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                                                                   EXHIBIT 4.1

                      RESOLUTION OF THE BOARD OF DIRECTORS
                                    APPROVING
                            THE DESIGNATION STATEMENT
                                   RELATING TO
                     7% SERIES B CONVERTIBLE PREFERRED STOCK

         WHEREAS, the Certificate of Incorporation of eLoyalty Corporation, a
Delaware corporation (the "Corporation"), authorizes the Corporation to issue a
total of [______________] shares of preferred stock, par value $.01 per share
("Preferred Stock"), which may be divided into one or more series as the Board
of Directors may determine;

         WHEREAS, the Certificate of Incorporation of the Corporation expressly
vests in the Board of Directors the authority to fix and determine the
designations, powers, preferences and rights, and the qualifications,
limitations and restrictions, of the Preferred Stock; and

         WHEREAS, the Board of Directors deems it advisable to designate a
series of the Preferred Stock consisting of [______________] shares designated
as 7% Series B Convertible Preferred Stock;

         WHEREAS, immediately prior to the filing of this Certificate of
Designation with the Secretary of State of the State of Delaware, the
Corporation filed an amendment to its Certificate of Incorporation which, among
other things, gave effect to a one-for-ten reverse stock split of the
Corporation's common stock, $.01 par value per share.

         NOW, THEREFORE, IT IS HEREBY RESOLVED, that pursuant to Article IV of
the Certificate of Incorporation of the Corporation, there be and hereby is
authorized and created a series of Preferred Stock hereby designated as 7%
Series B Convertible Preferred Stock, to consist of [______________] shares,
having a par value of $.01 per share, which series shall have the voting rights,
designations, powers, preferences, relative and other special rights, and the
qualifications, limitations and restrictions set forth below:

         Series B Convertible Preferred Stock. [______________] of the
authorized shares of Preferred Stock are hereby designated "7% Series B
Convertible Preferred Stock" (the "Series B Preferred Stock"). The rights,
preferences, privileges, restrictions and other matters relating to the Series B
Preferred Stock are as follows:

         (a)      Dividend Rights.

                  (i) Subject to the right of any other series of Preferred
         Stock that may from time to time come into existence and which is
         expressly senior to the rights of the Series B Preferred Stock, the
         holders of Series B Preferred Stock, in preference to the holders of
         common stock, par value $.01 per share, of the Corporation (the "Common
         Stock"), the Series A Junior Participating Preferred Stock, par value
         $.01 per share, of the Corporation

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         and any other stock of the Corporation hereafter created which shall be
         junior to the Series B Preferred Stock (together, "Series B Junior
         Stock"), shall be entitled to receive dividends, when, as and if
         declared by the Board of Directors, but only out of funds that are
         legally available therefor, at the rate of 7% of the Series B Original
         Issue Price (as defined below) per annum (the "Series B Dividend Rate")
         on each outstanding share of Series B Preferred Stock (as adjusted for
         any stock dividends, combinations, splits, recapitalizations and the
         like with respect to such shares). For any share of Series B Preferred
         Stock, such dividends shall begin to accrue commencing upon the first
         date such share is issued and becomes outstanding and shall be payable
         semi-annually in cash on January 1 and July 1 of each year, beginning
         on July 1, 2002 (each, a "Dividend Payment Date"), provided, that, (i)
         if any such Dividend Payment Date is not a Business Day, then any such
         dividend shall be payable on the next Business Day, and (ii) any such
         dividend shall be payable only as the Board of Directors may from time
         to time determine, and only when, as and if declared by the Board of
         Directors. Subject to the foregoing, any such dividend shall be paid to
         the holders of record at the close of business on the date specified by
         the Board of Directors at the time such dividend is declared, provided,
         however, that such date may not be more than 60 days nor less than 10
         days prior to the applicable dividend payment date. Such dividends
         shall accrue day by day and shall be cumulative, whether or not
         declared by the Board of Directors and whether or not there shall be
         funds legally available for the payment of dividends. The original
         issue price of the Series B Preferred Stock shall be $[_____] (the
         "Series B Original Issue Price"). Dividends payable for any period
         shorter or longer than a semi-annual dividend period shall be computed
         on the basis of a 360-day year of twelve 30-day months. Dividends in
         arrears may be declared by the Board of Directors and paid on any date
         fixed by the Board of Directors, without reference to any regular
         Dividend Payment Date. Any dividend paid upon the Series B Preferred
         Stock at a time when any accrued dividends for any prior periods are
         delinquent shall be expressly declared as a dividend in whole or
         partial payment of the accrued dividend for the earliest period or
         periods for which dividends are then delinquent, and shall be so
         designated to each holder to whom payment is made thereof. The term
         "Business Day" means any day other than a Saturday, a Sunday or a day
         on which banking institutions in the City of Chicago, Illinois are
         authorized or required by law to be closed.

                  (ii) So long as any shares of Series B Preferred Stock shall
         be outstanding, without the prior written consent of the holders of a
         majority of the then issued and outstanding shares of Series B
         Preferred Stock, no dividend (other than a Common Stock dividend paid
         pro rata to the Corporation's stockholders), whether in cash,
         securities or other property, shall be paid or declared, nor shall any
         other distribution (other than a Common Stock dividend paid pro rata to
         the Corporation's stockholders) be made, on any Series B Junior Stock,
         nor shall any shares of any Series B Junior Stock of the Corporation be
         purchased, redeemed or otherwise acquired for value by the Corporation
         or any of its subsidiaries (except (A) for acquisitions of Common Stock
         by the Corporation or its subsidiaries pursuant to stock-based
         compensation arrangements or agreements that permit the Corporation to
         repurchase such shares upon termination of services to the Corporation
         or its subsidiaries for a price not greater than the cost thereof to
         the applicable service

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         provider, (B) for acquisitions by the Company or its subsidiaries in
         whole or partial satisfaction of the exercise price or applicable tax
         withholding requirements in respect of any option, restricted stock or
         similar award made pursuant to any compensation or benefit plan,
         agreement or arrangement maintained or assumed by the Company or its
         subsidiaries and (C) by conversion into or exchange for Series B Junior
         Stock or any security convertible into or exchangeable for Series B
         Junior Stock) until all dividends (set forth in Section (a)(i) above)
         then accrued on the Series B Preferred Stock shall have been paid or
         declared and set apart. In the event that the Corporation shall declare
         a dividend or distribution payable in securities of the Corporation or
         of other persons (other than a dividend paid solely in shares of Common
         Stock), evidences of indebtedness issued by the Corporation or other
         persons, or options or rights to purchase any such securities or
         evidences of indebtedness or other assets (including cash) to the
         holders of the Common Stock, then the holders of the Series B Preferred
         Stock shall be entitled to a proportionate share of any such dividend
         or distribution as though the holders of the Series B Preferred Stock
         were the holders of the number of shares of Common Stock into which
         their respective shares of Series B Preferred Stock are convertible as
         of the record date fixed for the determination of the holders of the
         Common Stock entitled to receive such dividend or distribution
         (calculated as if the Series B Preferred Stock were convertible upon
         the Series B Original Issue Date and without consideration of the
         restriction on conversion contained in Section (d)(i) hereof).

         (b)      Voting Rights.

                  (i) General Rights. Except as otherwise provided herein or as
         required by law, the Series B Preferred Stock shall be voted equally
         with the shares of the Common Stock of the Corporation and not as a
         separate class, at any annual or special meeting of stockholders of the
         Corporation, upon the following basis: each holder of shares of Series
         B Preferred Stock shall be entitled to such number of votes as shall be
         equal to the whole number of shares of Common Stock into which such
         holder's aggregate number of shares of Series B Preferred Stock are
         convertible pursuant to Section (d) hereof immediately after the close
         of business on the record date fixed for such meeting or the effective
         date of such written consent (calculated as if the Series B Preferred
         Stock were convertible upon the Series B Original Issue Date and
         without consideration of the restriction on conversion contained in
         Section (d)(i) hereof).

                  (ii) Separate Vote of Series B Preferred Stock. In addition to
         any other vote or consent required herein or by law, the vote of the
         holders of at least a majority of the outstanding Series B Preferred
         Stock shall be necessary for effecting or validating the following
         actions:

                           (A) any action that authorizes, creates or results in
                  the issuance of any class or series of stock or any other
                  securities convertible into or exercisable for equity
                  securities of the Corporation having rights, preferences or
                  privileges senior to or on a parity with the Series B
                  Preferred Stock;

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                           (B) any increase or decrease in the authorized number
                  of shares of Series B Preferred Stock; or

                           (C) any amendment, waiver, alteration or repeal of
                  any provisions of the Certificate of Incorporation or Bylaws
                  of the Corporation in a way that, directly or indirectly,
                  adversely affects the rights, preferences or privileges of the
                  Series B Preferred Stock.

                  (iii) Special Voting Rights. During the period beginning on
         the Series B Original Issue Date (as defined below), and ending on the
         date which is six months after the Series B Original Issue Date, the
         Corporation shall not consummate any Sale Transaction to which it is a
         party unless such Sale Transaction has been approved by the affirmative
         vote of the holders of at least 85% of the Series B Preferred Stock
         present in person or by proxy and entitled to vote at a stockholder
         meeting called for the purpose of approving such Sale Transaction.

         (c)      Liquidation Rights.

                  (i) Upon any liquidation, dissolution, or winding up of the
         Corporation, whether voluntary or involuntary, before any distribution
         or payment shall be made to the holders of any Series B Junior Stock,
         subject to the rights of any series of Preferred Stock that may from
         time to time come into existence and which is expressly senior to the
         rights of the Series B Preferred Stock, the holders of Series B
         Preferred Stock shall be entitled to be paid in cash out of the assets
         of the Corporation an amount per share of Series B Preferred Stock
         equal to 100% of the Series B Original Issue Price (as adjusted for any
         stock dividends, combinations, splits, recapitalizations and the like
         with respect to such shares), plus accrued but unpaid dividends (the
         "Liquidation Preference"), for each share of Series B Preferred Stock
         held by each such holder. If, upon any such liquidation, dissolution,
         or winding up, the assets of the Corporation shall be insufficient to
         make payment in full of the Liquidation Preference to all holders of
         Series B Preferred Stock, then such assets shall be distributed among
         the holders of Series B Preferred Stock at the time outstanding,
         ratably in proportion to the full amounts to which they would otherwise
         be respectively entitled. After the payment of the foregoing full
         Liquidation Preference of the Series B Preferred Stock and any other
         distribution that may be required with respect to any series of
         Preferred Stock that may from time to time come into existence and
         which is expressly senior to the rights of the Series B Preferred
         Stock, the assets of the Corporation legally available for
         distribution, if any, shall be distributed ratably to the holders of
         the Series B Junior Stock and the Series B Preferred Stock, on an as
         converted basis; provided, however, that if, in connection with a Sale
         Transaction (as defined below), the holders of a share of the Common
         Stock (before giving effect to the payment of the Liquidation
         Preference but after giving effect to the payment of the liquidation
         preference of any other class of Preferred Stock and assuming
         conversion in full of the outstanding shares of Series B Preferred
         Stock into Common Stock) would receive consideration with a value of at
         least four times the Series B Original Issue Price (as adjusted for
         stock splits, stock dividends, combinations, recapitalizations and the

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         like), then in lieu of the Liquidation Preference plus participation
         with the Series B Junior Stock provided for above, the holders of the
         Series B Preferred Stock shall receive the amount that they would be
         entitled to receive if all shares of Series B Preferred Stock were
         converted to Common Stock immediately prior to the Sale Transaction.
         The Corporation shall not enter into any Sale Transaction that does not
         provide for the treatment of the holders of Series B Preferred Stock in
         a manner consistent (assuming in the case of a merger or consolidation
         that the assets of the Corporation legally available for distribution
         equals the aggregate consideration to be received by the Corporation's
         stockholders in such merger or consolidation) with the provisions of
         this Section (c). In the event the requirements of the immediately
         preceding sentence are not complied with in connection with a Sale
         Transaction, the Corporation shall forthwith either (A) cause the
         closing of such Sale Transaction to be postponed until such time as
         such requreiments have been complied with or (B) cancel such Sale
         Transaction, in which event the rights, preferences and privileges of
         the holders of the Series B Preferred Stock shall revert to and be the
         same as such rights, preferences and privileges existing immediately
         prior to the date of the first notice referred to in Section (c)(iv)
         hereof. Upon receipt by any holder of the full amount of the
         distributions to such holder as contemplated by this Section (c)(i) in
         respect of any share of Series B Preferred Stock, such share of Series
         B Preferred Stock shall be deemed to be retired and shall no longer be
         outstanding.

                  (ii) The following events (each a "Sale Transaction") shall be
         considered a liquidation under this Section:

                           (A) any consolidation or merger of the Corporation
                  with or into any other corporation or other entity or person,
                  or any other corporate reorganization, in which the
                  stockholders of the Corporation immediately prior to such
                  consolidation, merger or reorganization, own less than 50% of
                  the Corporation's voting power immediately after such
                  consolidation, merger or reorganization, or any transaction or
                  series of related transactions to which the Corporation is a
                  direct contracting party in which in excess of 50% of the
                  Corporation's voting power is transferred, excluding any
                  consolidation or merger effected exclusively to change the
                  domicile of the Corporation (an "Acquisition");

                           (B) a sale, lease or other disposition of all or
                  substantially all of the assets of the Corporation (an "Asset
                  Transfer").

                  (iii) In any of the events set forth in subparagraph (ii), if
         the consideration received by the Corporation or its stockholders is
         other than cash, its value will be deemed its fair market value as
         determined in good faith by the Board of Directors. Any securities
         shall be valued as follows:

                           (A) Securities not subject to restrictions on free
                  marketability covered by subparagraph (B) below:

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                                    (1) If traded on a securities exchange or
                           through the Nasdaq National Market (or a similar
                           national quotation system), the value shall be deemed
                           to be the average of the closing prices of the
                           securities on such quotation system over the 30 day
                           period ending three days prior to the closing;

                                    (2) If actively traded over-the-counter, the
                           value shall be deemed to be the average of the
                           closing bid or sale prices (whichever is applicable)
                           over the 30 day period ending three days prior to the
                           closing; and

                                    (3) If there is no active public market, the
                           value shall be the fair market value thereof, as
                           determined in good faith by the Board of Directors.

                           (B) The method of valuation of securities subject to
                  restrictions on free marketability (other than restrictions
                  arising solely by virtue of a stockholder's status as an
                  affiliate or former affiliate) shall be to make an appropriate
                  discount from the market value determined as above in
                  subparagraphs (iii)(A)(1), (2) or (3) to reflect the
                  approximate fair market value thereof, as determined in good
                  faith by the Board of Directors.

                  (iv) Written notice of any such liquidation, dissolution or
         winding up (or deemed liquidation, dissolution or winding up) of the
         Corporation within the meaning of this Section, which states the
         payment date, the place where said payments shall be made and the date
         on which conversion rights as set forth herein terminate as to such
         shares (which shall be not less than 10 days after the date of such
         notice), shall be given by first class mail, postage prepaid, or by
         telecopy or facsimile, not less than 20 days prior to the payment date
         stated therein, to the then holders of record of Series B Preferred
         Stock, such notice to be addressed to each such holder at its address
         as shown on the records of the Corporation.

         (d) Conversion Rights. The holders of the Series B Preferred Stock
shall have the following rights with respect to the conversion of the Series B
Preferred Stock into shares of Common Stock:

                  (i) Optional Conversion. Subject to and in compliance with the
         provisions of this Section (d), any shares of Series B Preferred Stock
         may, at the option of the holder, be converted at any time on and after
         the date which is six months after the Series B Original Issue Date
         into fully-paid and nonassessable shares of Common Stock. The number of
         shares of Common Stock to which a holder of Series B Preferred Stock
         shall be entitled upon conversion shall be the product obtained by
         multiplying the "Series B Preferred Conversion Rate" then in effect
         (determined as provided in subsection (ii)) by the number of shares of
         Series B Preferred Stock being converted.

                  (ii) Series B Preferred Conversion Rate. The conversion rate
         in effect at any time for conversion of the Series B Preferred Stock
         (the "Series B Preferred Conversion Rate")

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         shall be the quotient obtained by dividing the Series B Original Issue
         Price by the "Series B Preferred Conversion Price," calculated as
         provided in subsection (iii) below.

                  (iii) Series B Preferred Conversion Price. The conversion
         price for the Series B Preferred Stock shall initially be the Series B
         Original Issue Price (the "Series B Preferred Conversion Price"). Such
         initial Series B Preferred Conversion Price shall be adjusted from time
         to time in accordance with this Section (d). All references to the
         Series B Preferred Conversion Price herein shall mean the Series B
         Preferred Conversion Price as so adjusted.

                  (iv) Mechanics of Conversion. Each holder of Series B
         Preferred Stock who desires to convert the same into shares of Common
         Stock pursuant to this Section (d) shall surrender the certificate or
         certificates therefor, duly endorsed, at the office of the Corporation
         or any transfer agent for the Series B Preferred Stock, and shall give
         written notice to the Corporation at such office that such holder
         elects to convert the same. Such notice shall state the number of
         shares of Series B Preferred Stock being converted. Thereupon, the
         Corporation shall promptly issue and deliver at such office to such
         holder a certificate or certificates for the number of shares of Common
         Stock to which such holder is entitled and shall promptly pay in cash
         (at the Common Stock's fair market value determined by the Board of
         Directors as of the date of conversion) the value of any fractional
         share of Common Stock otherwise issuable to any holder of Series B
         Preferred Stock. Such conversion shall be deemed to have been made at
         the close of business on the date of such surrender of the certificates
         representing the shares of Series B Preferred Stock to be converted,
         and the person entitled to receive the shares of Common Stock issuable
         upon such conversion shall be treated for all purposes as the record
         holder of such shares of Common Stock on such date.

                  (v) Adjustment Upon Common Stock Event. Upon the happening of
         a Common Stock Event (as hereinafter defined) at any time or from time
         to time after the date that the first share of Series B Preferred Stock
         is issued (the "Series B Original Issue Date"), the Series B Preferred
         Conversion Price shall, simultaneously with the happening of such
         Common Stock Event, be adjusted by multiplying the Series B Preferred
         Conversion Price in effect immediately prior to such Common Stock Event
         by a fraction, (i) the numerator of which shall be the number of shares
         of Common Stock issued and outstanding immediately prior to such Common
         Stock Event, and (ii) the denominator of which shall be the number of
         shares of Common Stock issued and outstanding immediately after such
         Common Stock Event, and the product so obtained shall thereafter be the
         Series B Preferred Conversion Price. The Series B Preferred Conversion
         Price shall be readjusted in the same manner upon the happening of each
         subsequent Common Stock Event. As used in this Section (d), the term
         "Common Stock Event" shall mean (i) the issue by the Corporation of
         additional shares of Common Stock as a dividend or other distribution
         on outstanding Common Stock, (ii) a subdivision of the outstanding
         shares of Common Stock into a greater number of shares of Common Stock
         (by stock split, reclassification or otherwise), or (iii) a combination
         or consolidation, by reclassification or otherwise, of the outstanding
         shares of Common Stock

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         into a smaller number of shares of Common Stock (unless the Series B
         Preferred Stock is combined, consolidated or reclassified on an equal
         basis).

                  (vi) Adjustment for Other Dividends and Distributions. If at
         any time or from time to time after the Series B Original Issue Date
         the Corporation pays a dividend or makes another distribution to the
         holders of the Common Stock (or fixes a record date for the
         determination of holders of Common Stock entitled to receive such
         dividend or other distribution) payable in securities of the
         Corporation or any of its subsidiaries other than shares of Common
         Stock, then in each such event provision shall be made so that the
         holders of Series B Preferred Stock shall receive upon conversion
         thereof, in addition to the number of shares of Common Stock receivable
         upon conversion thereof, the amount of securities of the Corporation or
         such subsidiary which they would have received had their Series B
         Preferred Stock been converted into Common Stock (determined as if the
         Series B Preferred Stock were convertible upon the Series B Original
         Issue Date and without consideration of the restriction on conversion
         contained in Section (d)(i) hereof) on the date of such event (or such
         record date, as applicable) and had they thereafter, during the period
         from the date of such event (or such record date, as applicable) to and
         including the conversion date, retained such securities receivable by
         them as aforesaid during such period, subject to all other adjustments
         called for during such period under this Section (d) with respect to
         the rights of the holders of the Series B Preferred Stock or with
         respect to such other securities by their terms. Notwithstanding the
         foregoing, the adjustment provided by this Section (d)(vi) shall not be
         made if the holders of the Series B Preferred Stock shall have received
         a proportionate dividend as provided in Section (a)(ii).

                  (vii) Adjustment for Reclassification, Exchange and
         Substitution. If at any time or from time to time after the Series B
         Original Issue Date, the Common Stock issuable upon the conversion of
         the Series B Preferred Stock is changed into the same or a different
         number of shares of any class or classes of stock, whether by
         recapitalization, reclassification or otherwise (other than an
         Acquisition or Asset Transfer as defined in Section (c) or a
         subdivision or combination of shares or stock dividend or a
         reorganization, merger, consolidation or sale of assets provided for
         elsewhere in this Section (d)), in any such event each holder of Series
         B Preferred Stock shall have the right thereafter (to the extent such
         Series B Preferred Stock is convertible as otherwise provided herein)
         to convert such Series B Preferred Stock into the kind and amount of
         stock and other securities and property receivable upon such
         recapitalization, reclassification or other change by holders of the
         maximum number of shares of Common Stock into which such shares of
         Series B Preferred Stock could have been converted immediately prior to
         such recapitalization, reclassification or change (determined as if the
         Series B Preferred Stock were convertible upon the Series B Original
         Issue Date and without consideration of the restriction on conversion
         contained in Section (d)(i) hereof), all subject to further adjustment
         as provided herein or with respect to such other securities or property
         by the terms thereof. In any such case, appropriate adjustment shall be
         made in the application of the provisions of this Section (d) with
         respect to the rights of the holders of Series B Preferred Stock after
         such recapitalization, reclassification or other change (including
         adjustment of the Series B

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         Preferred Conversion Price then in effect and the number of shares
         issuable upon conversion of the Series B Preferred Stock), to the end
         that the provisions of this Section (d) shall be applicable after that
         event and be as nearly equivalent as practicable.

                  (viii) Adjustment for Reorganizations, Mergers or
         Consolidations. If at any time or from time to time after the Series B
         Original Issue Date, there is a capital reorganization of the Common
         Stock or the merger or consolidation of the Corporation with or into
         another corporation or another entity or person (other than an
         Acquisition or Asset Transfer as defined in Section (c) or a
         recapitalization, subdivision, combination, reclassification, exchange
         or substitution of shares provided for elsewhere in this Section (d)),
         as a part of such capital reorganization, merger or consolidation,
         provision shall be made so that the holders of the Series B Preferred
         Stock shall thereafter be entitled to receive upon conversion of the
         Series B Preferred Stock the number of shares of stock or other
         securities or property which a holder of the number of shares of Common
         Stock deliverable upon conversion would have been entitled on such
         capital reorganization, merger or consolidation, subject to adjustment
         in respect of such stock or securities by the terms thereof. In any
         such case, appropriate adjustment shall be made in the application of
         the provisions of this Section (d) with respect to the rights of the
         holders of Series B Preferred Stock after the capital reorganization,
         merger or consolidation (including adjustment of the Series B Preferred
         Conversion Price then in effect and the number of shares issuable upon
         conversion of the Series B Preferred Stock), to the end that the
         provisions of this Section (d) shall be applicable after that event and
         be as nearly equivalent as practicable.

                  (ix) Notices of Record Date. Upon (i) any taking by the
         Corporation of a record of the holders of any class of securities for
         the purpose of determining the holders thereof who are entitled to
         receive any dividend or other distribution, or (ii) any Acquisition (as
         defined in Section (c)) or other capital reorganization of the
         Corporation, any reclassification or recapitalization of the capital
         stock of the Corporation, any merger or consolidation of the
         Corporation with or into any other entity, or any Asset Transfer (as
         defined in Section (c)), or any voluntary or involuntary dissolution,
         liquidation or winding up of the Corporation, the Corporation shall
         mail to each holder of Series B Preferred Stock at least 10 days prior
         to the record date specified therein (or such shorter period approved
         by a majority of the outstanding Series B Preferred Stock) a notice
         specifying (A) the date on which any such record is to be taken for the
         purpose of such dividend or distribution and a description of such
         dividend or distribution, (B) the date on which any such Acquisition,
         reorganization, reclassification, transfer, consolidation, merger,
         Asset Transfer, dissolution, liquidation or winding up is expected to
         become effective, and (C) the date, if any, that is to be fixed as to
         when the holders of record of Common Stock (or other securities) shall
         be entitled to exchange their shares of Common Stock (or other
         securities) for securities or other property deliverable upon such
         Acquisition, reorganization, reclassification, transfer, consolidation,
         merger, Asset Transfer, dissolution, liquidation or winding up.

                  (x) Automatic Conversion.

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                           (A) Each share of Series B Preferred Stock shall
                  automatically be converted into shares of Common Stock, based
                  on the then-effective Series B Preferred Conversion Price, (i)
                  with respect to holders of the Series B Preferred Stock other
                  than the Investors (as defined below), if at any time after
                  six months from the Series B Original Issue Date the Common
                  Stock has a Closing Price (as defined below) of at least five
                  times the Series B Original Issue Price (as adjusted for any
                  stock dividends, combinations, splits, recapitalizations and
                  the like with respect to such shares) for thirty consecutive
                  trading days, and (ii) with respect to the Investors, if at
                  any time after six months from the Series B Original Issue
                  Date (y) the Common Stock has a Closing Price (as defined
                  below) of at least five times the Series B Original Issue
                  Price (as adjusted for any stock dividends, combinations,
                  splits, recapitalizations and the like with respect to such
                  shares) for thirty consecutive trading days, and (z) the Shelf
                  Registration as defined in and provided for in the Amended and
                  Restated Investor Rights Agreement, dated as of [_______]
                  [__], 200[__] (the "Investor Agreement"), between the
                  Corporation and the investors named on Exhibit A thereto
                  (collectively with the Holders, as such term is defined in the
                  Investor Agreement, the "Investors") has become effective
                  under the Securities Act of 1933, as amended, and is available
                  for sales of Common Stock by the Investors thereunder (to the
                  extent the requirement to maintain such Shelf Registration
                  effective has not at such time lapsed pursuant to Section 5 of
                  such Investor Agreement). For purposes of this Section (d)(x),
                  the term "Closing Price" shall mean (1) if the Common Stock is
                  traded on a securities exchange or through the Nasdaq National
                  Market (or a similar national quotation system), the closing
                  price of the Common Stock on such exchange or the last sale
                  price of the Common Stock on such quotation system, and (2) if
                  clause (1) is inapplicable, the closing bid or sale price
                  (whichever is applicable) in the over-the-counter market.

                           (B) Upon the occurrence of the events specified in
                  subparagraph (A), the outstanding shares of Series B Preferred
                  Stock shall be converted automatically without any further
                  action by the holders of such shares and whether or not the
                  certificates representing such shares are surrendered to the
                  Corporation or its transfer agent; provided, however, that the
                  Corporation shall not be obligated to issue certificates
                  evidencing the shares of Common Stock issuable upon such
                  conversion unless the certificates evidencing such shares of
                  Series B Preferred Stock are either delivered to the
                  Corporation or its transfer agent as provided below, or the
                  holder notifies the Corporation or its transfer agent that
                  such certificates have been lost, stolen or destroyed and
                  executes an agreement satisfactory to the Corporation to
                  indemnify the Corporation from any loss incurred by it in
                  connection with such certificates. Upon the occurrence of such
                  automatic conversion of the Series B Preferred Stock, (y) the
                  Corporation shall notify (the "Automatic Conversion Notice")
                  each holder of Series B Preferred Stock who is shown to be
                  such a holder on the books of the Corporation as of the time
                  immediately prior to such conversion, and (z) the holders of
                  Series B Preferred Stock shall surrender the certificates
                  representing such shares at the office of the Corporation or
                  any transfer agent for the

                                       10
<PAGE>   11

                  Series B Preferred Stock, which shall be designated in the
                  Automatic Conversion Notice. Thereupon, there shall be issued
                  and delivered to such holder promptly at such office and in
                  its name as shown on such surrendered certificate or
                  certificates, a certificate or certificates for the number of
                  shares of Common Stock into which the shares of Series B
                  Preferred Stock surrendered were convertible on the date on
                  which such automatic conversion occurred.

                  (xi) Fractional Shares. No fractional shares of Common Stock
         shall be issued upon conversion of Series B Preferred Stock. All shares
         of Common Stock (including fractions thereof) issuable upon conversion
         of more than one share of Series B Preferred Stock by a holder thereof
         shall be aggregated for purposes of determining whether the conversion
         would result in the issuance of any fractional share. If, after the
         aforementioned aggregation, the conversion would result in the issuance
         of any fractional share, the Corporation shall, in lieu of issuing any
         fractional share, pay cash equal to the product of such fraction
         multiplied by the Common Stock's fair market value (as determined by
         the Board of Directors) on the date of conversion.

                  (xii) Reservation of Stock Issuable Upon Conversion. The
         Corporation shall at all times reserve and keep available out of its
         authorized but unissued shares of Common Stock, solely for the purpose
         of effecting the conversion of the shares of the Series B Preferred
         Stock, such number of its shares of Common Stock as shall from time to
         time be sufficient to effect the conversion of all outstanding shares
         of the Series B Preferred Stock. If at any time the number of
         authorized but unissued shares of Common Stock shall not be sufficient
         to effect the conversion of all then outstanding shares of the Series B
         Preferred Stock, the Corporation will take such corporate action as may
         be necessary to increase its authorized but unissued shares of Common
         Stock to such number of shares as shall be sufficient for such purpose.

                  (xiii) Notices. Any notice required by the provisions of this
         Section (d) shall be in writing and shall be deemed effectively given:
         (i) upon personal delivery to the party to be notified, (ii) when sent
         by confirmed electronic mail or facsimile if sent during normal
         business hours of the recipient; if not, then on the next business day,
         (iii) five days after having been sent by registered or certified mail,
         return receipt requested, postage prepaid, or (iv) one day after
         deposit with a nationally recognized overnight courier, specifying next
         day delivery, with verification of receipt. All notices shall be
         addressed to each holder of record at the address of such holder
         appearing on the books of the Corporation.

                  (xiv) Payment of Taxes. The Corporation will pay all taxes
         (other than taxes based upon income) and other governmental charges
         that may be imposed with respect to the issue or delivery of shares of
         Common Stock upon conversion of shares of Series B Preferred Stock,
         excluding any tax or other charge imposed in connection with any
         transfer involved in the issue and delivery of shares of Common Stock
         in a name other than that in which the shares of Series B Preferred
         Stock so converted were registered.

                                       11
<PAGE>   12

                  (xv) No Impairment. The Corporation shall not avoid or seek to
         avoid the observance or performance of any of the terms to be observed
         or performed hereunder by the Corporation, but shall at all times in
         good faith assist in carrying out all such actions as may be reasonably
         necessary or appropriate in order to protect the conversion rights of
         the holders of the Series B Preferred Stock against impairment.

                  (xvi) Satisfaction of Accrued Dividends. Except as otherwise
         expressly provided, upon the conversion of any shares of Series B
         Preferred Stock into Common Stock as provided herein, the holders
         thereof shall be entitled to receive a payment in satisfaction of all
         accrued but unpaid dividends.

         (e) Waiver. Any rights of the holders of Series B Preferred Stock set
forth herein, other than the voting rights set forth in Section (b)(iii), may be
waived by the affirmative vote or consent of the holders of a majority of the
shares of Series B Preferred Stock then outstanding.

         (f) Limitation on Reissuance of Shares. No share of shares of Series B
Preferred Stock acquired by the Corporation by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be cancelled, retired and
eliminated from the shares of Series B Preferred Stock that the Corporation is
authorized to issue.

         (g) Limitation on Transfer. The Series B Preferred Stock shall not be
eligible to be transferred on the books of the Corporation prior to the one year
anniversary of the Series B Original Issue Date except for transfers: (i) in
connection with a Sale Transaction, (ii) in any transaction in which a holder
that is a partnership or limited liability company distributes Series B
Preferred Stock solely to its affiliates (including affiliated fund
partnerships), current or former partners or members thereof, or (ii) by will or
by the laws of intestate succession. Certificates issued in respect of the
Series B Preferred Stock within one year after the Series B Original Issue Date
shall bear a legend referencing the restrictions set forth in this Section (g).

                                       12<PAGE>   1
                                                                     EXHIBIT 4.2

                          AMENDMENT TO RIGHTS AGREEMENT

     AMENDMENT, dated as of September 24, 2001, between ELOYALTY CORPORATION, a
Delaware corporation (the "Company"), and MELLON INVESTOR SERVICES LLC (formerly
known as ChaseMellon Shareholder Services, L.L.C.), a New Jersey limited
liability company (the "Rights Agent"), to the Rights Agreement, dated as of
March 17, 2000, by and between the Company and the Rights Agent (the "Rights
Agreement").

     WHEREAS, the Company wishes to exercise its right to amend the Rights
Agreement pursuant to Section 27 thereof.

     Accordingly, the parties hereby agree as follows:

     1.   Definitions. Each capitalized term defined in the Rights Agreement
          shall have the same meaning in this Amendment as in the Rights
          Agreement, unless otherwise provided herein.

     2.   First Amendment. The definition of "Acquiring Person" in Section 1(a)
          is amended by inserting the following at the end thereof:

          Notwithstanding anything in this Section 1(a) to the contrary, none of
          TCV IV, L.P., TCV IV Strategic Partners, L.P., TCV III (GP), TCV III,
          L.P., TCV III (Q), L.P., TCV III Strategic Partners, L.P. or Jay Hoag,
          or their respective spouses, Associates, Affiliates, or Subsidiaries
          (collectively, the "TCV Persons"), either individually, collectively
          or in any combination, shall be deemed to be an Acquiring Person ;
          provided that all of the TCV Persons do not beneficially own, in the
          aggregate, more than 35% of the shares of Common Stock then
          outstanding. Notwithstanding anything in this Section 1(a) to the
          contrary, none of Sutter Hill Ventures, Sutter Hill Entrepreneurs Fund
          (AI), L.P., Sutter Hill Entrepreneurs Fund (QP), L.P. and Sutter Hill
          Associates, L.P. or Tench Coxe, or their respective spouses,
          Associates, Affiliates, or Subsidiaries (collectively, the "Sutter
          Hill Persons"), either individually, collectively or in any
          combination, shall be deemed to be an Acquiring Person; provided that
          all of the Sutter Hill Persons do not beneficially own, in the
          aggregate, more than 20% of the shares of Common Stock then
          outstanding.

     3.   Second Amendment. The definition of "Common Stock" in Section 1(a) is
          amended by inserting the following at the end thereof:

          Whenever used herein, the phrase "Common Stock then outstanding" shall
          be deemed to include both then outstanding shares of Common Stock and
          shares of Common Stock issuable upon conversion of then outstanding
          shares of the Series B Preferred Stock (determined without reference
          to the restriction on the conversion thereof during the six months
          following the original issuance thereof).

<PAGE>   2

     4.   Third Amendment. The definition of "Beneficial Owner" set forth in
          Section 1(d) is amended by adding the following sentence as the final
          sentence of Section 1(d):

          "Notwithstanding anything to the contrary contained herein, no TCV
          Person or Sutter Hill Person shall be deemed to be the "Beneficial
          Owner" of, or be deemed to "beneficially own," any shares of Common
          Stock solely as a result of the receipt of rights to purchase Series B
          Preferred Stock issued by the Company in connection with the
          transactions contemplated by that Share Purchase Agreement dated as of
          September 24, 2001 by and among the Company and the investors named in
          Exhibit A thereto."

     5.   Fourth Amendment. Section 1 is amended by adding the following
          immediately after subsection (n) thereof:

          "(o) "Series B Preferred Stock" means the 7% Series B Convertible
          Preferred Stock, $0.01 par value per share, of the Company."

     6.   Rights Agreement. Except as amended hereby, the Rights Agreement shall
          remain in full force and effect.

     7.   Governing Law. This Amendment shall be deemed to be a contract made
          under the laws of the State of Delaware and for all purposes shall be
          governed by and construed in accordance with the laws of Delaware
          applicable to contracts made and to be performed entirely within such
          State.

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

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

                                       2
<PAGE>   3

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the day and year first above written.

eLOYALTY CORPORATION

/s/ Kelly D. Conway
-------------------
Name:  Kelly D. Conway                             ATTEST:
Title: President and Chief Executive Officer

                                                   /s/ Deidre D. Gold
                                                   ------------------
                                                   Name:   Deidre D. Gold
                                                   Title:  Vice President and
                                                           General Counsel

                                       3
<PAGE>   4

                                               MELLON INVESTOR SERVICES LLC
                                               (formerly ChaseMellon Shareholder
                                               Services, L.L.C.)

ATTEST:                                        /s/ Lee Tinto
                                               -------------
                                               Name:  Lee Tinto
                                               Title: Vice President
/s/ John J. Boryczki
--------------------
Name: John J. Boryczki
Title:   Assistant Vice President

                                       4

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