<PAGE>   1

                                                                     EXHIBIT 4.2



                           Certificate of Designations

                                       of

                  Series A Junior Participating Preferred Stock

                                       of

                              eLoyalty Corporation



                         Pursuant to Section 151 of the

                General Corporation Law of the State of Delaware



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

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

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

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

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






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

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

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





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

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

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

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

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

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

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






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

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

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

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





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

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

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

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

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

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

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

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




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

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

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

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

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

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

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





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

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

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

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

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

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

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

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

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

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

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





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
















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


                                                eLoyalty Corporation


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


(Corporate Seal)

Attest:


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





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