Document:

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                                                                     EXHIBIT 4.2

                         AMERITRADE HOLDING CORPORATION
                          1996 LONG-TERM INCENTIVE PLAN

          (As Amended and Restated Effective as of November 13, 2001)

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                         AMERITRADE HOLDING CORPORATION
                          1996 LONG-TERM INCENTIVE PLAN
           (As Amended and Restated Effective as of November 13, 2001)

       1. History and Purpose. The Ameritrade Holding Corporation 1996 Long-Term
Incentive Plan (the "Plan") was previously adopted effective as of October 1,
1996 to increase stockholder value and to advance the interests of Ameritrade
Holding Corporation ("Ameritrade") and its subsidiaries (collectively, the
"Company") by awarding equity and performance based incentives designed to
attract, retain and motivate employees. The Plan was amended, restated and
continued effective as of April 1, 2000. The following provisions constitute a
further amendment, restatement and continuation of the Plan effective as of
November 13, 2001. As used in the Plan, the term "subsidiary" means any
business, whether or not incorporated, in which Ameritrade has an ownership
interest. The amendment, restatement and continuation of the Plan in the form
hereof is conditioned upon shareholder approval. The date of such approval shall
be referred to herein as the "Effective Date".

       2.  Administration.

               2.1. Administration by Board or Committee. The Plan shall be
administered by the entire Board of Directors of Ameritrade (the "Board") or a
Committee of the Board (the "Committee") consisting of two or more non-employee
directors within the meaning of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and "outside directors"
within the meaning of Treas. Reg. ss. 1.162-27(e)(3). Notwithstanding the
foregoing, the Board or the Committee, as applicable and subject to the terms
and conditions of the Plan, may delegate to any individual (or individuals) who
are then serving as a member(s) of the Board (the "Committee Designate") the
authority to act as a subcommittee of the Board or Committee, as applicable, for
purposes of making grants or awards under the Plan to such employees of the
Company and its subsidiaries who are not subject to section 16(a) of the
Exchange Act as the Committee Designate shall determine in his or her sole
discretion and the Committee Designate shall have the authority and duties of
the Committee with respect to such grants or awards.

               2.2. Authority. Subject to the provisions of the Plan, the Board
or the Committee shall have the authority to (a) manage and control the
operation of the Plan, (b) interpret and construe the provisions of the Plan,
and prescribe, amend and rescind rules and regulations relating to the Plan, (c)
make Awards under the Plan, in such forms and amounts and subject to such
restrictions, limitations and conditions as it deems appropriate, including,
without limitation, Awards which are made in combination with or in tandem with
other Awards (whether or not contemporaneously granted) or compensation or in
lieu of current or deferred compensation, (d) modify the terms of, cancel and
reissue, or repurchase outstanding Awards, (e) prescribe the form of agreement,
certificate or other instrument evidencing any Award under the Plan, (f) correct
any defect or omission and reconcile any inconsistency in the Plan or in any
Award hereunder, and (g) make all other determinations and take all other
actions as it deems

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necessary or desirable for the implementation and administration of the Plan;
provided, however, that in no event shall the Board or the Committee cancel or
modify any outstanding Option for the purpose of reissuing an additional option
to the option holder at a lower exercise price. The determination of the Board
or the Committee on matters within its authority shall be conclusive and binding
on the Company and all other persons.

       3. Participation. Subject to the terms and conditions of the Plan, the
Board or the Committee shall determine and designate, from time to time, from
among the employees of the Company and its subsidiaries those persons who will
be granted one or more Awards under the Plan, and thereby become "Participants"
in the Plan. In the discretion of the Board or the Committee, and subject to the
terms of the Plan, a Participant may be granted any Award permitted under the
provisions of the Plan, and more than one Award may be granted to a Participant.
Except as otherwise agreed by the Board or the Committee and the Participant, or
except as otherwise provided in the Plan, an Award under the Plan shall not
affect any previous Award under the Plan or an award under any other plan
maintained by the Company. For purposes of the Plan, the term "Award" shall mean
any award or benefit granted to any Participant under the Plan.

       4. Definition of Fair Market Value. For purposes of the Plan, the "Fair
Market Value" of a share of common stock of Ameritrade ("Stock") as of any date
shall be the closing market composite price for such Stock as reported on NASDAQ
on that date or, if Stock is not traded on that date, on the next preceding date
on which Stock was traded.

       5.  Shares Subject to the Plan.

       5.1. Number of Shares Reserved. The shares of Stock with respect to which
Awards may be made under the Plan shall be shares currently authorized but
unissued or currently held or subsequently acquired by Ameritrade as treasury
shares, including shares purchased in the open market or in private
transactions. Subject to the provisions of subsection 5.4, the number of shares
of Stock which may be issued with respect to Awards under the Plan shall not
exceed 20,000,000 shares in the aggregate.

       5.2. Individual Limits on Awards. Notwithstanding any other provision of
the Plan to the contrary, the maximum aggregate number of shares of Stock that
may be granted or awarded to any Participant under the Plan for any calendar
year shall be 6,000,000 and the maximum aggregate cash payout with respect to
grants or awards under the Plan in any calendar year to any Covered Employee
shall be $2,500,000. The determination made under the foregoing provisions of
this subsection 5.2 shall be based on the shares subject to the Awards at the
time of grant, regardless of when the Awards become exercisable.

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       5.3.    Reusage of Shares.

       (a)     In the event of the exercise or termination (by reason of
               forfeiture, expiration, cancellation, surrender or otherwise) of
               any Award under the Plan, that number of shares of Stock that was
               subject to the Award but not delivered shall again be available
               for Awards under the Plan.

       (b)     In the event that shares of Stock are delivered under the Plan as
               a Stock Award (as defined in Section 8) and are thereafter
               forfeited or reacquired by the Company pursuant to rights
               reserved upon the award thereof, such forfeited or reacquired
               shares shall again be available for awards under the Plan.

       (c)     Notwithstanding the provisions of paragraphs (a) or (b), the
               following shares shall not be available for reissuance under the
               Plan: (i) shares with respect to which the Participant has
               received the benefits of ownership (other than voting rights),
               either in the form of dividends or otherwise; (ii) shares which
               are withheld from any award or payment under the Plan to satisfy
               tax withholding obligations (as described in subsection 11.4)
               (iii) shares which are surrendered to fulfill tax obligations (as
               described in subsection 11.4); and (iv) shares which are
               surrendered in payment of the Option Price (as defined in
               subsection 6.3) upon the exercise of an Option.

       5.4. Adjustments to Shares Reserved. In the event of any merger,
consolidation, reorganization, recapitalization, spinoff, stock dividend, stock
split, reverse stock split, exchange or other distribution with respect to
shares of Stock or other change in the corporate structure or capitalization
affecting the Stock, the type and number of shares of stock which are or may be
subject to awards under the Plan and the terms of any outstanding awards
(including the price at which shares of stock may be issued pursuant to an
outstanding award) shall be equitably adjusted by the Board or the Committee, in
its sole discretion, to preserve the value of benefits awarded or to be awarded
to Participants under the Plan.

       6.  Options.

       6.1. Definitions. The grant of an "Option" under this Section 6 entitles
the Participant to purchase shares of Stock at the Option Price (determined
under subsection 6.3), subject to the terms of this Section 6. Options granted
under this Section 6 may be either Incentive Stock Options or Non-Qualified
Stock Options, as determined in the discretion of the Board or the Committee. An
"Incentive Stock Option" is an Option that is intended to satisfy the
requirements applicable to an "incentive stock option" described in section
422(b) of the Code. A "Non-Qualified Option" is an Option that is not intended
to be an "incentive stock option" as that term is described in section 422(b) of
the Code.

       6.2. Restrictions Relating to Incentive Stock Options. To the extent that
the aggregate fair market value of Stock with respect to which Incentive Stock
Options are exercisable for the

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first time by any individual during any calendar year (under all plans of the
Company) exceeds $100,000, such options shall be treated as Non-Qualified Stock
Options, to the extent required by section 422 of the Code.

       6.3. Option Price. The price at which shares of Stock may be purchased
upon the exercise of an Option (the "Option Price") shall be established by the
Board or the Committee or shall be determined by a method established by the
Board or the Committee at the time the Option is granted; provided, however,
that in no event shall such price be less than the greater of: (i) 100% of the
Fair Market Value (as defined in Section 4) of a share of Stock as of the date
on which the Option is granted; or (ii) the par value of a share of Stock on
such date. Notwithstanding the foregoing, any Option granted on or after the
Effective Date may have an Option Price which is less than Fair Market Value
(but in no event less than 75% of Fair Market Value) provided such Option is
granted by the Committee (and not any person acting in the capacity of the
Committee hereunder).

       6.4. Exercise. Except as otherwise expressly provided in the Plan, an
Option may be exercised, in whole or in part, in accordance with terms and
conditions established by the Board or the Committee at the time of grant;
provided, however, that no Option shall be exercisable after the Expiration Date
(as defined in Section 11) applicable to that Option and no Option or any
portion thereof will first become exercisable after the Participant's
termination of employment with the Company. The full Option Price of each share
of Stock purchased upon the exercise of any Option shall be paid at the time of
such exercise (except that, in the case of a cashless exercise arrangement
approved by the Committee, payment may be made as soon as practicable after the
exercise) and, as soon as practicable thereafter, a certificate representing the
shares so purchased shall be delivered to the person entitled thereto. The
Option Price shall be payable in cash or in shares of Stock (valued at Fair
Market Value as of the day of exercise), or in any combination thereof, as
determined by the Board or the Committee and, to the extent provided by the
Committee, a Participant may elect to pay the Option Price upon the exercise of
an Option through a cashless exercise arrangement. The exercise of an Option
will result in the surrender of the corresponding rights under a tandem Stock
Appreciation Right, if any.

       6.5. Post-Exercise Limitations. The Board or the Committee, in its
discretion, may impose such restrictions on shares of Stock acquired pursuant to
the exercise of an Option (including stock acquired pursuant to the exercise of
a tandem Stock Appreciation Right) as it determines to be desirable, including,
without limitation, restrictions relating to disposition of the shares and
forfeiture restrictions based on service, performance, Stock ownership by the
Participant, and such other factors as the Board or the Committee determines to
be appropriate.

       6.6. Reload Provision. In the event the Participant exercises an Option
and pays all or a portion of the Option Price in Stock, in the manner permitted
by subsection 6.4, such Participant (either pursuant to the terms of the Option
Award, or pursuant to the exercise of Committee discretion at the time the
Option is exercised) may be issued a new Option to purchase additional shares of
Stock equal to the number of shares of Stock surrendered to the Company in such
payment. Such new Option shall have an exercise price equal to the Fair Market
Value per share

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on the date such new Option is granted, shall first be exercisable six months
from the date of grant of the new Option and shall have an Expiration Date on
the same date as the Expiration Date of the original Option so exercised by
payment of the Option Price in shares of Stock.

       7.      Stock Appreciation Rights.

       7.1. Definition. Subject to the terms of this Section 7, a "Stock
Appreciation Right" granted under the Plan entitles the Participant to receive,
in cash or Stock, value equal to all or a portion of the excess of: (a) the Fair
Market Value of a specified number of shares of Stock at the time of exercise;
over (b) a specified price which shall not be less than 100% of the Fair Market
Value of the Stock at the time the Stock Appreciation Right is granted, or, if
granted in tandem with an Option, the exercise price with respect to shares
under the tandem Option.

       7.2. Exercise. If a Stock Appreciation Right is not in tandem with an
Option, then the Stock Appreciation Right shall be exercisable in accordance
with the terms established by the Board or the Committee at the time of grant;
provided, however, that no Stock Appreciation Right shall be exercisable after
the Expiration Date applicable to that Stock Appreciation Right and no Stock
Appreciation Right or any portion thereof will first become exercisable after
the Participant's termination of employment with the Company. If a Stock
Appreciation Right is in tandem with an Option, then the Stock Appreciation
Right shall be exercisable at the time the tandem Option is exercisable. The
exercise of a Stock Appreciation Right will result in the surrender of the
corresponding rights under the tandem Option.

       7.3. Settlement of Award. Upon the exercise of a Stock Appreciation
Right, the value to be distributed to the Participant, in accordance with
subsection 7.1, shall be distributed in shares of Stock (valued at their Fair
Market Value at the time of exercise), in cash, or in a combination thereof, in
the discretion of the Board or the Committee.

       7.4. Post-Exercise Limitations. The Board or the Committee, in its
discretion, may impose such restrictions on shares of Stock acquired pursuant to
the exercise of a Stock Appreciation Right as it determines to be desirable,
including, without limitation, restrictions relating to disposition of the
shares and forfeiture restrictions based on service, performance, ownership of
Stock by the Participant, and such other factors as the Board or the Committee
determines to be appropriate.

       8.  Stock Awards.

       8.1. Definition. Subject to the terms of this Section 4, a "Stock Award"
under the Plan is a grant of shares of Stock to a Participant, the earning,
vesting or distribution of which is subject to one or more conditions
established by the Board or the Committee. Such conditions may relate to events
(such as performance or continued employment) occurring before or after the date
the Stock Award is granted, or the date the Stock is earned by, vested in or
delivered to the Participant. If the vesting of Stock Awards is subject to
conditions occurring after the date of grant, the period beginning on the date
of grant of a Stock Award and ending on the vesting or

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forfeiture of such Stock (as applicable) is referred to as the "Restricted
Period". Stock Awards may provide for delivery of the shares of Stock at the
time of grant, or may provide for a deferred delivery date.

       8.2. Terms and Conditions of Awards. Beginning on the date of grant (or,
if later, the date of distribution) of shares of Stock comprising a Stock Award,
and including any applicable Restricted Period, the Participant, as owner of
such shares, shall have the right to vote such shares; provided, however, that
payment of dividends with respect to Stock Awards shall be subject to the
following:

       (a)     On and after date that a Participant has a fully earned and
               vested right to the shares comprising a Stock Award, and the
               shares have been distributed to the Participant, the Participant
               shall have all dividend rights (and other rights) of a
               stockholder with respect to such shares.

       (b)     Prior to the date that a Participant has a fully earned and
               vested right to the shares comprising a Stock Award, the Board or
               the Committee, in its sole discretion, may award Dividend Rights
               (as defined below) with respect to such shares.

       (c)     On and after the date that a Participant has a fully earned and
               vested right to the shares comprising a Stock Award, but before
               the shares have been distributed to the Participant, the
               Participant shall be entitled to Dividend Rights with respect to
               such shares, at the time and in the form determined by the Board
               or the Committee.

A "Dividend Right" with respect to shares comprising a Stock Award shall entitle
the Participant, as of each dividend payment date, to an amount equal to the
dividends payable with respect to a share of Stock multiplied by the number of
such shares. Dividend Rights shall be settled in cash or in shares of Stock, as
determined by the Board or the Committee, shall be payable at the time and in
the form determined by the Board or the Committee, and shall be subject to such
other terms and conditions as the Board or the Committee may determine.

       9.  Performance Units.

       9.1. Definition. Subject to the terms of this Section 9, the Award of
"Performance Units" under the Plan entitles the Participant to receive value for
the units at the end of a Performance Period to the extent provided under the
Award. The number of units earned, and the value received for them, will be
contingent on the degree to which the performance measures established at the
time of grant of the Award are met. For purposes of the Plan, the "Performance
Period" with respect to the award of any Performance Units shall be the period
over which the applicable performance is to be measured.

       9.2. Terms and Conditions of Awards. For each Participant, the Board or
the Committee will determine the value of units, which may be stated either in
cash or in units representing

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shares of Stock; the performance measures used for determining whether the
Performance Units are earned; the Performance Period during which the
performance measures will apply; the relationship between the level of
achievement of the performance measures and the degree to which Performance
Units are earned; whether, during or after the Performance Period, any revision
to the performance measures or Performance Period should be made to reflect
significant events or changes that occur during the Performance Period; and the
number of earned Performance Units that will be paid in cash and the number of
earned Performance Units to be paid in shares of Stock.

       9.3. Settlement. Settlement of Performance Units shall be subject to the
following:

       (a)     The Board or the Committee will compare the actual performance to
               the performance measures established for the Performance Period
               and determine the number of units as to which settlement is to be
               made, and the value of such units.

       (b)     Settlement of units earned shall be wholly in cash, wholly in
               Stock or in a combination of the two, to be distributed in a lump
               sum or installments, as determined by the Board or the Committee.

               (i)    For Performance Units stated in units representing shares
                      of Stock when granted, one share of Stock will be
                      distributed for each unit earned, or cash will be
                      distributed for each unit earned equal to either (A) the
                      Fair Market Value of a share of Stock at the end of the
                      Performance Period or (B) the average Stock value over a
                      period determined by the Board or the Committee.

               (ii)   For Performance Units stated in cash when granted, the
                      value of each unit earned will be distributed in its
                      initial cash value, or shares of Stock will be distributed
                      based on the cash value of the units earned divided by (A)
                      the Fair Market Value of a share of Stock at the end of
                      the Performance Period or (B) the average Stock value over
                      a period determined by the Board or the Committee.

       (c)     Shares of Stock distributed in settlement of the units shall be
               subject to such vesting requirements and other conditions, if
               any, as the Board or the Committee shall determine.

       9.4. Termination During Performance Period. If a Participant's
termination of employment with the Company occurs during a Performance Period
with respect to any Performance Units granted to him, the Board or the Committee
may determine that the Participant will be entitled to settlement of all or any
portion of the Performance Units as to which he would otherwise be eligible, and
may accelerate the determination of the value and settlement of such Performance
Units or make such other adjustments as the Board or the Committee, in its sole
discretion, deems desirable.

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       10. Expiration of Awards. The "Expiration Date" with respect to an Award
under the Plan means the date established as the Expiration Date by the Board or
the Committee; provided, however, that, except as otherwise specifically
provided by the Committee, the Expiration Date with respect to any Award under
the Plan shall not be later than the earliest to occur of:

       (a)    the ten-year anniversary of the date on which the Award is
              granted;

       (b)    if the Participant's termination of employment with the Company
              occurs on account of disability (as defined below), the one-year
              anniversary of such termination of employment;

       (c)    if the Participant's termination of employment with the Company
              occurs by reason of retirement (as defined below), the one-year
              anniversary of such termination of employment;

       (d)    the one-year anniversary of the Participant's death;

       (e)    if the Participant's termination of employment with the Company
              occurs for reasons other than retirement, death or disability, the
              three-month anniversary of such termination of employment; or

       (f)    in the case of any Option which is intended to constitute an
              Incentive Stock Option, the last day on which such Option may be
              exercised in accordance with the provisions of section 422 of the
              Code.

If a Stock Appreciation Right is in tandem with an Option, then the "Expiration
Date" for the Stock Appreciation Right shall be the Expiration Date for the
related Option. In no event shall the Expiration Date for any Award be later
than the ten-year anniversary of the date on which the Award is granted. For
purposes of the Plan, a Participant's employment with the Company shall be
considered to have terminated on account of disability if, at the time of
termination, the Participant is eligible for benefits under the applicable
Company's long-term disability plan and a Participant's employment with the
Company shall be considered to have terminated on account of retirement if his
employment terminates after the Participant has attained age 55 and completed at
least 10 years of continuous service with the Company.

        11.    Miscellaneous.

       11.1. Duration. The Plan shall be unlimited in duration and, in the event
of Plan termination, shall remain in effect as long as any Awards under it are
outstanding; provided, however, that no Incentive Stock Options may be granted
under the Plan on a date that is more than ten years from the date the Plan is
adopted or, if earlier, the date the Plan is initially approved by shareholders.

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       11.2. Limit on Distribution. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:

       (a)     Notwithstanding any other provision of the Plan, Ameritrade shall
               have no liability to deliver any shares of Stock under the Plan
               or make any other distribution of benefits under the Plan unless
               such delivery or distribution would comply with all applicable
               laws and the applicable requirements of any securities exchange
               or similar entity.

       (b)     In the case of a Participant who is subject to Section 16(a) and
               16(b) of the Exchange Act, the Board or the Committee may, at any
               time, add such conditions and limitations to any Award to such
               Participant, or any feature of any such Award, as the Board or
               the Committee, in its sole discretion, deems necessary or
               desirable to comply with Section 16(a) or 16(b) and the rules and
               regulations thereunder or to obtain any exemption therefrom.

        (c)    To the extent that the Plan provides for issuance of certificates
               to reflect the transfer of shares of Stock, the transfer of such
               shares may be effected on a non- certificated basis, to the
               extent not prohibited by applicable law or the rules of any stock
               exchange.

        11.3. Performance-Based Compensation. To the extent that the Board or
the Committee determines that it is necessary or desirable to conform any Awards
under the Plan with the requirements applicable to "Performance-Based
Compensation", as that term is used in section 162(m)(4)(C) of the Code, it may,
at or prior to the time an Award is granted, take such steps and impose such
restrictions with respect to such Award as it determines to be necessary or
desirable.

       11.4. Withholding. All Awards and other payments under the Plan are
subject to withholding of all applicable taxes, which withholding obligations
may be satisfied, with the consent of the Board or the Committee, through the
surrender of shares of Stock which the Participant already owns, or to which a
Participant is otherwise entitled under the Plan; provided, however, that in no
event shall the Fair Market Value of the number of shares withheld from any
Award to satisfy tax withholding obligations exceed the amount necessary to meet
the required Federal, state and local withholding tax rates then in effect that
are applicable to the participant and to the particular transaction.

       11.5. Transferability. Awards under the Plan are not transferable except
as designated by a Participant by will or by the laws of descent and
distribution. To the extent that the Participant who receives an Award under the
Plan has the right to exercise such Award, the Award may be exercised during the
lifetime of the Participant only by the Participant.

       11.6. Notices. Any notice or document required to be filed with the Board
or the Committee under the Plan will be properly filed if delivered or mailed by
registered mail,

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postage prepaid, to the Board or the Committee, in care of Ameritrade, at its
principal executive offices. The Board or the Committee may, by advance written
notice to affected persons, revise such notice procedure from time to time. Any
notice required under the Plan (other than a notice of election) may be waived
by the person entitled to notice.

       11.7. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the Board or the Committee at
such times, in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Board or the Committee shall
require.

       11.8. Agreement With Ameritrade. At the time of an Award to a Participant
under the Plan, the Board or the Committee may require a Participant to enter
into an agreement with Ameritrade (the "Agreement") in a form specified by the
Board or the Committee, agreeing to the terms and conditions of the Plan and to
such additional terms and conditions, not inconsistent with the Plan, as the
Board or the Committee may, in its sole discretion, prescribe.

       11.9.  Limitation of Implied Rights.

       (a)    Neither a Participant nor any other person shall, by reason of the
              Plan, acquire any right in or title to any assets, funds or
              property of the Company whatsoever, including, without limitation,
              any specific funds, assets, or other property which the Company,
              in its sole discretion, may set aside in anticipation of a
              liability under the Plan. A Participant shall have only a
              contractual right to the amounts, if any, payable under the Plan,
              unsecured by any assets of the Company. Nothing contained in the
              Plan shall constitute a guarantee by the Company that the assets
              of such companies shall be sufficient to pay any benefits to any
              person.

       (b)    The Plan does not constitute a contract of employment, and
              selection as a Participant will not give any employee the right to
              be retained in the employ of the Company, nor any right or claim
              to any benefit under the Plan, unless such right or claim has
              specifically accrued under the terms of the Plan. Except as
              otherwise provided in the Plan, no Award under the Plan shall
              confer upon the holder thereof any right as a shareholder of
              Ameritrade prior to the date on which he fulfills all service
              requirements and other conditions for receipt of such rights.

       11.10. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.

       11.11. Gender and Number. Where the context admits, words in one gender
shall include the other gender, words in the singular shall include the plural
and the plural shall include the singular.

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12.    Amendment and Termination.

       The Board may, at any time, amend or terminate the Plan, provided that,
subject to subsection 5.4 (relating to certain adjustments to shares), no
amendment or termination may materially adversely affect the rights of any
Participant or beneficiary under any Award made under the Plan prior to the date
such amendment is adopted by the Board.

                                      -11-<PAGE>

                                                                   EXHIBIT 10.27

        SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

         THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Second Amendment") is dated as of February 6, 2002 among AVONDALE MILLS,
INC. (the "Borrower"), the BANKS listed on the signature pages hereof
(collectively, the "Banks"), and WACHOVIA BANK, N.A. as Agent (the "Agent");

                                  WITNESSETH:

         WHEREAS, the Borrower, the Agent and the Banks executed and delivered
that certain Second Amended and Restated Credit Agreement, dated as of September
28, 2000, as amended by First Amendment to Second Amended and Restated Credit
Agreement dated as of August 30, 2001 (as so amended, the "Credit Agreement");

         WHEREAS, the Borrower has requested and the Agent and the Banks have
agreed to certain amendments to the Credit Agreement, subject to the terms and
conditions hereof;

         NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Borrower, the Agent and the
Banks hereby covenant and agree as follows:

         1.       Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Credit Agreement shall have the
meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall from and after the date hereof refer to
the Credit Agreement as amended hereby.

         2.       Amendment to Section 1.01. Section 1.01 of the Credit
Agreement hereby is amended by deleting the definition of "Other Letters of
Credit" and substituting therefor the new definition of such term set forth
below.

                  "Other Letter of Credit" means (i) a letter of credit, LC No.
         870-125116, in the original face amount of $500,000 issued on December
         19, 2000 to North American Employer's Reinsurance Corporation, and (ii)
         any other Letter of Credit issued pursuant to Section 2.13.

         3.       Amendment of Section 2.13(a)(iv)(A). Section 2.13(a)(iv)(A) of
the Credit Agreement hereby is deleted, and the following is substituted
therefor:

                                       1
<PAGE>

                  (A) Request for Issuance. At least 2 Domestic Business Days
         before the effective date for any Other Letter of Credit, the Borrower
         shall give the Agent a written notice containing the original signature
         of an authorized officer or employee of the Borrower. Such notice shall
         be irrevocable and shall specify the original face amount of the Other
         Letter of Credit requested (which original face amount shall not be
         less than $100,000), the effective date (which day shall be a Domestic
         Business Day) of issuance of such requested Other Letter of Credit, the
         date on which such requested Other Letter of Credit is to expire, the
         amount of then outstanding Letter of Credit Obligations, the purpose
         for which such Other Letter of Credit is to be issued, whether such
         Other Letter of Credit may be drawn in single or partial draws and the
         person for whose benefit the requested Other Letter of Credit is to be
         issued.

         4.       Restatement of Representations and Warranties. The Borrower
hereby restates and renews each and every representation and warranty heretofore
made by it in the Credit Agreement and the other Loan Documents as fully as if
made on the date hereof and with specific reference to this Second Amendment and
all other Loan Documents executed and/or delivered in connection herewith,
except where such representations and warranties expressly refer to a different
date and except for events which have been disclosed in writing to the Banks and
which are described in any of Sections 4.04, 4.06(a), 4.07 (except the first
sentence), 4.14(b) and (c) or 4.15.

         5.       Effect of Amendment. Except as set forth expressly
hereinabove, all terms of the Credit Agreement and the other Loan Documents
shall be and remain in full force and effect, and shall constitute the legal,
valid, binding and enforceable obligations of the Borrower. The amendments
contained herein shall be deemed to have prospective application only, unless
otherwise specifically stated herein.

         6.       Ratification. The Borrower hereby restates, ratifies and
reaffirms each and every term, covenant and condition set forth in the Credit
Agreement and the other Loan Documents, as amended hereby, effective as of the
date hereof.

         7.       Counterparts. This Second Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same instrument.

         8.       Section References. Section titles and references used in this
Second Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.

         9.       No Default. To induce the Agent and the Banks to enter into
this Second Amendment and to continue to make advances pursuant to the Credit
Agreement, the Borrower hereby acknowledges and agrees that, as of the date
hereof, and after giving effect to the terms hereof, there exists (i) no Default
or Event of Default and (ii) no right of offset, defense, counterclaim, claim or
objection in favor of the Borrower arising out of or with respect to any of the
Loans or other obligations of the Borrower owed to the Banks under the Credit
Agreement.

         10.      Further Assurances. The Borrower agrees to take such further
actions as the Agent shall reasonably request in connection herewith to evidence
the amendments herein contained.

                                       2
<PAGE>

         11.      Governing Law. This Second Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the State of Georgia.

         12.      Conditions Precedent. This Second Amendment shall become
effective only upon execution and delivery to counsel for the Agent of 6
counterpart signature pages (or 1 faxed signature page, with the 6 originals
transmitted by overnight courier) of this Second Amendment by the Borrower, the
Agent and the Required Banks; and (ii) execution and delivery to counsel for the
Agent of 6 counterparts (or 1 faxed signature page, with the 6 originals
transmitted by overnight courier) of the Consent and Reaffirmation of Guarantors
at the end hereof by each of the Parent and AMGF.

                       [SIGNATURES COMMENCE ON NEXT PAGE]

                                       3
<PAGE>

         IN WITNESS WHEREOF, the Borrower, the Agent and the Required Banks has
caused this Second Amendment to be duly executed, under seal, by its duly
authorized officer as of the day and year first above written.

                                            AVONDALE MILLS, INC.
                                                          (SEAL)

                                            By:
                                               ----------------------
                                                      Title:

                                       4
<PAGE>

                                            WACHOVIA BANK, N.A., as
                                            Agent and as a Bank (SEAL)

                                            By:
                                               ----------------------
                                               Title:

                                       5
<PAGE>

                                            BANK OF AMERICA, N.A., as a
                                            Bank             (SEAL)

                                            By:
                                               ----------------------
                                               Title:

                                       6
<PAGE>

                                            FIRST UNION NATIONAL
                                            BANK, as a Bank (SEAL)

                                            By:
                                               ----------------------
                                               Title:

                                       7
<PAGE>

                                            REGIONS BANK, as a Bank
                                                            (SEAL)

                                            By:
                                               ----------------------
                                               Title:

                                       8
<PAGE>

                                            BRANCH BANKING AND
                                            TRUST COMPANY, as
                                            a Bank       (SEAL)

                                            By:
                                               ----------------------
                                               Title:

                                       9
<PAGE>

                     CONSENT AND REAFFIRMATION OF GUARANTORS

         Each of the undersigned (i) acknowledges receipt of the foregoing
Second Amendment to Credit Agreement (the "Second Amendment"), (ii) consents to
the execution and delivery of the Second Amendment by the parties thereto and
(iii) reaffirms all of its obligations and covenants under (1), as to the
Parent, the Amended and Restated Guaranty Agreement dated as of April 29, 1996
executed by it, and (2) as to AMGF, the Limited Guaranty Agreement dated as of
August 29, 1997 executed by it, and agrees that none of such obligations and
covenants shall be affected by the execution and delivery of the Second
Amendment. This Consent and Reaffirmation may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.

AVONDALE INCORPORATED                     AVONDALE MILLS GRANITEVILLE
                                          FABRICS, INC.

By:                                       By:
   ------------------------                  ------------------------
   Title:                                    Title:

                                       10

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