Defected fullerenes in nanopeapods form bonds with the encapsulating single-walled carbon nanotubes when irradiated by an electron beam leading to changes in the guest (fullerene) and the host (nanotube). Intrinsic reaction coordinate (IRC) analysis based on B3LYP hybrid density functional theory shows that a C1-C59 defect with a single protruding C atom is initially formed from the C60(Ih) cage. The high activation energy for this step (8.37 eV (193.0 kcal/mol)), being assumed to be accessible during irradiation, is lower than that of the Stone-Wales rearrangement on the sp2 network. The binding of the defected fullerene to the nanotube is preferential, orthogonal bonds relative to the tube axis being slightly preferred. Because of the covalent bonds formed between the guest and host, the carbon network on the nanotube is locally perturbed in the vicinity of the binding site. As a result of the new bonds, bisnorcaradiene-like as well as quinonoid-like patterns appear near the binding site. These results are interpreted using orbital interaction and Clar diagram arguments. The changes in the bonding pattern on the nanotube should be significant in further functionalization of carbon nanotubes.