mail, web-chat, telephone and fax that are designed to
result in lasting and profitable customer relationships for its clients.
eLoyalty defines this new category of solutions as loyalty solutions. eLoyalty's
clients generally are located throughout the United States and in Europe, Canada
and Australia.

eLoyalty is currently a wholly owned subsidiary of Technology Solutions
Company ("TSC" or the "Parent"). On March 30, 1999, TSC announced its intention
to create a separate company comprised of the TSC business and operations that
now comprise eLoyalty, and the associated assets and liabilities of such
businesses and operations (the "Separation"). TSC also announced that it intends
to distribute to its shareholders, subject to certain conditions and consents,
all of TSC's remaining equity interest in eLoyalty ("Distribution").

eLoyalty and TSC will enter into, on or prior to the Separation, certain
agreements governing various interim and ongoing relationships between eLoyalty
and TSC after the completion of the anticipated Separation and subsequent
Distribution.

The financial information included herein may not necessarily reflect the
combined results of operations, financial position, changes in stockholder's
equity and cash flows of eLoyalty in the future or what they would have been had
it been a separate, stand-alone entity during the periods presented.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation -- The combined financial statements reflect the
results of operations, financial position, changes in stockholder's equity and
cash flows of the businesses that will be transferred to eLoyalty from TSC in
the Separation (the "eLoyalty Businesses") as if eLoyalty were a separate entity
for all periods presented. The combined financial statements have been prepared
using the historical basis in the assets and liabilities and historical results
of operations related to the eLoyalty Businesses. Changes in stockholder's
equity represent the net income of eLoyalty plus net cash transfers to or from
TSC and the effects of foreign currency translation. All significant
intercompany transactions have been eliminated. Acquired businesses are included
in the results of operations since their acquisition dates. Investments in which
eLoyalty has the ability to exercise significant influence, but which it does
not control, are accounted for under the equity method of accounting.
Investments in which eLoyalty does not have the ability to exercise significant
influence are accounted for under the cost method of accounting.

Interim Financial Statements -- The accompanying interim combined balance
sheet as of September 30, 1999 and the combined statements of operations and
combined statements of cash flows for the nine months ended September 30, 1999
and 1998 and for the seven month period from June 1, 1997 to December 31, 1997
and the related notes have not been audited by independent accountants. However,
they have been prepared in conformity with the accounting principles stated in
the audited financial statements as of December 31, 1998 and include all
adjustments, which were of a normal and recurring nature, which in the opinion
of management are necessary to present fairly the financial position of eLoyalty
and results of operations and cash flows for the periods presented. The
operating results for the interim periods, consisting of the nine month periods
ended September 30, 1999 and 1998 and the seven month period from June 1, 1997
to December 31, 1997, are not necessarily indicative of results expected for the
full years of which the aforementioned interim periods are a part.

Fiscal Year Change -- On November 22, 1998, TSC's Board of Directors voted
to change the fiscal year of TSC from a fiscal year ending on May 31 in each
year to a calendar year ending on December 31
F-7
<PAGE> 104
eLOYALTY CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(INFORMATION PRESENTED AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTH PERIODS
ENDED
SEPTEMBER 30, 1999 AND 1998 AND FOR THE SEVEN MONTH PERIOD ENDED DECEMBER 31,
1997 IS UNAUDITED)

in each year. The seven month transition period of June 1, 1998 through December
31, 1998 (transition period) precedes the start of the new fiscal year. The
unaudited financial information for the seven months ended December 31, 1997
(prior period) is presented for comparative purposes and includes any
adjustments (consisting of normal, recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation.

Revenue Recognition -- eLoyalty derives substantially all of its revenues
from professional services. eLoyalty provides professional services, including
support, primarily on a time and materials basis. Although eLoyalty occasionally
performs certain projects on a fixed fee basis, the total portion of combined
net revenues derived from fixed fee engagements is not significant. For time and
materials engagements, eLoyalty recognizes revenue as services are performed,
based on hourly billing rates. For fixed fee engagements, revenue is recognized
under the percentage-of-completion basis of accounting, based on the ratio of
costs incurred to total estimated costs. From time to time, eLoyalty uses
subcontractors to supplement its resources in client engagements. Revenue
generated through subcontractors is recognized based on the terms of the related
project (time and materials or fixed fee), and the related subcontractor costs
are included in project personnel expense as incurred. eLoyalty also derives
revenues from in-house developed software. Depending on the nature of the client
engagement, eLoyalty recognizes these software revenues using contract
accounting or as the product is shipped. To date, software revenues have not
exceeded 3% of total revenues for any period. Out-of-pocket expenses (travel,
lodging, etc.) charged on client engagements are presented net of amounts billed
to clients as general and administrative expense in the accompanying combined
statements of operations. Engagements are performed in phases. Losses on
engagements, if any, are reserved in full when determined.

Project Personnel Costs -- eLoyalty expenses the cost of project personnel
as incurred. Project personnel costs consist primarily of salaries, incentive
compensation and employee benefits for eLoyalty personnel available for client
assignments, and fees paid to subcontractors for work performed on client
projects.

Cash and Cash Equivalents -- eLoyalty considers all highly liquid
investments readily convertible into cash (with original maturities of three
months or less) to be cash equivalents. These short-term investments are carried
at cost plus accrued interest, which approximates market.

Marketable Securities -- eLoyalty's marketable securities consist of
investments related to TSC's executive deferred compensation plan (see Note 4)
and are classified as trading securities, with unrealized gains and losses
included in eLoyalty's combined statements of income. Realized gains or losses
are determined on the specific identification method.

Computers, Furniture and Equipment -- Computers, furniture and equipment
are carried at cost and depreciated on a straight-line basis over their
estimated useful lives. Useful lives generally are five years or less.

Goodwill -- Goodwill is amortized on a straight-line basis, typically over
a five-year period. Accumulated amortization of goodwill as of September 30,
1999, December 31, 1998, May 31, 1998 and 1997 was $9,752, $6,042, $3,573 and
$371, respectively.

Research and Development Costs -- Research and development costs are
expensed as incurred, except for costs incurred for the development of computer
software that will be sold. Research and development expenses relate primarily
to the dedicated research and development facility maintained by eLoyalty, and
consist primarily of salaries, incentive compensation and employee benefits
costs for dedicated personnel, occupancy costs, staff recruiting costs,
administrative costs, travel expenses and depreciation.
F-8
<PAGE> 105
eLOYALTY CORPORATION

Software Development Costs -- eLoyalty capitalizes software development
costs once technological feasibility is established and prior to general
release. Amortization is computed as the greater of the amount computed using
the (a) ratio of current revenues to the total current and anticipated future
revenues or (b) the straight-line method over the estimated economic life of the
product. Included in long-term receivables and other on eLoyalty's combined
balance sheets as of May 31, 1998 and 1997 are $447 and $801 of net software
development costs. There are no net software development costs included on
eLoyalty's combined balance sheet in any other period presented. Amortization
expense associated with software development costs was $447, $354 and $110 for
the seven month transition period ended December 31, 1998 and the fiscal years
ended May 31, 1998 and 1997, respectively. There was no amortization expense of
software development costs during the fiscal year ended May 31, 1996.

Stockholder's Equity -- Stockholder's equity includes amounts transferred
from TSC primarily for operations and working capital requirements, offset by
cash collected by TSC. The balances are primarily the result of eLoyalty's
participation in TSC's central cash management system, wherein all of eLoyalty's
domestic cash receipts are collected by TSC and all domestic cash disbursements
are funded by TSC. Other transactions include the Company's share of TSC's
combined income tax liability and other administrative expenses incurred by TSC
on behalf of eLoyalty. Such amounts do not have repayment terms and do not bear
interest.

Earnings (Loss) Per Common Share -- In December 1999, eLoyalty issued 41.4
million shares to TSC. Basic earnings per share have been computed by dividing
the net income/(loss) for each period presented by the 41.4 million shares.
Diluted net earnings per share was computed by dividing the net income/(loss)
for each period presented by the 41.4 million shares plus the estimated effect
of dilutive stock options using the "treasury stock" method. See Note 8, "Stock
Options" for a discussion of stock options.

Foreign Currency Translation -- All assets and liabilities of foreign
subsidiaries are translated to U.S. dollars at end of period exchange rates. The
resulting translation adjustments are recorded as a component of stockholder's
equity. Income and expense items are translated at average exchange rates
prevailing during the period. Gains and losses from foreign currency
transactions of these subsidiaries are included in the combined statements of
income. The functional currencies for eLoyalty's foreign subsidiaries are their
local currencies.

Fair Value of Financial Instruments -- The carrying values of current
assets and liabilities and long-term receivables approximated their fair values
at September 30, 1999, December 31, 1998, May 31, 1998 and 1997, respectively.

Concentration of Credit Risk -- No client accounted for 10 percent or more
of revenues during the nine-month period ended September 30, 1999, the
transition period ended December 31, 1998, fiscal 1998 or fiscal 1997. During
fiscal 1996, one customer accounted for 21 percent of revenues. No client
accounted for 10 percent or more of gross accounts receivables as of December
31, 1998, May 31, 1998 or May 31, 1997.

Stock-Based Compensation -- eLoyalty accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.

Income Taxes -- Historically, eLoyalty's results have been included in
TSC's consolidated federal and state income tax returns. The income tax
provision is calculated and deferred tax assets and liabilities are recorded as
if eLoyalty had operated as an independent entity. eLoyalty uses an asset and
liability
F-9
<PAGE> 106
eLOYALTY CORPORATION

approach to financial accounting and reporting for income taxes. Deferred income
taxes are provided when tax laws and financial accounting standards differ with
respect to the amount of income for a year and the basis of assets and
liabilities. eLoyalty does not provide U.S. deferred income taxes on earnings of
foreign subsidiaries which are expected to be indefinitely reinvested.

New Accounting Standards -- On June 15, 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133," is effective for fiscal years
beginning after June 15, 2000 (January 1, 2001 for eLoyalty). SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. eLoyalty anticipates that the adoption of SFAS No. 133
will not have a significant effect on eLoyalty's results of operations or its
financial position.

Estimates and Assumptions -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

NOTE 3 -- ACQUISITIONS/INVESTMENTS

In June 1997, eLoyalty acquired The Bentley Group, Inc., (Bentley), a
business and operations consulting firm. Total consideration aggregated $17.5
million, including cash of $12.0 million, 44,303 shares of TSC Common Stock and
stock options. Goodwill of approximately $18.1 million resulted from the Bentley
acquisition and is being amortized over five years.

In February 1997, eLoyalty acquired Geising International, a German-based
business consulting firm. Total consideration aggregated $1.4 million, including
cash of $1.0 million and 37,962 shares of TSC's Common Stock. Goodwill of
approximately $1.0 million resulted from the Geising International acquisition
and is being amortized over five years.

In May 1996, eLoyalty acquired Aspen Consultancy Ltd., (Aspen). Aspen is a
United Kingdom-based consulting firm. Total cash consideration aggregated $3.4
million. Goodwill of approximately $3.5 million resulted from the Aspen
acquisition and is being amortized over a five year period.

These acquisitions have been accounted for under the purchase method and
accordingly their results have been included in eLoyalty's results since the
date of acquisition.

During 1998, eLoyalty invested in NexCen Technologies, Inc. (NexCen), a
development stage enterprise. eLoyalty's investment in NexCen is comprised of
both Series A redeemable convertible preferred stock ("Series A Stock") and
warrants to purchase Series A Stock at an exercise price of $.01 per share
("Warrants").

Each share of Series A Stock in convertible into common stock at the option
of eLoyalty under a formula which currently results in a 1-for-1 conversion
rate. Each share of Series A Stock is entitled to the number of votes equal to
that number of shares of common stock into which shares of Series A Stock can be
converted. Assuming the conversion of all of the Series A Stock and Warrants
into common stock,

F-10
<PAGE> 107
eLOYALTY CORPORATION

eLoyalty's ownership in NexCen would approximate 27 percent. eLoyalty has also
elected one member to the NexCen Board of Directors.

eLoyalty has concluded that it has the ability to exercise significant
influence over the operating and financial policies of NexCen and thus, has
accounted for its investment under the equity method of accounting.
Notwithstanding the fact that eLoyalty does not own any of the common stock of
NexCen, eLoyalty has recorded 60 percent of NexCen's losses. NexCen, which was
incorporated in July, 1998, has funded its operating losses solely through the
sale of the Series A Stock and Warrants. The recording of 60 percent of the
losses represents eLoyalty's share of NexCen's total Series A Stock and
Warrants.

For the period from July 17, 1998 (date of inception) to December 31, 1998,
NexCen had no revenues, a $704 operating loss and a $684 net loss. Summarized
balance sheet information of NexCen at December 31, 1998 is as follows:

<TABLE>
<S> <C>
Current assets.............................................. $1,070
Noncurrent assets........................................... 58
Current liabilities......................................... 187
Redeemable stock............................................ $1,640
</TABLE>

NOTE 4 -- RELATED PARTY TRANSACTIONS

Employees of eLoyalty are eligible to participate in the TSC 401(k) Savings
Plan (the "Plan"). The Plan allows employees to contribute up to 15 percent of
their annual compensation, subject to Internal Revenue Service statutory
limitations. Contributions to the Plan are made at the discretion of TSC and the
related expense is allocated to eLoyalty based on the actual employees covered.
Plan expense allocated to eLoyalty by TSC totaled $794 in the nine-month period
ended September 30, 1999, $487 in the seven-month period ended December 31, 1998
and $470 and $336 in the years ended May 31, 1998 and 1997, respectively.

eLoyalty participates in TSC's nonqualified executive deferred compensation
plan. All eLoyalty executives (defined as Vice Presidents and above) are
eligible to participate in this voluntary program which permits participants to
elect to defer receipt of a portion of their compensation. Deferred
contributions and investment earnings are payable to participants upon various
specified events, including retirement, disability or termination. The
accompanying combined balance sheets include the deferred compensation
liability, including investment earnings thereon, owed to participants. The
accompanying combined balance sheets also include eLoyalty's portion of the
investments, classified as trading securities, purchased by TSC with the
deferred funds. These investments remain assets of eLoyalty and are available to
the general creditors of eLoyalty in the event of eLoyalty's insolvency.
eLoyalty intends to implement a similar plan subsequent to the Distribution.

Project expenses have been recorded on an individual project basis. The
financial statements include expenses which have been allocated to eLoyalty by
TSC on a specific identification basis. Further, eLoyalty shares certain
employees and other resources with TSC. Allocations from TSC for indirect
expenses for such shared resources have been made primarily on a proportional
cost allocation method based on revenues and headcount. Management believes
these allocations are reasonable and that such expenses would not have differed
materially had eLoyalty operated on a stand-alone basis for all periods

F-11
<PAGE> 108
eLOYALTY CORPORATION

presented. Such allocations of general corporate overhead expenses are included
in eLoyalty's combined statement of operations as follows:

<TABLE>
<CAPTION>
FOR THE NINE FOR THE SEVEN MONTH
MONTH PERIODS ENDED PERIODS FROM JUNE 1
SEPTEMBER 30, TO DECEMBER 31, FOR THE YEARS ENDED MAY 31,
------------------- --------------------------- ----------------------------
1999 1998 1998 1997 1998 1997 1996
-------- -------- ------------ ------------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and marketing.............. $ 795 $ 1,005 $ 731 $ 405 $ 972 $ 586 $ 633
Technology Solutions Company
corporate services
allocation..................... 10,769 9,225 7,698 5,544 10,671 5,028 3,298
------- ------- ------ ------ ------- ------ ------
Total allocated general
corporate overhead.... $11,564 $10,230 $8,429 $5,949 $11,643 $5,614 $3,931
------- ------- ------ ------ ------- ------ ------
</TABLE>

On November 12, 1998, TSC made a loan of $1,200 to Mr. Conway with a
five-year term that, to the extent not forgiven in whole or in part as described
below, is payable on demand upon the cessation of Mr. Conway's employment with
TSC or its affiliates. The loan bears interest at the rate of 4.5% per annum
and, so long as Mr. Conway remains employed by eLoyalty, the principal amount of
the loan (and interest accrued thereon) will be forgiven over a five-year period
as follows: 25% of the principal amount on November 12, 1999; $25 in principal
per month for the next twelve months; $20 in principal per month for the next
twenty-four months; and $10 in principal per month for the next twelve months.
The amounts forgiven will be reflected as a compensation expense. Mr. Conway's
outstanding balance and accrued interest as of September 30, 1999 was $1,248. It
is expected that the note representing this loan will be assigned to eLoyalty.

NOTE 5 -- RECEIVABLES

Receivables consist of the following:

<TABLE>
<CAPTION>
AS OF AS OF AS OF MAY 31,
SEPTEMBER 30, DECEMBER 31, -----------------
1999 1998 1998 1997
------------- ------------ ------- -------
<S> <C> <C> <C> <C>
Amounts billed to clients........................ $38,356 $23,737 $20,712 $ 7,518
Engagements in process........................... 7,671 4,344 3,661 4,428
------- ------- ------- -------
46,027 28,081 24,373 11,946
Receivable allowances............................ (2,369) (2,638) (475) (198)
------- ------- ------- -------
$43,658 $25,443 $23,898 $11,748
======= ======= ======= =======
</TABLE>

Amounts billed to clients represent professional fees and reimbursable
project-related expenses. Engagements in process represent unbilled professional
fees and project costs such as out-of-pocket expense, materials and
subcontractor costs. Amounts billed to clients are unsecured and primarily due
within 30 days.

F-12
<PAGE> 109
eLOYALTY CORPORATION

NOTE 6 -- COMPUTERS, FURNITURE AND EQUIPMENT

Computers, furniture and equipment consist of the following:

<TABLE>
<CAPTION>
AS OF AS OF AS OF MAY 31,
SEPTEMBER 30, DECEMBER 31, ---------------
1999 1998 1998 1997
------------- ------------ ------- -----
<S> <C> <C> <C> <C>
Computers and software............................ $ 3,415 $ 2,486 $ 1,835 $ 547
Furniture and equipment........................... 1,464 756 743 27
------- ------- ------- -----
4,879 3,242 2,578 574
Accumulated depreciation.......................... (2,844) (1,661) (1,146) (329)
------- ------- ------- -----
$ 2,035 $ 1,581 $ 1,432 $ 245
======= ======= ======= =====
</TABLE>

Depreciation expense was $1,183, $773, $421, $308, $131 and $60 for the
nine month periods ended September 30, 1999 and 1998, the transition period
ended December 31, 1998 and for the fiscal years ended May 31, 1998, 1997, and
1996, respectively.

NOTE 7 -- INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
FOR THE SEVEN MONTH
PERIOD FROM
JUNE 1 TO FOR THE YEARS ENDED MAY 31,
DECEMBER 31, ---------------------------
1998 1998 1997 1996
------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Current:
Federal................................ $(1,929) $ 115 $1,427 $1,655
State.................................. (275) 16 204 236
Foreign................................ (830) (227) (49) --
------- ------ ------ ------
Total current.................. (3,034) (96) 1,582 1,891
------- ------ ------ ------
Deferred:
Federal................................ 1,941 1,357 256 (30)
State.................................. 277 194 37 (4)
Foreign................................ 1,214 567 22 --
------- ------ ------ ------
Total deferred................. 3,432 2,118 315 (34)
------- ------ ------ ------
Provision for income taxes............... $ 398 $2,022 $1,897 $1,857
======= ====== ====== ======
</TABLE>

F-13
<PAGE> 110
eLOYALTY CORPORATION

Total income tax provision differed from the amount computed by applying
the federal statutory income tax rate to income from continuing operations due
to the following:

<TABLE>
<CAPTION>
FOR THE SEVEN MONTH
PERIOD FROM
JUNE 1 TO FOR THE YEARS ENDED MAY 31,
DECEMBER 31, ---------------------------
1998 1998 1997 1996
------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Federal tax (benefit) provision, at
statutory rate......................... $(50) $1,475 $1,688 $1,718
State tax (benefit) provision, net of
Federal benefit........................ (6) 211 241 245
Effect of foreign tax rate differences... 303 34 (58) --
Nondeductible expenses................... 61 96 48 51
Nondeductible goodwill................... 170 172 150 --
Other.................................... (80) 34 (172) (157)
---- ------ ------ ------
Income tax provision..................... $398 $2,022 $1,897 $1,857
==== ====== ====== ======
</TABLE>

Deferred tax assets and liabilities were comprised of the following:

<TABLE>
<CAPTION>
AS OF AS OF MAY 31,
DECEMBER 31, ------------------
1998 1998 1997
------------ ------- ------
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation and bonuses....................... $1,794 $ 1,462 $ 624
Equity losses of unconsolidated investee................ 215 -- --
Receivable allowances................................... 844 197 187
Other accruals.......................................... 743 464 252
Net operating loss...................................... 1,803 -- --
Depreciation and amortization........................... 1,054 1,277 22
------ ------- ------
Total deferred tax assets....................... 6,453 3,400 1,085
------ ------- ------
Deferred tax liabilities:
Prepaid expenses........................................ (688) (812) (550)
Capitalized software development costs.................. -- (255) (320)
------ ------- ------
Total deferred tax liabilities.................. (688) (1,067) (870)
------ ------- ------
Net deferred tax asset.................................. $5,765 $ 2,333 $ 215
====== ======= ======
</TABLE>

Income (loss) before income taxes consisted of the following:

<TABLE>
<CAPTION>
FOR THE SEVEN MONTH
PERIOD FROM
JUNE 1 TO FOR THE YEARS ENDED MAY 31,
DECEMBER 31, ----------------------------
1998 1998 1997 1996
------------------- ------ ------ ------
<S> <C> <C> <C> <C>
United States.............................. $(164) $3,781 $4,527 $4,907
Foreign.................................... 19 454 296 --
----- ------ ------ ------
Total............................ $(145) $4,235 $4,823 $4,907
===== ====== ====== ======
</TABLE>

F-14
<PAGE> 111
eLOYALTY CORPORATION

NOTE 8 -- STOCK OPTIONS

As of the Distribution, each outstanding option to purchase TSC common
stock held by a person who will be an employee or director of eLoyalty
immediately after the Distribution (and who will not also be a director of TSC)
will be converted into a substitute option to purchase eLoyalty common stock.
The conversion of the options will be done in such a manner that (1) the
aggregate intrinsic value of the options immediately before and after the
exchange are the same, (2) the ratio of the exercise price per option to the
market value per option is not reduced, and (3) the vesting provisions and
option period of the replacement options are the same as the original vesting
terms and option period. The substitute option will take into account all
employment with both TSC and eLoyalty for purposes of determining when the
option becomes exercisable and when it terminates. All other terms of the
substitute option will be the same as the current TSC option.

Each outstanding nonqualified TSC option granted before June 22, 1999 to a
person who will continue as an employee or director of TSC after the
Distribution, or who will not be an employee or director of either TSC or
eLoyalty after the Distribution, will be converted into both an adjusted TSC
option and a substitute eLoyalty option. The conversion of the options will be
done in such a manner that (1) the aggregate intrinsic value of the options
immediately before and after the exchange are the same, (2) the ratio of the
exercise price per option to the market value per option is not reduced, and (3)
the vesting provisions and option period of the replacement options are the same
as the original vesting terms and option period. Employment with TSC will be
taken into account in determining when each substitute eLoyalty option becomes
exercisable and when it terminates, and in all other respects will be
substantially the same as the existing TSC option.

Each outstanding nonqualified TSC option granted after June 21, 1999 to a
person who will continue as an employee or director of TSC after the
Distribution, or who will not be an employee or director of either TSC or
eLoyalty after the Distribution, will continue solely as an option to purchase
shares of TSC common stock.

Each TSC option that is an incentive stock option, within the meaning of
Section 422 of the Code, will be converted into an incentive stock option to
purchase the stock of the corporation with which the optionee is employed
immediately after the Distribution. These options will be converted based on the
relative trading prices of the stock purchasable under the option before and
after the Distribution, and will preserve both the intrinsic value of the option
and the ratio of the exercise price to the fair market value of the stock.

In June of 1999, eLoyalty's shareholder approved the 1999 eLoyalty Stock
Incentive Plan (the "Plan") for eLoyalty's directors, officers, employees and
key advisors. The total number of shares of eLoyalty common stock initially
reserved for issuance under the Plan is 5,340,000. Awards granted under the Plan
are at the discretion of the Compensation Committee of eLoyalty's board of
directors (or, prior to the Distribution, the Compensation Committee of the TSC
board of directors) (the "Compensation Committee), and may be in the form of
incentive or nonqualified stock options. These options have a maximum term of 10
years. Upon adoption of the Plan, the Compensation Committee granted options to
purchase 4,824,000 shares of eLoyalty's common stock to eLoyalty employees and
certain employees of TSC who are instrumental to eLoyalty's operations up to and
including the Distribution. These options have a ten-year term and 1/3 of these
options vest on the second anniversary of the grant date and the remaining 2/3
vest ratably on a monthly basis over the next two years. As the $3.50 exercise
price of these options is equal to the then fair market value of the underlying
eLoyalty common stock, no compensation expense was recognized in accordance with
APB 25.
F-15
<PAGE> 112
eLOYALTY CORPORATION

Pro forma net earnings and earnings per share information, as required by
SFAS No. 123, "Accounting for Stock-Based Compensation," has been determined as
if TSC had accounted for employee stock options granted to eLoyalty employees
under the fair value method prescribed by SFAS No. 123. The fair value of these
options was estimated at grant date using the Black-Scholes option pricing model
with the following weighted average assumptions:

<TABLE>
<CAPTION>
FOR THE
SEVEN MONTH
PERIOD ENDED FOR THE YEARS ENDED MAY 31,
DECEMBER 31, ---------------------------------------
1998 1998 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Expected volatility........... 43.6%-49.8% 41.9%-44.1% 40.9%-51.4% 50.6%-52.0%
Risk-free interest rates...... 4.1%-5.6% 5.3%-6.5% 5.3%-6.8% 5.3%-6.4%
Expected lives................ 4.5 years 4.5 years 4.5 years 4.5 years
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of options
is amortized over the four-year average vesting period of the options. The pro
forma effect of recognizing compensation expense in accordance with SFAS No. 123
would have been to reduce eLoyalty's reported net earnings by $2,031 in the
seven-month period ended December 31, 1998, and $2,713, $1,275 and $366 in the
years ended May 31, 1998, 1997 and 1996, respectively.

NOTE 9 -- SEGMENT INFORMATION

eLoyalty operates as a single reportable segment. The following is revenue
and long-lived asset information by geographic area as of and for the nine month
period ended September 30, 1999, the transition period ended December 31, 1998
and the fiscal years ended May 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
UNITED EUROPE AND COMBINED
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 STATES CANADA AUSTRALIA TOTAL
- -------------------------------------------------- ------- ------ ---------- --------
<S> <C> <C> <C> <C>
Revenues.......................................... $83,392 $5,801 $18,459 $107,652
Identifiable Assets............................... $62,258 $3,645 $26,889 $ 92,792
</TABLE>

<TABLE>
<CAPTION>
UNITED EUROPE AND COMBINED
FOR THE SEVEN MONTH PERIOD FROM JUNE 1 TO DECEMBER 31, 1998 STATES CANADA AUSTRALIA TOTAL
- ----------------------------------------------------------- ------- ------ ---------- --------
<S> <C> <C> <C> <C>
Revenues.............................................. $50,139 $3,729 $10,547 $ 64,415
Identifiable Assets................................... $42,715 $3,300 $17,889 $ 63,904
</TABLE>

<TABLE>
<CAPTION>
UNITED COMBINED
FOR THE YEAR ENDED MAY 31, 1998 STATES CANADA EUROPE TOTAL
- ------------------------------- ------- ------ ---------- --------
<S> <C> <C> <C> <C>
Revenues.......................................... $61,882 $6,296 $16,310 $ 84,488
Identifiable Assets............................... $34,711 $3,008 $16,399 $ 54,118
</TABLE>

<TABLE>
<CAPTION>
UNITED COMBINED
FOR THE YEAR ENDED MAY 31, 1997 STATES CANADA EUROPE TOTAL
- ------------------------------- ------- ------ ---------- --------
<S> <C> <C> <C> <C>
Revenues.......................................... $30,346 $1,963 $10,872 $ 43,181
Identifiable Assets............................... $11,068 $2,598 $10,522 $ 24,188
</TABLE>

F-16
<PAGE> 113
eLOYALTY CORPORATION

<TABLE>
<CAPTION>
UNITED COMBINED
FOR THE YEAR ENDED MAY 31, 1996 STATES CANADA EUROPE TOTAL
- ------------------------------- ------- ------ ---------- --------
<S> <C> <C> <C> <C>
Revenues.......................................... $26,516 $ -- $ -- $ 26,516
Identifiable Assets............................... $10,381 $ -- $ 3,627 $ 14,008
</TABLE>

Foreign revenue is based on the country in which eLoyalty's operations are
domiciled.

NOTE 10 -- COMMITMENTS

eLoyalty leases various office facilities under operating leases expiring
at various dates through July 31, 2004. Additionally, eLoyalty leases various
property and office equipment under operating leases expiring at various dates.
Rental expense for all operating leases approximated $789, $524, $469, $738,
$133 and $0 for the nine month periods ended September 30, 1999 and 1998, the
transition period ended December 31, 1998 and for the fiscal years ended May 31,
1998, 1997, and 1996, respectively. Future minimum rental commitments under
noncancelable operating leases with terms in excess of one year are as follows:

<TABLE>
<CAPTION>
CALENDAR YEAR AMOUNT
- ------------- ------
<S> <C>
1999....................................................... $1,047
2000....................................................... 570
2001....................................................... 404
2002....................................................... 221
2003....................................................... 47
------
$2,289
======
</TABLE>

eLoyalty had no capital leases as of December 31, 1998.

NOTE 11 -- LITIGATION

eLoyalty is not a party to any material legal proceedings.

NOTE 12 -- SUBSEQUENT EVENTS

On June 22, 1999, certain venture capital investors agreed to purchase an
aggregate of 2.4 million shares of eLoyalty common stock at $3.50 per share.
Such purchase is subject to the receipt of a private letter ruling from the IRS
to the effect that the spin-off will be tax-free to TSC and its stockholders for
United States Federal income tax purposes and certain other customary
conditions. If those venture capital investors purchase shares of eLoyalty
common stock and the spin-off does not occur by August 13, 2000, eLoyalty could
become obligated to repurchase such shares at a premium totalling $1.2 million
over the price paid by the venture capital investors for such shares. Because
these shares may be repurchased prior to the spin-off, eLoyalty will classify
these shares as redeemable common stock until the spin-off occurs. In addition,
each of the venture capital investors has the right to designate a nominee to
the eLoyalty Board of Directors.

As part of the agreement the venture capital investors purchased 500,000
shares of TSC common stock at $9.013 per share (the average last reported sales
price for the ten days ending June 25, 1999).

F-17
<PAGE> 114

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder
of eLoyalty Corporation:

In our opinion, the accompanying statements of operations and accumulated
deficit and of cash flows for the period from January 1, 1997 to May 31, 1997,
present fairly, in all material respects, the results of operations and cash
flows of The Bentley Group, Inc. for the period from January 1, 1997 to May 31,
1997, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Chicago, Illinois
December 21, 1999

F-18
<PAGE> 115

THE BENTLEY GROUP, INC.

STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(IN THOUSANDS)
FOR THE PERIOD FROM JANUARY 1, 1997 TO MAY 31, 1997

<TABLE>
<S> <C>
Revenue..................................................... $4,630
------
Operating expenses:
Project personnel......................................... 3,079
Selling and marketing..................................... 352
General and administrative................................ 1,165
------
Total operating expenses............................... 4,596
------
Income from operations................................. 34
Interest expense............................................ 94
Other expense............................................... 16
------
Net loss and comprehensive loss........................ $ (76)
======
Accumulated deficit at January 1, 1997...................... $ (247)
Net loss.................................................. (76)
Distribution to stockholders.............................. (2)
------
Accumulated deficit at May 31, 1997......................... $ (325)
======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-19
<PAGE> 116

THE BENTLEY GROUP, INC.

STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE PERIOD FROM JANUARY 1, 1997 TO MAY 31, 1997

<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................... $(76)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation......................................... 68
Loss on disposal of fixed assets..................... 16
Amortization of deferred debt issuance costs......... 17
Changes in assets and liabilities:
Accounts receivable............................... (294)
Other current assets.............................. (31)
Accounts payable.................................. 170
Accrued expenses.................................. 24
Deferred revenues................................. (106)
----
Net cash used in operating activities............. (212)
----
Cash flows from investing activities:
Purchases of property and equipment....................... (133)
Increase in other assets.................................. (32)
----
Net cash used in investing activities..................... (165)
----
Cash flows from financing activities:
Borrowings................................................ 411
Payments under capital lease obligations.................. (32)
Distribution to stockholders.............................. (2)
----
Net cash provided by financing activities................. 377
----
Net change in cash.......................................... --
Cash, beginning of period................................... --
----
Cash, end of period......................................... $ --
====
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 76
Supplement disclosure of noncash investing activities:
Acquisition of assets under capital lease obligations..... $116
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-20
<PAGE> 117

THE BENTLEY GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

(1) OPERATIONS

The Bentley Group, Inc. (the Company) was founded in 1988. The Company is a
consulting and systems integration organization specializing in customer service
and support. The Company provides consulting services, system implementation and
integration, information services and other solutions for all facets of customer
services.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenue from consulting services is recognized on a time and materials
basis as the services are performed or, for fixed price contracts, upon the
completion of certain project milestones. Deferred revenue represents amounts
collected by the Company in advance of services performed or the completion of
certain milestones.

DEPRECIATION AND AMORTIZATION

The Company provides for depreciation using the straight-line method by
charges to operations in amounts that allocate the cost of property and
equipment over their estimated useful lives as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSETS CLASSIFICATION USEFUL LIFE
- --------------------- ------------------
<S> <C>
Computer equipment and software............................ 3-5 years
Office equipment........................................... 3-5 years
Capital lease assets....................................... Life of lease
Vehicles................................................... 3 years
Leasehold improvements..................................... Life of lease, or
useful life,
whichever is less
Furniture and fixtures..................................... 3-7 years
</TABLE>

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

Statement of Financial Accounting Standards (SFAS) No. 105, Disclosure of
Information About Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk, requires disclosure of
any significant off-balance-sheet and credit risk concentration. The Company has
no significant off-balance-sheet concentration of credit risk such as foreign
currency exchange contracts or other hedging arrangements. Financial instruments
that subject the Company to credit risk consist of accounts receivable. To
reduce risk, the Company routinely assesses the financial strength of its
customers and, as a consequence, believes that its accounts receivable credit
risk exposure is limited. The Company maintains an allowance for potential
credit losses but has not experienced any significant losses related to
individual customers or groups of customers in any particular industry or
geographic area. For the period from January 1, 1997 to May 31, 1997, one
customer represented 24% of total revenues.

F-21
<PAGE> 118
THE BENTLEY GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

(3) INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal or state income taxes on its taxable income. Instead, the stockholders
are liable for the individual federal and state income taxes on their respective
share of the Company's taxable income. Pro forma results reflecting the
treatment of the Company as a tax paying entity are not included since the
Company incurred a net loss.

(4) STOCK OPTION PLAN

The Company maintains an incentive stock option plan (the Plan), which
allows for the granting of options to purchase up to 300 shares of the Company's
common stock. The Plan provides for incentive stock options to be granted to
employees and directors of the Company. The option price, which is determined by
the Board of Directors, may not be less than the fair market value of the stock
on the date of grant. The terms of exercise of the options are determined by the
Board of Directors and are not to exceed ten years (five years for 10% or
greater stockholders). A summary of all stock option activity for the period
from January 1, 1997 through May 31, 1997 is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options at January 1, 1997.................................. 216 $1.26
Granted................................................... 42 4.73
--- -----
Options Outstanding at May 31, 1997......................... 258 $1.82
=== =====
Options Exercisable at May 31, 1997......................... 91 $1.20
=== =====
</TABLE>

The weighted average grant date fair value of options granted during the
period was $1.29.

In connection with the renewal of its line of credit in December 1996, the
Company issued warrants to purchase 30 shares of its common stock to a bank. The
warrants are immediately exercisable and have an exercise price of $3.00 per
share. The fair value of the warrants issued to the bank was determined to total
$30, and is being recorded as interest expense through September 30, 1997, which
represents the expiration of the related line of credit facility.

In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the
measurement of the fair value of stock options, including stock purchase plans,
or warrants granted to nonemployees and employees to be included in the
statement of operations or disclosed in the notes to financial statements. The
Company has determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion No. 25 and
elect the disclosure-only alternative under SFAS No. 123. The Company has
computed the pro forma disclosures required under SFAS No. 123 for options and
warrants granted in 1997, 1996 and 1995 using the Black-Scholes options pricing
model prescribed by SFAS No. 123. The weighted average assumptions used for
options and warrants granted in 1997 are:

<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Risk-free interest rate..................................... 6.47%-6.72%
Expected dividend yield..................................... --
Expected life............................................... 6.5 years
Expected volatility......................................... .01%
</TABLE>

F-22
<PAGE> 119
THE BENTLEY GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

Had the Company accounted for stock-based compensation using the fair value
approach permitted by SFAS No. 123, an additional $19 of compensation expense
would have been recognized during the period from January 1, 1997 to May 31,
1997.

The resulting pro forma compensation expense may not be representative of
the amount to be expected in future years as pro forma compensation expense may
vary based on the number of options and warrants granted.

(5) RELATED-PARTY TRANSACTION

The Company has a note payable due to a stockholder, which matured on
December 31, 1997 and bears interest at a rate of 9% per annum. At May 31, 1997,
the unpaid principal balance on the note was $60.

(6) LINE OF CREDIT

During 1996, the Company entered into a $2,000 line-of-credit agreement
with a bank. The first $1.0 million of borrowings under the line bear interest
at the bank's prime rate plus 1.0%. Borrowings in excess of $1.0 million bear
interest at the bank's prime rate plus 2.0%. At May 31, 1997, there was
approximately $1,673 outstanding under the line-of-credit agreement.

(7) 401(k) RETIREMENT PLAN

The Company maintains a qualified 401(k) retirement plan (the 401(k) Plan).
The 401(k) Plan covers substantially all employees who have satisfied a
three-month service requirement and have attained the age of 21. The 401(k) Plan
provides for an optional Company contribution for any plan year at the Company's
discretion. The Plan provides for immediate vesting of Company contributions.
There were no Company contributions to the plan for the period from January 1,
1997 through May 31, 1997.

(8) SUBSEQUENT EVENT

In June 1997, Technology Solutions Company acquired the Company.

F-23
<PAGE> 120

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of NexCen Technologies, Inc.

In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of NexCen Technologies, Inc. at
December 31, 1998, and the results of its operations and its cash flows for the
period from July 17, 1998 (date of inception) to December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.

PricewaterhouseCoopers LLP

Boston, Massachusetts
December 20, 1999

F-24
<PAGE> 121

NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31, 1998

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $1,068
Prepaid and other current assets.......................... 2
------
Total current assets.............................. 1,070
Property and equipment, net (Note C)........................ 58
------
Total assets...................................... $1,128
======
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
WARRANTS AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 45
Related party payable..................................... 125
Accrued expenses.......................................... 17
------
Total current liabilities......................... 187
------
Commitments and contingencies (Note D)
Series A redeemable convertible preferred stock, $.01 par
value, 909 shares authorized; 318 shares issued and
outstanding at (liquidation preference $890) (Note E)..... 890
Warrants -- Series A redeemable convertible preferred stock
(Note E).................................................. 750
------
Total redeemable convertible preferred stock and
warrants.......................................... 1,640
------
Stockholders' deficit:
Common stock $.01 par value, 3,000 shares authorized; 770
shares issued and outstanding (Note F)................. 8
Receivable for sale of stock.............................. (8)
Deficit accumulated during the development stage.......... (699)
------
Total stockholders' deficit....................... (699)
------
Total liabilities, redeemable convertible
preferred stock and warrants and stockholders'
deficit........................................... $1,128
======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-25
<PAGE> 122

NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE PERIOD FROM JULY 17, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

<TABLE>
<S> <C>
Marketing expenses.......................................... $ (80)
General and administrative expenses......................... (218)
Research and development expenses........................... (406)
-----
Loss from operations........................................ (704)
Interest income............................................. 20
Net loss and comprehensive loss............................. (684)
-----
Accrued dividends on Series A redeemable preferred stock.... (15)
Net loss attributable to common stockholders................ $(699)
=====
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-26
<PAGE> 123

NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
FOR THE PERIOD FROM JULY 17, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

<TABLE>
<CAPTION>
COMMON STOCK RECEIVABLE TOTAL
--------------- FOR SALE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT OF STOCK DEFICIT DEFICIT
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 17, 1998................. $ --
Common stock issued...................... 770 $8 $(8) --
Accrued dividends........................ $ (15) (15)
Net loss................................. (684) (684)
--- -- --- ----- -----
Balance at December 31, 1998............. 770 $8 $(8) $(699) $(699)
=== == === ===== =====
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-27
<PAGE> 124

NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE PERIOD FROM JULY 17, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

<TABLE>
<S> <C>
Operating activities:
Net loss.................................................. $ (684)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 12
Changes in operating assets and liabilities:
Prepaid and other assets............................. (2)
Accounts payable..................................... 45
Related party payable................................ 125
Accrued expenses..................................... 17
------
Net cash used by operating activities....................... (487)
------
Investment activities:
Purchase of property and equipment........................ (70)
------
Financing activities:
Proceeds from issuance of redeemable preferred stock...... 875
Proceeds from issuance of preferred stock warrants........ 750
------
Net cash provided by financing activities................... 1,625
------
Net increase in cash and cash equivalents................... 1,068
Cash and cash equivalents at beginning of year.............. --
------
Cash and cash equivalents at end of year.................... $1,068
======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-28
<PAGE> 125

NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

A. NATURE OF BUSINESS:

NexCen Technologies (a development stage enterprise) (the "Company"), was
incorporated in the State of Delaware on July 17, 1998. The Company is
developing customer relationship management software (CRM) that enables,
simplifies and tracks business-to-business transactions through the internet and
the telephone expenses.

The Company is subject to risks common to companies in the industry
including, but not limited to, new technological innovations, dependence on key
personnel, protection of proprietary technology, compliance with government
regulations, uncertainty of market acceptance of products and the need to obtain
additional financing.

The accompanying financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Company has generated no
revenues through December 31, 1998 and expects continued future losses. The
Company will require additional financing to continue its planned operations
beyond 1999. Management believes the Company has the ability to raise such
financing.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH AND CASH EQUIVALENTS

The Company considers investments with maturities of 90 days or less at the
time of acquisition to be cash equivalents. At December 31, 1998, cash and cash
equivalents includes cash on deposit and investments in money market type mutual
funds.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost less accumulated depreciation.
Expenditures for repairs and maintenance are charged to expense as incurred.
When assets are retired or disposed of, the assets and related accumulated
depreciation are eliminated from accounts and any resulting gain or loss is
reflected in income. Depreciation is calculated using the straight line method
over the estimated useful lives of the assets, which are as follows:

<TABLE>
<S> <C>
Computer equipment and software............................. 1-3 years
Office equipment............................................ 3 years
</TABLE>

RESEARCH AND DEVELOPMENT COSTS

Costs related to research, design and development of computer software are
charged to expense when incurred. Upon the establishment of technological
feasibility, eligible costs will be capitalized.

INCOME TAXES

The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

F-29
<PAGE> 126
NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) -- (CONTINUED)

RISKS AND UNCERTAINTIES

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of money market funds. The
Company maintains substantially all of its money market funds with one banking
institution.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and contingent
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.

C. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1998:

<TABLE>
<S> <C>
Computer equipment and software............................. $45
Office equipment............................................ 25
---
Total property and equipment.............................. 70
Less accumulated depreciation............................... 12
---
Property and equipment, net................................. $58
===
</TABLE>

D. COMMITMENTS AND CONTINGENCIES:

LEASE OBLIGATIONS

The Company leases office facilities leases. The facilities lease includes
tax and operating expense escalation clauses. Rental expense for operating
leases was $12 for the year ended December 31, 1998. Future annual payments
under operating leases are as follows:

<TABLE>
<CAPTION>
OPERATING
LEASE
---------
<S> <C>
1999........................................................ $34
2000........................................................ 1
---
$35
===
</TABLE>

E. REDEEMABLE PREFERRED STOCK:

On August 28, 1998, the Company issued 318 shares at $2.75 per share of
Series A redeemable convertible preferred stock ("Series A Stock") for proceeds
of $875. Each share of Series A Stock is convertible into common stock at the
option of the holder under a formula which currently results in a 1-for-1
conversion rate. Each share of Series A Stock automatically converts into shares
of common stock under a formula, at the closing of an initial public offering
with an offering price of not less than $5.50 per share and gross proceeds of
not less than $10,000. An equivalent number of common shares is reserved for
conversion.

Each holder of a share of Series A Stock is entitled to the number of votes
equal to that number of shares of common stock into which such shares of Series
A Stock can be converted.

Each holder of Series A Stock is entitled to dividends at a cumulative rate
of five percent (5%) per year compounded annually before any dividends are paid
to common stockholders. These dividends

F-30
<PAGE> 127
NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) -- (CONTINUED)

accumulate from the date of issue and are payable to holders on dates determined
by the Board. Accrued dividends at December 31, 1998 totaled $15.

The holders of the Series A Stock have preference as to the assets of the
Company upon liquidation in an amount equal to $2.75 per share, plus an amount
equal to all declared but unpaid dividends and a pro rata share of the remaining
assets on an as-converted basis.

The holders of the Series A Stock have the option to redeem for cash all or
any portion of the outstanding shares on or after August 28, 2005, at a
redemption price of $2.75 per share plus accrued and unpaid dividends whether or
not earned or declared.

In connection with the Series A Stock, the Company issued stock purchase
warrants to a holder of the Series A Stock for proceeds of $750, granting the
warrant-holder the right to purchase 279 shares of redeemable convertible
preferred stock of the Corporation at an exercise price of $.01 per share. The
warrants are exercisable beginning February 28, 1999 and expire August 28, 2015.
The warrants are recorded as redeemable securities on the balance sheet.

F. COMMON STOCK:

The Company issued a total of 770 shares of common stock in 1998 to the
four founders of the Company. Of this total, 220 shares were pursuant to
restricted stock agreements where the founders may not sell, transfer, or
dispose of the restricted shares of common stock prior to vesting of such stock.
The vesting period begins at date of issue and occurs over four years with 25%
vesting at the end of year one. The Company has a receivable related to this
issuance of $8.

G. INCOME TAXES:

The Company's deferred income taxes as of December 31, 1998 were as
follows:

<TABLE>
<S> <C>
Deferred income taxes assets:
Net operating losses...................................... $ 270
Other..................................................... 6
Tax credit carryforwards.................................. 4
-----
Net total deferred income tax assets........................ 280
Valuation allowance......................................... (280)
-----
Net deferred income taxes................................... $ --
=====
</TABLE>

At December 31, 1998, the Company has available net operating loss
carryforwards for federal and state tax purposes of approximately $671 which
begin to expire in 2018 and 2003, respectively. The Company also has available
research and experimental credit carryforwards to offset future federal income
taxes of approximately $4 which begin to expire in 2013. Under the provisions of
the Internal Revenue Code, certain substantial changes in NexCen's ownership may
have limited, or may limit in the future, the amount of net operating loss and
research and development tax credit carryforwards which could be used annually
to offset future taxable income and income tax liability. The amount of any
annual limitation is determined based upon NexCen's value prior to an ownership
change.

Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets, which are comprised
principally of net operating loss carryforwards. Due to the uncertainty of the
ability to use the net operating losses in the future, management has recorded a
full valuation allowance.

F-31
<PAGE> 128
NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) -- (CONTINUED)

H. STOCK OPTION PLAN:

On August 26, 1998, the Board of Directors adopted the Stock Incentive Plan
(the "Plan"). The Plan enables the Company to grant options to purchase common
stock and restricted stock awards to employees, members of the Board of
Directors, and consultants of the Company. Stock options entitle the holder to
purchase common stock from the Company, for a specified exercise price, during a
period specified by the applicable option agreement. Generally, the options vest
over four years. The options expire on the date determined by the Board of
Directors, not to exceed 10 years following the date of the grant. The total
number of shares of common stock which may be issued under the Plan is 230. This
number can be increased by a Board resolution, subject to the approval of the
shareholders. All options granted to date vest over four years and expire ten
years from the date of the grant.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
WEIGHTED
AVERAGE
OPTIONS SHARES EXERCISE PRICE
- ------- ------ --------------
<S> <C> <C>
Outstanding of beginning of period.......................... -- --
Granted..................................................... 52 $0.22
Exercised................................................... -- --
Cancelled................................................... -- --
-- -----
Outstanding at December 31, 1998............................ 52 $0.22
== =====
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE PRICE
- ------------------------ -------------- ----------- ---------
<S> <C> <C> <C>
$0.10 -- 0.30......................................... 52,000 9.77 years $0.22
</TABLE>

There were no options exercisable at December 31, 1998.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for the Plan and accordingly no compensation expense has been
recorded for options issued to employees since the option exercise prices were
set by the Board of Directors at the estimated fair market value at the date of
the grant.

Pursuant to the requirements of SFAS 123 the Company has estimated the
value of its stock options by applying a present value approach which does not
consider expected volatility of the underlying stock ("minimum value method")
using an assumed risk free interest rate of 4.67% and an assumed life of six
years and no expected dividends for the year ended December 31, 1998.

The pro forma compensation charge results of applying the SFAS 123
calculation did not have a material effect on the results of operations as
reported for the year ended December 31, 1998.

I. RELATED PARTIES:

The Company entered into a software license agreement with one of its
investors and owes the investor $125. This amount is included in accounts
payable as of December 31, 1998. This agreement has been subsequently amended as
described in footnote J.

F-32
<PAGE> 129
NEXCEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) -- (CONTINUED)

J. SUBSEQUENT EVENTS:

On January 26, 1999 the Company adopted an employee benefit plan under
Section 401(k) of the Internal Revenue Code covering substantially all
employees. The plan allows employees to make contributions up to a specified
percentage of their compensation. The Company has not made any contributions to
the Plan to date.

In September 1999, the Company renegotiated its license agreement with one
of its investors (Note I). The Company entered into a $100 promissory note
maturing on August 15, 2014 which replaced the payable due at December 31, 1998
of $125. In addition to the promissory note, the Company entered an amended
royalty payment schedule based on the future software sales by the Company.

In September 1999, the Company entered into three Demand Convertible
Promissory Notes for a total of $500 plus interest of prime plus 2%. In
addition, warrants to purchase common stock were issued at $.30 per share. The
number of shares is determined as twenty percent of the value of the notes plus
accrued and unpaid interest divided by the per share price of the next round of
financing. If the next round of financing does not occur prior to March 1, 2000,
the notes and warrants convert to Series A Preferred Stock at $2.75 per share.

F-33
<PAGE> 130

eLOYALTY CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

FOR THE SEVEN MONTH PERIOD ENDED DECEMBER 31, 1998
AND FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DESCRIPTION OF BEGINNING END OF
ALLOWANCE AND RESERVES OF YEAR ADDITIONS DEDUCTIONS YEAR
---------------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
May 31, 1996
Valuation allowances and receivable reserves for
potential losses................................... $ 48 $ 272 $(136) $ 184
May 31, 1997
Valuation allowances and receivable reserves for
potential losses................................... $184 $ 453 $(439) $ 198
May 31, 1998
Valuation allowances and receivable reserves for
potential losses................................... $198 $ 531 $(254) $ 475
December 31, 1998
Valuation allowances and receivable reserves for
potential losses................................... $475 $2,652 $(489) $2,638
</TABLE>

S-1
<PAGE> 131

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholder
of eLoyalty Corporation:

Our audits of the combined financial statements of eLoyalty Corporation
referred to in our report dated September 10, 1999, appearing in this Form S-1
also included an audit of the financial statement schedule appearing on page S-1
of this Form S-1. In our opinion, this financial statement schedule present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related combined financial statements.

PricewaterhouseCoopers LLP

Chicago, Illinois
September 10, 1999

S-2
<PAGE> 132

ANNEX A

[CSFB LETTERHEAD]

January 26, 2000

Board of Directors
Technology Solutions Company
205 North Michigan Avenue, Suite 1500
Chicago, IL 60601

Members of the Board:

We understand that Technology Solutions Company (the "Company") is
proposing to distribute (the "Distribution") to the holders (the "Stockholders")
of the common stock, par value $.01 per share (the "Company Common Stock"), of
the Company all of the outstanding shares of common stock, par value $.01 per
share (the "ELOY Common Stock"), of eLoyalty Corporation, a wholly owned
subsidiary of the Company ("ELOY"), upon the terms and subject to the conditions
set forth in the Company's Registration Statement on Form S-1, dated January 10,
2000 (the "Form S-1"). The Company after the Distribution is hereinafter
referred to as "New TSC" and the Company Common Stock after the Distribution is
hereinafter referred to as "New TSC Common Stock". You have asked us to advise
you with respect to (i) the fairness of the Distribution from a financial point
of view to the Stockholders and (ii) as to whether the Distribution should
materially and adversely affect the ability of New TSC and ELOY to meet their
respective projected operating and capital expenditures immediately following
the Distribution through December 31, 2000, as set forth in the Management
Forecasts (as defined below).

In arriving at our opinions, we have reviewed certain publicly available
business and financial information relating to the Company and ELOY, as well as
the Form S-1. We have also reviewed certain other information, including
financial forecasts, provided to us by the Company and ELOY, and have met with
the Company's and ELOY's managements to discuss the business and prospects of
the Company, ELOY and New TSC.

We have also considered certain financial and stock market data of the
Company and certain financial data of ELOY and New TSC and we have compared that
data with similar data for publicly held companies in businesses we deemed
similar to ELOY and New TSC. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant.

In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information (including the
information contained in the Form S-1) and have relied on its being complete and
accurate in all material respects. With respect to the financial forecasts
(including the quarterly forecast income statement and cash flow statement for
each of ELOY and New TSC through December 31, 2000, as well as the projected
balance sheet for each of ELOY and New TSC as of December 31, 1999 pro forma for
the Distribution (collectively the "Management Forecasts")), we have assumed,
with your consent, that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the Company's management
as to the future financial performance of ELOY and New TSC and as to the
potential benefits anticipated to result from the Distribution and that the
Management Forecasts will be realized in the amounts and at the times indicated
therein. We assume no responsibility for and express no views as to such
forecasts or the assumptions on which they are based.

A-1
<PAGE> 133
[CSFB LETTERHEAD]

We have relied upon the assessments of the Company's and ELOY's managements
with respect to the business, operational and strategic risks of the
Distribution. We have not been requested to analyze, and did not analyze or
evaluate, the potential benefits of alternatives to the Distribution.
Consequently, this letter does not address the merits of the Distribution as
compared to available alternatives, nor does this letter constitute a
recommendation as to whether the Company should effect the Distribution. We have
not been requested to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company
or ELOY, nor have we been furnished with any such evaluations or appraisals.
This letter also does not address the solvency of the Company or following the
Distribution, ELOY or New TSC or their respective abilities to access the
capital markets at any time prior to or after the Distribution. Our views are
necessarily based upon financial, economic, market and other conditions as they
exist and can be evaluated on the date hereon.

We have assumed that all necessary governmental and regulatory approvals,
consents and filings and any required consents of third parties have been or
will be timely obtained or made and that no such governmental or regulatory
authority or third party will impose any terms or conditions that will have a
material adverse effect on ELOY or New TSC. On your instructions, we have
assumed that, for federal and state income tax purposes, no income, gain or loss
will be recognized by the Company or, by the Stockholders as a result of the
Distribution. We have also assumed that the Distribution will occur in the
manner set forth in the Form S-1 and that, after the Distribution, ELOY will be
accounted for as an entity independent of New TSC. With your consent, we have
also assumed that (i) there has been no material adverse change in the business,
operations, condition (financial and otherwise) or prospects of the Company or
ELOY since the date of the most recent financial information regarding the
Company and ELOY, as applicable, provided to us by the Company and (ii) that the
capitalization of, and the amounts and sources of financing for, New TSC and
ELOY following the Distribution will be as set forth in the Management
Forecasts.

We are not expressing any view as to the actual value of New TSC Common
Stock following the Distribution or of ELOY Common Stock when issued to the
Stockholders pursuant to the Distribution or the prices at which New TSC Common
Stock and ELOY Common Stock will trade subsequent to the Distribution. The
actual values of and prices at which New TSC Common Stock and ELOY Common Stock
will trade following the Distribution will depend on a variety of factors
including, without limitation, prevailing interest rates, dividend rates, market
conditions, general economic conditions and other factors which generally
influence the prices of securities. This letter does not address whether the
aggregate market value of the outstanding shares of New TSC Common Stock and
ELOY Common Stock following the Distribution will exceed the aggregate market
value of the outstanding shares of Company Common Stock at any time prior to the
Distribution or the aggregate market value of the outstanding shares of Company
Common Stock in the absence of the Distribution. The ELOY Common Stock and the
New TSC Common Stock may, after the Distribution, initially trade at prices
below those at which they would trade on a fully distributed basis.

As we have previously advised you, we are generally of the view that a
tax-free pro rata distribution of a subsidiary's common stock to the holders of
the common stock of the subsidiary's parent is inherently fair because the
holders of the parent company's common stock merely receive what they already
own in a different form. With your consent, we have evaluated the fairness of
the Distribution to the Stockholders solely using this criteria and we have
assumed that the Distribution will not result in the loss of any synergies by,
or the creation of any additional financial burdens on, New TSC or ELOY other
than as reflected in the Management Forecasts referred to above.

A-2
<PAGE> 134
[CSFB LETTERHEAD]

We have acted as financial advisor to the Company in connection with the
Distribution and will receive a fee for our services which is contingent upon
the consummation of the Distribution. In the ordinary course of our business, we
and our affiliates may actively trade the debt and equity securities of the
Company for our and such affiliates' own accounts and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.

It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the
Distribution, does not constitute a recommendation to any stockholder of the
Company as to whether such stockholder should buy, sell or continue to hold
Company Common Stock or, following the Distribution, New TSC Common Stock or
ELOY Common Stock and is not to be quoted or referred to, in whole or in part,
in any registration statement, prospectus or proxy statement, or in any other
document used in connection with the offering or sale of securities, nor shall
this letter be used for any other purposes, without our prior written consent.

Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, (i) the Distribution is fair to the Stockholders from a financial
point of view and (ii) the Distribution should not materially and adversely
affect the ability of New TSC and ELOY to meet their respective projected
operating and capital expenditures immediately following the Distribution
through December 31, 2000 as set forth in the Management Forecasts.

Very truly yours,

CREDIT SUISSE FIRST BOSTON CORPORATION

By: /s/ JOE JOSEPHSON
---------------------------------------
Joe Josephson
Managing Director

A-3
<PAGE> 135

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses payable by the
Registrant in connection with the securities being registered.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ *
Nasdaq National Market Listing Fee.......................... *
Printing Costs.............................................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent and Registrar Fees........................... *
Miscellaneous............................................... *
-------
Total............................................. *
=======
</TABLE>

- ---------------

* Technology Solutions Company is paying the costs and expenses of the
Registrant in connection with the securities being offered. The Registrant is
not paying any of these costs and expenses.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was an officer or director of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe his
conduct was illegal. A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation in the
performance of his duty. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.

The company's bylaws provide that it will indemnify its directors and
officers to the fullest extent permitted by Delaware law, except that no
indemnification will be provided to a director, officer, employee or agent if
the indemnification sought is in connection with a proceeding initiated by such
person without the authorization of the board of directors. The bylaws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any statute, provision of the Certificate of
Incorporation, bylaws, agreements, vote of stockholders or disinterested
directors or otherwise. The bylaws also permit the company to secure insurance
on behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
bylaws permit such indemnification.

In accordance with Section 102(b)(7) of the DGCL, the company's amended
Certificate of Incorporation provides that directors shall not be personally
liable for monetary damages for breaches of their fiduciary duty as directors
except for (i) breaches of their duty of loyalty to the company or its
stockholders, (ii) acts of omissions not in good faith or which involve
intentional misconduct or knowing

II-1
<PAGE> 136

violations of law, (iii) certain transactions under Section 174 of the DGCL
(unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) transactions from which a director derives an improper personal benefit.
The effect of this provision is to eliminate the personal liability of directors
for monetary damages for actions involving a breach of their fiduciary duty of
care, including any actions involving gross negligence.

The company has directors' and officers' liability insurance which
provides, subject to certain policy limits, deductible amounts and exclusions,
coverage for all persons who have been, are or may in the future be, directors
or officers of the company, against amounts which such persons may pay resulting
from claims against them by reason of their being such directors or officers
during the policy period for certain breaches of duty, omissions or other acts
done or wrongfully attempted or alleged. Such policies provide coverage to
certain situations where the company cannot directly provide indemnification
under the DGCL.

In addition, we intend to enter into an indemnification agreement with each
of our directors, a form of which has been filed with this registration
statement. This agreement provides each director with, among other things,
specific contractural rights to the maximum identification permitted by the
DGCL.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

We have entered into a common stock purchase and sale agreement with Sutter
Hill Ventures and Technology Crossover Ventures. On June 22, 1999, the investors
agreed to purchase an aggregate of 2,400,000 shares of our common stock at $3.50
per share. The agreement with the investors provides that the proposed purchase
of our common stock is subject to the receipt of a private letter ruling from
the IRS to the effect that the spin-off will be tax-free to TSC and its
stockholders for United States federal income tax purposes and certain other
customary conditions. The purchase and sale of common stock to those investors
was exempt from registration under Section 4(2) of the Securities Act because
the transactions did not involve a public offering.

In December 1999, we issued to TSC an aggregate of 41,400,000 shares of our
common stock for an aggregate consideration of $414,000. The purchase and sale
of our common stock to TSC was exempt from registration under Section 4(2) of
the Securities Act because the transaction did not involve a public offering.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
2.1+ Form of Reorganization Agreement between TSC and eLoyalty
3.1+ Certificate of Incorporation of eLoyalty, as amended
3.2+ Bylaws of eLoyalty
4.1+ Form of Rights Agreement between eLoyalty and ChaseMellon
Shareholder Services, L.L.C. as Rights Agent
5 Opinion of Counsel
10.1+ 1999 Stock Incentive Plan and Amendment Number One
10.2+ 1999 Employee Stock Purchase Plan
10.3+ Common Stock Purchase and Sale Agreement dated August 13,
1999 among TSC, eLoyalty, Sutter Hill Ventures, TCV III
(GP), TCV III, L.P., TCV III (Q), L.P. and TCV III Strategic
Partners, L.P.
10.4+ Registration Rights Agreement dated August 13, 1999 among
TSC, Sutter Hill Ventures, TCV III (GP), TCV III, L.P., TCV
III (Q), L.P. and TCV III Strategic Partners, L.P.
10.5+ Form of Shared Services Agreement between TSC and eLoyalty
10.6+ Form of Tax Sharing and Disaffiliation Agreement between TSC
and eLoyalty
</TABLE>

II-2
<PAGE> 137

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.7+ Form of TSC (Licensor) Intellectual Property License
Agreement
10.8+ Form of eLoyalty (Licensor) Intellectual Property License
Agreement
10.9+ Employment Agreement of Kelly D. Conway
10.10+ Employment Agreement of Timothy J. Cunningham
10.11+ Employment Agreement of Craig Lashmet
10.12+ Kelly D. Conway Promissory Note dated November 12, 1998
10.13+ Office Lease -- Two Conway Park made as of December 6, 1999
by and between Riggs & Company as Landlord and eLoyalty as
Tenant
10.14+ eLoyalty Corporation Executive Deferred Compensation Plan
dated January 1, 2000
10.15+ Form of Indemnification Agreement between eLoyalty and each
director of eLoyalty
21+ Subsidiaries of eLoyalty
23.1 Consent of PricewaterhouseCoopers LLP, Chicago, Illinois,
Independent Accountants
23.2 Consent of PricewaterhouseCoopers LLP, Boston Massachusetts,
Independent Accountants
23.3 Consent of Counsel (included in Exhibit 5)
23.4 Consent of Credit Suisse First Boston
24.1+ Power of Attorney from John T. Kohler, Director
24.2+ Power of Attorney from Michael J. Murray, Director
24.3+ Power of Attorney from John R. Purcell, Director
24.4+ Power of Attorney from Michael R. Zucchini, Director
27+ Financial Data Schedule
</TABLE>

- ---------------

+ Previously filed.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE> 138

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on February 8, 2000.

eLOYALTY CORPORATION

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

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>

/s/ KELLY D. CONWAY Director, President and Chief February 8, 2000
- ----------------------------------------------------- Executive Officer (principal
Kelly D. Conway executive officer)

/s/ TIMOTHY J. CUNNINGHAM Chief Financial Officer February 8, 2000
- ----------------------------------------------------- (principal financial officer
Timothy J. Cunningham and principal accounting
officer)

* Director, Interim Chairman of February 8, 2000
- ----------------------------------------------------- the Board of Directors
John T. Kohler

* Director February 8, 2000
- -----------------------------------------------------
Michael J. Murray

* Director February 8, 2000
- -----------------------------------------------------
John R. Purcell

* Director February 8, 2000
- -----------------------------------------------------
Michael R. Zucchini

By: /s/ TIMOTHY J. CUNNINGHAM
-------------------------------------------------
Timothy J. Cunningham
Attorney-in-fact
</TABLE>

II-4

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated September 10, 1999 relating to the financial statements and
financial statement schedule of eLoyalty Corporation and our report dated
December 21, 1999 relating to the financial statements of The Bentley Group,
Inc., which appear in such Registration Statement. We also consent to the
reference to us under the headings "Experts" in such Registration Statement.

PricewaterhouseCoopers LLP

Chicago, Illinois
February 4, 2000

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated December 20, 1999 relating to the financial statements of NexCen
Technologies, Inc., which appears in such Registration Statement. We also
consent to the reference to us under the headings "Experts" in such Registration
Statement.

PricewaterhouseCoopers LLP

Boston, Massachusetts
February 4, 2000

<PAGE> 1
EXHIBIT 23.4

[Letterhead of Credit Suisse First Boston Corporation]

February 8, 2000

VIA FEDEX

Board of Directors
Technology Solutions Company
205 North Michigan Avenue, Suite 1500
Chicago, IL 60601

Consent to Include Fairness Opinion
in the Information Statement/Prospectus/Registration Statement

Dear Sirs:

We hereby consent to the inclusion of and reference to our opinion, dated
January 26, 2000, in the information statement/prospectus included in this
Registration Statement on Form S-1 (the "Registration Statement") of eLoyalty
Corporation, a Delaware corporation (the "Company") covering the common stock,
par value $0.01 per share, of the Company to be distributed to the holders of
the common stock, par value $0.01 per share, of Technology Solutions Company on
a pro rata basis. In giving the foregoing consent, we do not admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended (the "Securities Act"), or the rules
and regulations promulgated thereunder, nor do we admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act or the rules and regulations
promulgated thereunder.

Very truly yours,

CREDIT SUISSE FIRST BOSTON CORPORATION

By: /s/ Joe Josephson
-------------------------
Name: Joe Josephson
Title: Managing Director