SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934


                  For the quarterly period ended July 29, 2000
 ------------------------------------------------------------------------------


[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF
                                      1934

                       For the transition period from to
 ------------------------------------------ ----------------------------------

                         Commission File Number 1-05380

                          AMES DEPARTMENT STORES, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)


               Delaware                                04-2269444
               --------                                ----------
(State or other jurisdiction of           (I.R.S.Employer Identification Number)
 incorporation or organization)


2418 Main Street, Rocky Hill, Connecticut                      06067
-----------------------------------------                      -----
(Address of principal executive offices)                     (Zip Code)


Registrant's telephone number including area code:         (860) 257-2000
                                                     ------------------------



     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.


                               YES   X    NO
                                   -----    -----




     29,407,557 shares of Common Stock were outstanding on August 25, 2000.


                            Exhibit Index on page 15

                       Page 1 of 105 (including exhibits)

<PAGE>


                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES

                                    FORM 10-Q

                       FOR THE QUARTER ENDED JULY 29, 2000



<TABLE>

                                    I N D E X


<CAPTION>


                                                                                                       Page
<S>             <C>                                                                                     <C>

Part I:         FINANCIAL INFORMATION

     Item 1.        Consolidated Condensed Statements of Operations                                      3
                       for the Thirteen and Twenty-Six Weeks ended July 29,
                       2000 and July 31, 1999

                    Consolidated Condensed Balance Sheets as of                                         4
                       July 29, 2000, January 29, 2000, and July 31,
                       1999

                    Consolidated Condensed Statements of Cash Flows                                     5
                       for the Twenty-Six Weeks ended July 29, 2000
                       and July 31, 1999

                    Notes to Consolidated Condensed Financial Statements                                6

     Item 2.        Management's Discussion and Analysis of Financial                                   10
                       Condition and Results of Operations

     Item 3.        Quantitative and Qualitative Disclosures about Market Risk                          13


Part II:        OTHER INFORMATION

     Item 1.        Legal Proceedings                                                                   14

     Item 4.        Submission of Matters to a Vote of Security Holders                                 14

     Item 5.        Other Information                                                                   14

     Item 6.        Exhibits and Reports on Form 8-K                                                    15

</TABLE>

                                      -2-
<PAGE>



                                     PART I
Item 1.
<TABLE>

                             FINANCIAL INFORMATION

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per Share Amounts)

                                                         (Unaudited)                          (Unaudited)
                                                       For the Thirteen                    For the Twenty-Six
                                                         Weeks Ended                          Weeks Ended
                                                -------------------------------    -----------------------------------
                                                  July 29,         July 31,           July 29,            July 31,
                                                    2000             1999               2000                1999
                                                -------------    --------------    ----------------    ---------------
<S>                                             <C>              <C>                <C>                <C>

Ames net sales                                     $ 872,034         $ 731,800         $ 1,702,691        $ 1,299,017
Hills net sales                                      -                 128,175            -                   377,117
                                                -------------    --------------    ----------------    ---------------
        Total net sales                              872,034           859,975           1,702,691          1,676,134
        Leased department and other income            10,544            11,570              19,803             19,970
                                                -------------    --------------    ----------------    ---------------
Total revenue                                        882,578           871,545           1,722,494          1,696,104

Cost and expenses:
        Ames cost of merchandise sold                630,881           517,260           1,233,805            926,510
        Hills cost of merchandise sold               -                  83,762            -                   252,085
        Ames selling, general and
             administrative expenses                 248,166           221,366             495,581            397,537
        Hills operating expenses and agency
             fees                                    -                  52,790            -                   142,047
        Depreciation and amortization
             expense, net                             17,240            16,304              34,937             30,687
        Interest and debt expense, net                21,953            13,621              40,745             25,543
                                                -------------    --------------    ----------------    ---------------

Net loss before income taxes                        (35,662)          (33,558)            (82,574)           (78,305)
Income tax benefit                                    13,551            12,080              31,378             28,188
                                                -------------    --------------    ----------------    ---------------

Net loss before cumulative effect
        adjustment                                  (22,111)          (21,478)            (51,196)           (50,117)

Cumulative effect adjustment, net of tax             -                 -                  -                   (1,107)
                                                -------------    --------------    ----------------    ---------------

Net loss                                          $ (22,111)        $ (21,478)         $  (51,196)        $  (51,224)
                                                =============    ==============    ================    ===============

Basic net loss per common share:
        Before cumulative effect adjustment     $     (0.75)     $      (0.78)     $        (1.74)     $       (1.94)
        Cumulative effect adjustment                 -                 -                  -                    (0.04)
                                                -------------    --------------    ----------------    ---------------
Net loss per share                              $     (0.75)     $      (0.78)     $        (1.74)     $       (1.98)
                                                =============    ==============    ================    ===============

Basic weighted average number of
         common shares outstanding                    29,404            27,706              29,365             25,914
                                                =============    ==============    ================    ===============


         (The  accompanying  Notes are an  integral  part of these  consolidated condensed financial statements.)
</TABLE>

                                      -3-
<PAGE>
<TABLE>




                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                    (In Thousands, Except Per Share Amounts)

                                                                                (Unaudited)                         (Unaudited)
                                                                               --------------    --------------    --------------
                                                                                 July 29,         January 29,        July 31,
                                                                                   2000              2000              1999
                                                                               --------------    --------------    --------------
                                            ASSETS
<S>                                                                             <C>              <C>               <C>

Current Assets:
     Cash and short-term investments                                               $  31,305         $  30,612          $ 36,404
     Receivables                                                                      32,262            25,302            32,771
     Merchandise inventories                                                         885,894           831,387           807,357
     Deferred taxes, net                                                              60,232            28,854            28,188
     Prepaid expenses and other current assets                                        41,402            36,772            31,147
                                                                               --------------    --------------    --------------
          Total current assets                                                     1,051,095           952,927           935,867

Fixed Assets                                                                         706,522           629,979           527,345
     Less - Accumulated depreciation and amortization                              (167,245)         (128,229)          (95,737)
                                                                               --------------    --------------    --------------
          Net fixed assets                                                           539,277           501,750           431,608
                                                                               --------------    --------------    --------------
Other assets and deferred charges                                                     60,850            57,256            63,232
Deferred taxes, net                                                                  346,055           346,055           102,406
Beneficial lease rights, net                                                          54,899            56,280            57,507
Goodwill, net                                                                         59,750            61,026           197,471
                                                                               --------------    --------------    --------------
                                                                                  $2,111,926       $ 1,975,294       $ 1,788,091
                                                                               ==============    ==============    ==============
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable:
          Trade                                                                    $ 227,834         $ 325,356         $ 343,981
          Other                                                                       93,152            96,224            72,315
                                                                               --------------    --------------    --------------
               Total accounts payable                                                320,986           421,580           416,296
                                                                               --------------    --------------    --------------
Current portion of capital lease and financing
     obligations                                                                      22,057            22,086            19,801
Self-insurance reserves                                                               28,346            29,827            29,085
Accrued expenses and other current liabilities                                       112,144           133,110           229,101
Store closing reserves                                                                52,667            55,468            56,130
                                                                               --------------    --------------    --------------
     Total current liabilities                                                       536,200           662,071           750,413
                                                                               --------------    --------------    --------------

Long-term debt                                                                       752,761           421,769           257,085
Capital lease and financing obligations                                              170,220           180,404           183,559
Other long-term liabilities                                                           52,761            57,916           115,020
Excess of revalued net assets over equity under
     fresh-start reporting                                                            14,791            17,868            20,944
Commitments and contingencies (see Note 8)
Stockholders' Equity:
     Preferred stock (3,000,000 shares authorized; no shares issued or
        outstanding at July 29, 2000, January 29, 2000 and July 31, 1999;
        par value per share $.01)                                                          -                 -                 -
     Common stock  (40,000,000  shares  authorized;  29,404,587;  29,233,650 and
        29,166,639 shares outstanding at July 29, 2000, January 29, 2000
        and July 31, 1999, respectively; par value per share $.01)                       296               293               292
     Additional paid-in capital                                                      531,872           530,744           424,900
     Retained earnings                                                                53,947           105,143            36,792
     Treasury stock, at cost                                                           (922)             (914)             (914)
                                                                               --------------    --------------    --------------
          Total stockholders' equity                                                 585,193           635,266           461,070
                                                                               --------------    --------------    --------------
                                                                                  $2,111,926        $1,975,294       $ 1,788,091
                                                                               ==============    ==============    ==============

                  (The  accompanying   Notes  are  an  integral  part  of  these consolidated condensed financial statements.)
</TABLE>

                                      -4-
<PAGE>
<TABLE>

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

                                                                                       (Unaudited)
                                                                                   For the Twenty-Six
                                                                                       Weeks Ended
                                                                         ----------------------------------------
                                                                             July 29,             July 31,
                                                                               2000                 1999
                                                                         ------------------  --------------------
<S>                                                                            <C>                   <C>

Cash flows from operating activities:
      Net loss                                                                 $  (51,196)           $  (51,224)
      Expenses not requiring the outlay of cash:
           Income tax benefit                                                     (31,378)              (28,188)
           Depreciation and amortization of fixed and other assets                  38,988                32,008
           Amortization of debt discounts and deferred financing costs               2,400                 2,610
                                                                         ------------------  --------------------
Cash used by operations before changes in working capital and
store closing activities                                                          (41,186)              (44,794)
Changes in working capital:
      Increase in receivables                                                      (6,960)               (2,527)
      Increase in merchandise inventories                                         (54,507)             (157,516)
      (Decrease) increase in accounts payable                                    (100,594)                15,539
      (Decrease) increase in accrued expenses and other current liabilities       (22,447)                 3,782
       Increase in other working capital and other, net                            (9,072)              (13,984)
Changes due to store closing activities:
      Payments of store closing costs                                              (2,801)               (3,386)
                                                                         ------------------  --------------------
Net cash used for operating activities                                           (237,567)             (202,886)
                                                                         ------------------  --------------------
Cash flows from investing activities:
      Purchases of fixed assets                                                   (76,574)              (83,614)
      Purchases of leases                                                          (7,026)              (42,835)
                                                                         ------------------  --------------------
Net cash used for investing activities                                            (83,600)             (126,449)
                                                                         ------------------  --------------------
Cash flows from financing activities:
      Borrowings (payments) under the revolving credit facility, net               333,844              (38,725)
      Payments on debt and capital lease obligations                              (10,256)              (12,854)
      Repurchase of Hills Senior Notes                                             (2,852)                     -
      Purchase of treasury stock                                                       (8)                     -
      Proceeds from the issuance of senior notes                                         -               200,000
      Proceeds from the issuance of common stock, net                                    -               187,484
      Payments of deferred financing costs                                               -               (6,712)
      Proceeds from the exercise of options and warrants                             1,132                   802
                                                                         ------------------  --------------------
Net cash provided by financing activities                                          321,860               329,995
                                                                         ------------------  --------------------
Increase in cash and short-term investments                                            693                   660
Cash and short-term investments, beginning of period                                30,612                35,744
                                                                         ------------------  --------------------
Cash and short-term investments, end of period                                   $  31,305             $  36,404
                                                                         ==================  ====================

Supplemental  disclosure of cash flow  information:
        Cash paid during the period for:
           Interest and debt fees not capitalized                                 $ 35,882              $ 19,305
           Income taxes                                                              1,654                 1,735


         (The  accompanying   Notes  are  an  integral  part  of  these consolidated condensed financial statements.)
</TABLE>

                                      -5-
<PAGE>



                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


1.       Basis of Presentation :

         In the opinion of management,  the accompanying  unaudited consolidated
         condensed  financial  statements  of Ames  Department  Stores,  Inc. (a
         Delaware  corporation)  and  subsidiaries  (collectively  "Ames" or the
         "Company")  contain all  adjustments  (consisting  of normal  recurring
         adjustments)  necessary  for a  fair  presentation  of  such  financial
         statements  for the  interim  periods.  Due to the  seasonality  of the
         Company's  operations,  the results of its  operations  for the interim
         period ended July 29, 2000 may not be  indicative  of total results for
         the full year. Certain  information and footnote  disclosures  normally
         included in financial  statements prepared in accordance with generally
         accepted accounting  principles have been condensed or omitted pursuant
         to the rules and regulations promulgated by the Securities and Exchange
         Commission   (the  "SEC").   Certain   prior  year  amounts  have  been
         reclassified to conform to the presentation  used for the current year.
         Pursuant to the  indenture  governing the Ames Senior Notes (as defined
         in Note 5),  all of  Ames'  subsidiaries  have  jointly  and  severally
         guaranteed  the Ames Senior  Notes on a full and  unconditional  basis.
         Separate  financial  statements  of  those  subsidiaries  have not been
         included  herein because  management  has determined  that they are not
         material to investors.

         The  consolidated  condensed  balance  sheet at  January  29,  2000 was
         obtained from audited  financial  statements  previously filed with the
         SEC in the  Company's  Annual  Report on Form 10-K for the fiscal  year
         ended  January  29,  2000 (the  "1999  Form  10-K").  The  accompanying
         unaudited consolidated condensed financial statements should be read in
         conjunction with the financial statements and Notes thereto included in
         the 1999 Form 10-K.

         In the fourth  quarter  of the year ended  January  29,  2000  ("Fiscal
         1999"),  the Company adopted Staff Accounting  Bulletin ("SAB") No. 101
         "Revenue Recognition" as promulgated by the staff of the SEC, effective
         retroactively  to the first  quarter  of Fiscal  1999.  Therefore,  the
         consolidated  condensed  financial  statements  for  the  thirteen  and
         twenty-six  weeks ended July 31, 1999 have been  adjusted  accordingly.
         Reference can be made to the 1999 Form 10-K for  additional  discussion
         of the adoption of SAB No. 101 by the Company.

2.       Acquisition and Agency Agreement:

         Acquisition of Hills Stores Company

         On December 31, 1998, HSC  Acquisition  Corp.  ("HSC"),  a wholly owned
         subsidiary of the Company, acquired in excess of 80% of the outstanding
         voting stock of Hills Stores Company ("Hills") and approximately 74% of
         the  outstanding  Hills 12 1/2% senior notes.  Subsequently,  Hills was
         merged with HSC and became a wholly owned subsidiary of Ames Department
         Stores,  Inc.  In April  1999,  Hills  was  merged  with and into  Ames
         Department  Stores,  Inc. The  acquisition  has been recorded under the
         purchase method of accounting.

         Total cash consideration for the acquisition of Hills was $129 million.
         Reference  can be made to the 1999 Form 10-K for further  discussion of
         the Hills acquisition.

         At the time of the acquisition,  Hills operated 155 discount department
         stores.  During 1999,  the Company  remodeled  and converted 151 of the
         Hills stores to Ames stores.  The four  remaining  Hills stores,  along
         with  seven  other  Ames  stores,  were  closed  because  they  were in
         locations that were either  competitive  with or were  under-performing
         other Hills or Ames stores.  The remodeling and conversion  process was
         conducted in three stages, each stage involving approximately one third
         of the Hills stores.  The first stage was completed in late April 1999;
         the second stage was  completed in late July 1999;  and the third stage
         was completed in late September 1999.

                                      -6-
<PAGE>

         Concurrent  with the Hills  acquisition,  the  Company  entered  into a
         transition and agency  agreement (the "Agency  Agreement")  with Gordon
         Brothers Retail Partners,  LLC and The Nassi Group,  LLC  (collectively
         the "Agent"),  which provided that the Agent serve for a period of time
         to operate all of the acquired  Hills  stores and to conduct  inventory
         liquidation  sales  at each of  those  stores  prior  to its  scheduled
         remodeling or final closure. Accordingly, the Agent managed the sale of
         the  inventory  acquired  in the Hills  acquisition  as well as certain
         other  inventory  identified  in  the  Agency  Agreement.   The  Agency
         Agreement  entitled  the Company to receive out of the sale  proceeds a
         minimum  amount  equal to 40% of the initial  retail  value or ticketed
         selling price of the merchandise  (the "Guaranteed  Return"),  with the
         possibility of a greater return if the sale proceeds  exceeded a target
         percentage of initial retail value.

         The results of  operations  of Hills for the  thirteen  and  twenty-six
         weeks  ended  July 31,  1999 have  been  included  in the  accompanying
         consolidated  condensed financial  statements.  During the thirteen and
         twenty-six  weeks  ended  July  31,  1999,  the  accounting   treatment
         described  below has been applied to recognize the results of the Hills
         stores prior to their  conversion  to Ames stores  during  Fiscal 1999.
         Hills net sales have been  recorded as "Hills Net Sales" and  represent
         net sales  achieved by the Hills  stores prior to their  conversion  to
         Ames stores.  "Hills Cost of Merchandise  Sold"  represents the cost of
         merchandise  sold in  connection  with the  above  referenced  sales as
         adjusted  for the  Guaranteed  Return.  "Hills  Operating  Expenses and
         Agency Fees"  include the  following:  the  associated  store  expenses
         incurred while operating the Hills stores prior to their  conversion to
         Ames stores, which were reimbursable to the Company out of the proceeds
         of Hills merchandise sales per the Agency Agreement; the Agency Fee due
         to the  Agent  for the  period  presented;  and  other  expenses  (e.g.
         non-store payroll, non-store rent, etc.) associated with supporting the
         Hills stores prior to their  conversion to Ames stores,  which were not
         reimbursable under the Agency Agreement.

         Acquisition of Goldblatt's Leases

         In April 2000, the Company  consummated  its purchase of the leases for
         seven  stores  from  Goldblatt's  Department  Stores,  Inc.  for a cash
         purchase price of $7.0 million.

         Reference can be made to the 1999 Form 10-K for  additional  discussion
         of the Hills acquisition.

3.       Net Loss Per Common Share:

         Net loss per share was determined  using the weighted average number of
         common  shares  outstanding.  Diluted  net loss per  share was equal to
         basic net loss per share because  inclusion of common stock equivalents
         would have been anti-dilutive.  During the quarter ended July 29, 2000,
         options  representing  1,600 shares were exercised.  During the quarter
         ended July 31, 1999, 28,690 options were exercised.

4.       Inventories:

         Inventories  are  valued  at the  lower of cost,  using  the  first-in,
         first-out (FIFO) method,  or market and include the  capitalization  of
         transportation and distribution center costs.

5.       Debt:

         Credit Agreement

         On December 31, 1998,  in  connection  with the  acquisition  of Hills,
         certain of the Company's  subsidiaries  entered into an agreement  (the
         "Credit   Agreement")   with  a  syndicate   of  banks  and   financial
         institutions for which Bank of America, N.A. is serving as agent. As of
         July 25, 2000, the Company entered into a Seventh  Amendment and Waiver
         Agreement (the "Seventh  Amendment")  with its lenders which  provided,
         among other things,  for increasing the bank credit facility  revolving
         line of credit to up to $705  million and which  increased  the advance
         rate on inventory.

         The Credit Agreement is in effect until June 30, 2002 and is secured by
         substantially  all of the assets of the Company.  Reference can be made
         to the  1999  Form  10-K  and Part  II,  Item 5 of this  Form  10-Q for
         additional discussion of the Credit Agreement and applicable amendments
         as  well  as  descriptions  of  the  Company's  other  obligations  not
         discussed herein.

                                      -7-
<PAGE>

         As of July 29, 2000,  borrowings  of $508.4  million  were  outstanding
         under the Credit Agreement.  These borrowings are included in long-term
         debt in the  accompanying  consolidated  condensed  balance sheet as of
         July 29, 2000. In addition, $21.7 and $3.0 million of standby and trade
         letters  of credit,  respectively,  were  outstanding  under the Credit
         Agreement. The weighted average interest rate on the borrowings for the
         twenty-six  weeks  ended July 29,  2000 was 7.94%.  The peak  borrowing
         level  through  July 29, 2000 was $519.0  million and  occurred in July
         2000.

         Senior Notes due 2006

         On April 27, 1999,  the Company  completed  the sale of $200 million of
         its 10%  seven-year  senior  notes (the "Ames Senior  Notes").  The net
         proceeds from the sale of the Ames Senior Notes,  approximately  $193.4
         million,  were used to reduce  outstanding  borrowings under the Credit
         Agreement.  The Ames Senior Notes pay interest  semi-annually  in April
         and October and mature April 2006.

         Senior Notes due 2003

         The 12.5% Senior Notes due 2003 (the "Hills Senior Notes") were, at the
         time of the acquisition of Hills, an unsecured obligation of Hills. The
         Hills  Senior  Notes pay  interest  in January and June and mature July
         2003.

         Reference can be made to the 1999 Form 10-K for  additional  discussion
         of the Ames Senior Notes and Hills Senior Notes.

6.       Stock Options:

         The Company has four stock option plans (the "Option Plans"):  the 1994
         Management  Stock Option Plan, the 1994  Non-Employee  Directors  Stock
         Option Plan, the 1998  Management  Stock Incentive Plan, as amended and
         restated and the 2000 Store Manager Stock Option Plan.

         In October  1995,  the Financial  Accounting  Standard  Board  ("FASB")
         issued  Statement of Financial  Accounting  Standards  ("SFAS") No. 123
         "Accounting  for  Stock  Based   Compensation,"   which  established  a
         fair-value  based method of accounting  for  stock-based  compensation.
         SFAS No. 123 did,  however,  allow entities to continue  accounting for
         employee  stock based  compensation  under the  intrinsic  value method
         prescribed by Accounting  Principles Board Opinion No. 25,  "Accounting
         for Stock Issued to Employees."  The Company elected to account for the
         Option Plans under APB Opinion No. 25, under which no compensation cost
         has been recognized and adopt SFAS No. 123 through disclosure.

         If the  Company  had  elected to  recognize  compensation  cost for the
         Option  Plans  based on the fair  value at the grant  dates for  awards
         under those plans,  consistent  with the method  prescribed by SFAS No.
         123,  net  loss  and  basic  net  loss  per  common  share  would  have
         approximated the pro forma amounts indicated below:
<TABLE>

                                                            For the Thirteen                For the Twenty-Six
                                                               Weeks Ended                     Weeks Ended
                                                       ----------------------------    -----------------------------
                                                       ------------ -- ------------    ----------- -- --------------
                          (In Thousands)                July 29,        July 31,        July 29,        July 31,
                                                          2000            1999            2000            1999
                                                       ------------    ------------    -----------    --------------
              <S>                                        <C>             <C>            <C>               <C>
              Net loss:
              As reported                                $(22,111)       $(21,478)      $(51,196)         $(51,224)
              Pro forma                                  $(24,645)       $(23,812)      $(56,097)         $(54,941)

              Basic net loss per common share: (a)
              As reported                                  $(0.75)         $(0.78)        $(1.74)           $(1.98)
              Pro forma                                    $(0.84)         $(0.86)        $(1.91)           $(2.12)
<FN>
(a)      Common stock equivalent shares have not been included because the effect would be anti-dilutive.
</FN>
</TABLE>

                                      -8-
<PAGE>

         The fair value of stock  options  used to compute  pro forma net income
         and net income per diluted common share is the estimated  present value
         as of the grant date using the Black-Scholes  option-pricing model with
         the following weighted average assumptions: no dividend yield, expected
         option  volatilities,  a risk-free interest rate equal to U.S. Treasury
         securities with a maturity equal to the expected life of the option and
         an expected life from date of grant until option expiration date.

7.       Income Taxes:

         The Company's  estimated annual effective income tax rate for each year
         was  applied  to the loss  before  income  taxes for the  thirteen  and
         twenty-six  weeks  ended July 29,  2000 and July 31,  1999 to compute a
         non-cash  income tax  benefit.  The income tax  benefit is  included in
         current  deferred  taxes  in the  accompanying  consolidated  condensed
         balance sheet as of July 29, 2000 and July 31, 1999.

         In Note 8 to the Notes to Consolidated Financial Statements in the 1999
         Form 10-K, the Company reported it had filed a $20 million refund claim
         under  Section 172 (f) of the Internal  Revenue Code and that the claim
         was under review by the Internal Revenue Service  ("IRS").  The Company
         has  recently  received  from  the  IRS  an  adverse  Technical  Advice
         Memorandum  ("TAM").  The positions set forth in the TAM would have the
         effect of denying all or virtually all of the refund claim. The Company
         is presently considering what further action to take.

8.       Commitments and Contingencies:

         Reference  can  be  made  to  the  1999  Form  10-K  (Item  3  -  Legal
         Proceedings) for various  litigation  involving the Company,  for which
         there were no material  changes  since the filing date of the 1999 Form
         10-K.

9.       Recently Issued Accounting Pronouncements:

         In June 1998, the FASB issued SFAS No. 133,  "Accounting for derivative
         instruments and Hedging Activities." In June 2000, the FASB issued SFAS
         No. 138,  "Accounting  for Certain  Derivative  Instruments and Certain
         Hedging  Activities,"  an amendment of SFAS No. 133.  These  statements
         establish  accounting  and  reporting  standards  requiring  that every
         derivative   instrument   (including  certain  derivative   instruments
         embedded in other contracts) be recorded in the balance sheet as either
         an asset or liability  measured at its fair value.  The statements also
         require  that  changes  in a  derivative's  fair  value  be  recognized
         currently in earnings  unless  specific hedge  accounting  criteria are
         met.  The  statements  are  effective,  prospectively,  for all  fiscal
         quarters of all fiscal years beginning after June 15, 2000.  Management
         is  currently  analyzing  the impact of this new  pronouncement  on the
         Company's financial position and results of operations.

                                      -9-
<PAGE>
Item 2.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following  discussion and analysis  should be read in  conjunction  with the
consolidated  condensed  financial  statements  and footnotes  presented in this
report.

Results of Operations
---------------------

The  consolidated  results of operations  for the thirteen  weeks and twenty-six
weeks ended July 31, 1999 include the results of the former Hills stores  during
the period they were operated by Gordon  Brothers,  LLC and The Nassi Group, LLC
under an agency agreement.  These firms were engaged to operate the Hills stores
until their closure and to liquidate the merchandise inventories.

During the  quarter  ended July 31,  1999,  Gordon  Brothers,  LLC and The Nassi
Group,  LLC  completed  the  merchandise  liquidation  sales in 103 of the Hills
stores.  Subsequent to the  liquidation  sales,  we closed two of the stores and
began remodeling the remaining 101 stores. In July of 1999, 54 of the 101 stores
were  re-opened as Ames stores.  The remaining 47 stores were  re-opened as Ames
stores in September of 1999.

The following tables illustrate the results of Ames' operations for the thirteen
and  twenty-six  weeks  ended  July  29,  2000,  as  compared  to  the  separate
contributions of Ames' and Hills' operations and the other costs described below
to the consolidated  results of operations for the thirteen and twenty-six weeks
ended July 31, 1999.
<TABLE>

                                                       For the
                                                      Thirteen
                                                     Weeks Ended             For The Thirteen Weeks Ended
                                                    July 29, 2000                    July 31, 1999
                                                    -------------      ---------------------------------------------
                 (In Thousands)                     Consolidated        Ames       Hills      Other       Total
                                                    ------------        ----       -----      -----       -----
<S>                                                        <C>          <C>        <C>          <C>        <C>
Net sales                                                  $872,034     $731,800   $128,175     $-         $859,975
Leased department and other income                           10,544       10,228      1,342     -            11,570
                                                  ------------------   ---------------------------------------------
Total revenue                                               882,578      742,028    129,517     -           871,545
Costs and expenses:
Cost of merchandise sold                                    630,881      517,260     83,762     -           601,022
Selling, general and administrative expenses                248,166      191,266     52,790     30,100      274,156
Depreciation and amortization expenses, net                  17,240       10,606      3,813      1,885       16,304
Interest and debt expense, net                               21,953       11,439      1,388        794       13,621
                                                  ------------------   ---------------------------------------------

(Loss) income before income taxes                          (35,662)       11,457   (12,236)   (32,779)     (33,558)
Income tax benefit (provision)                               13,551      (4,124)      4,404     11,800       12,080
                                                  ------------------   ---------------------------------------------

Net (loss) income                                         $(22,111)       $7,333   $(7,832)  $(20,979)    $(21,478)
                                                  ==================   =============================================
</TABLE>

                                      -10-
<PAGE>
<TABLE>

                                                       For the
                                                     Twenty-Six
                                                     Weeks Ended            For The Twenty-Six Weeks Ended
                                                    July 29, 2000                    July 31, 1999
                                                    -------------     ----------------------------------------------
                 (In Thousands)                     Consolidated        Ames       Hills      Other       Total
                                                    ------------        ----       -----      -----       -----
<S>                                                      <C>          <C>          <C>          <C>      <C>
Net sales                                                $1,702,691   $1,299,017   $377,117     $-       $1,676,134
Leased department and other income                           19,803       16,602      3,368     -            19,970
                                                  ------------------------------------------------------------------
Total revenue                                             1,722,494    1,315,619    380,485     -         1,696,104
Costs and expenses:
Cost of merchandise sold                                  1,233,805      926,510    252,085     -         1,178,595
Selling, general and administrative expenses                495,581      350,865    142,047     46,672      539,584
Depreciation and amortization expenses, net                  34,937       16,523     10,393      3,771       30,687
Interest and debt expense, net                               40,745       19,417      4,162      1,964       25,543
                                                  ------------------------------------------------------------------

Loss before income taxes and cumulative effect             (82,574)        2,304   (28,202)   (52,407)     (78,305)
Income tax benefit (provision)                               31,378        (829)     10,151     18,866       28,188
                                                  ------------------------------------------------------------------
Loss before cumulative effect of accounting
change                                                     (51,196)        1,475   (18,051)   (33,541)     (50,117)

Cumulative effect of accounting change, net of
tax                                                       -              -           -         (1,107)      (1,107)
                                                  ------------------------------------------------------------------
Net loss                                                  $(51,196)       $1,475  $(18,051)  $(34,648)    $(51,224)
                                                  ==================================================================
</TABLE>

The Ames  column,  represents  (a) the results of the Ames store  base,  (b) the
results of the converted Hills stores and (c) certain  expenses  associated with
the acquisition of Hills,  including the interest  expense on the acquired Hills
senior notes and a pro-rata share of the  amortization of the goodwill  recorded
in connection with the acquisition.

The Hills column  represents  (a) the results of operations for the Hills stores
during the  period  that  these  stores  were  operated  pursuant  to the Gordon
Brothers/Nassi  agency  agreement,  including  depreciation and interest expense
directly  associated with such stores and (b) Hills corporate overhead expenses,
principally the Canton, MA facility.

The  other  column  represents  the  expenses  incurred  during  the  period  of
remodeling the Hills stores (for example,  pre-opening  expenses incurred during
the conversion or "dark" period) as well as certain other expenses.

The unique circumstances under which Hills operations were conducted through the
thirteen and twenty-six weeks ended July 31, 1999 distort any direct  comparison
of the principal  components of Ames  consolidated  results for the thirteen and
twenty-six  weeks ended July 29, 2000 and July 31, 1999. In the discussion  that
follows,   the  Ames  net  sales,  gross  margin,   and  selling,   general  and
administrative  expenses for the thirteen  and  twenty-six  weeks ended July 29,
2000 are  compared to the Ames results for the  thirteen  and  twenty-six  weeks
ended July 31, 1999,  exclusive  of the Hills  results and other  expenses.  The
comparison of the depreciation  and  amortization  expense and interest and debt
expense is on a consolidated basis.

Ames' net sales  increased  $140.2 million or 19.2% during the second quarter of
2000 compared to the second quarter of 1999.  Ames' net sales for the twenty-six
weeks ending July 29, 2000  increased  $403.7  million or 31.1%  compared to the
first half of 1999.  Both increases are primarily the result of the inclusion of
all 151 of the converted  Hills stores in the Ames store base for the periods in
fiscal 2000 compared to fifty-one stores for the entire second quarter in fiscal
1999 and an additional 54 stores for a portion of July in 1999. Comparable store
sales  decreased 2.5% for the second  quarter and 0.9% for the twenty-six  weeks
ended July 29, 2000.

Gross margin increased $26.6 million during the second quarter and $96.4 million
for the  twenty-six  weeks  ended July 29,  2000  compared to the same period in
1999.  The increase is a result of the  increased  Ames store base as previously
discussed.  Gross margin as a percentage  of sales  declined from 29.3% to 27.7%
during the second quarter and from 28.7 % to 27.5 % for the year-to-date  period
compared  to the same  period  in 1999.  The  decrease  is the  result of higher
markdowns and a lower markup  percentage,  partially  reflecting  changes in the
merchandise mix.

                                      -11-
<PAGE>

Selling,  general and administrative expenses increased $56.9 million and $144.7
million for the thirteen and twenty-six weeks ended July 29, 2000, respectively,
primarily as a result of the expanded Ames store base.  Expenses as a percentage
of sales  increased  from  26.1% to 28.5% and 27.0% to 29.1 % for those  periods
versus the  comparable  periods in fiscal 1999.  The  increase  was  primarily a
result of sales falling short of planned levels and $12.1 million of pre-opening
expense included in this year's expense amount.

Depreciation  and amortization  expense  increased $0.9 million and $4.2 million
for the  thirteen  and  twenty-six  weeks  ended  July 29,  2000,  respectively,
compared to the same periods in 1999.  The increase was  primarily the result of
additional  depreciation  associated with the remodeling  expenditures  incurred
during the conversion of the former Hills stores.

Interest  expense  increased $8.3 million and $15.2 million for the thirteen and
twenty-six weeks ended July 29, 2000, respectively, compared to the same periods
in 1999.  The increase is mainly  attributable  to a higher level of  borrowings
under our revolving credit facility as well as interest expense  associated with
the Ames Senior Notes issued in April of 1999.

     Our estimated annual effective income tax rate for each year was applied to
the loss before  income  taxes for each period to compute a non-cash  income tax
benefit.  The income tax benefits are included in current  deferred taxes in the
consolidated condensed balance sheet as of July 29, 2000 and July 31, 1999.

Liquidity and Capital Resources
-------------------------------

Our principal sources of operating funds are our bank credit facility, cash from
operations  and cash on hand.  As of July 25,  2000,  we entered  into a Seventh
Amendment and Waiver Agreement (the "Seventh  Amendment") with our lenders which
provided,  among other things, for increasing the bank credit facility revolving
line of credit to up to $705  million and which  increased  the advance  rate on
inventory.  The Seventh Amendment was designed to give us increased  flexibility
and additional  operating  funds during the seasonal  inventory  build-up period
beginning  August  and  ending in  November.  Borrowings  under the bank  credit
facility  are  secured  by  substantially  all of our  assets.  The bank  credit
facility  expires on June 20, 2002. Our borrowing  rates for the credit facility
are based on either  the  London  Interbank  Offered  Rate or a  reference  rate
announced by Bank of America,  San Francisco,  with an interest  margin added to
both.  The interest  rate margin was changed by the  amendment and a fee of $0.8
million was charged.  Under the terms of the agreement,  we are required to meet
certain covenants if our available borrowing power falls below specified levels.
During the quarter  ended July 29,  2000,  our  borrowings  increased  under the
credit  facility by  approximately  $79.1  million.  As of the end of the second
quarter, we were in compliance with the terms of the credit agreement.  The peak
borrowing  level under the facility  during the quarter was $519.0  million.  We
believe the company will have  sufficient  sources of cash to meet our financial
obligations for the foreseeable future.

Merchandise inventories decreased $102.0 million during the second quarter as we
sold off an  inventory  build-up  created  by the below  plan sales in the first
quarter.  Merchandise  inventories increased $54.5 million from January 29, 2000
due to a seasonal merchandise build-up.  Merchandise inventories increased $78.5
million from July 31, 1999  primarily  as a result of fully  stocking all of the
converted Hills stores.

Trade accounts payable  decreased $97.5 million from January 29, 2000 and $116.1
million from July 31, 1999  primarily  as a result of a slowdown in  merchandise
purchases in response to the first half sales shortfall.

Purchases of property and equipment for the thirteen and twenty-six  weeks ended
July 29, 2000  totaled  $36.2  million  and $76.6  million,  respectively.  Such
purchases  for the balance of the year are  estimated  to be  approximately  $40
million. We adjust our plans for making such expenditures based on the amount of
internally generated funds.

     Net fixed assets  increased $37.5 million from January 29, 2000 as a result
of $76.6 million in capital expenditures offset by $39.0 million in depreciation
expense.  Net fixed  assets  increased  $107.7  million  from July  31,1999  due
primarily to capital expenditures associated with the converted Hills stores and
other new stores.

                                      -12-
<PAGE>

Beneficial  lease  rights  represent  the excess of the fair market value of the
acquired  Hills leases over contract  value of those leases.  We are  amortizing
this amount over the terms of the related leases (which average approximately 25
years) using the straight-line method. Goodwill is being amortized over 25 years
using the straight-line method.

Long-term debt as of July 29, 2000 consisted of borrowings under our bank credit
facility of $508.4  million,  $200.0  million of the Ames senior notes issued in
April 1999 and $44.4 million of the Hills senior notes that remained outstanding
after the acquisition.  The Hills senior notes became direct obligations of Ames
as a result of the merger of Hills.

Capital lease and financing obligations decreased $10.2 million from January 29,
2000 to  July  29,  2000  due  primarily  to  payments  made  on  capital  lease
obligations.  Capital lease and financing  obligations  decreased  $11.1 million
from July 31, 1999 to July 29, 2000, primarily as a result of payments exceeding
new capital lease commitments.

Federal  income tax law allows  taxpayers,  including  corporations,  to use net
operating  losses in future years to reduce taxable income ("net  operating loss
carryovers").  Our net operating  loss  carryovers  remaining  after fiscal 1999
should  offset  income on which  taxes  would  otherwise  be payable in the next
several  years,  subject to any  limitations  from federal income tax law (i.e.,
Internal Revenue Code Sec. 382).

Note Concerning Forward-looking Statements
------------------------------------------

Statements other than those based on historical facts which address  activities,
events, or developments that we expect or anticipate may occur in the future are
forward-looking  statements  which  are  based  upon  a  number  of  assumptions
concerning further conditions that may ultimately prove to be inaccurate. Actual
events and results may differ  materially from anticipated  results described in
any forward-looking  statements.  Our ability to achieve such results is subject
to certain risks and uncertainties.  Consequently,  these cautionary  statements
qualify all of the forward-looking statements and there can be no assurance that
the results or developments anticipated by us will be realized or that they will
have the expected effects on Ames or its business or operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to interest rate volatility primarily relating to interest rate
changes  applicable  to revolving  loans under our bank credit  facility.  These
loans bear interest at rates which vary with changes in (i) the London Interbank
Offered  Rate (LIBOR) or (ii) a rate of interest  announced  publicly by Bank of
America, N.A.

We do not speculate on the future  direction of interest  rates.  As of July 29,
2000  approximately  $508.4 million of our debt bore interest at variable rates.
We believe that the effect, if any, of reasonably  possible near term changes in
interest rates on our consolidated financial position,  results of operations or
cash flows would not be significant.

                                      -13-
<PAGE>

                                     PART II
                                OTHER INFORMATION


Item 1.           Legal Proceedings.

                  Reference can be made to Item 3 - Legal  Proceedings  included
                  in the Company's most recent Form 10-K for various  litigation
                  involving  the  Company,  for  which  there  were no  material
                  changes since the filing date of the Form 10-K.

Item 4.           Submission of Matters to a Vote of Security Holders.

                  The Annual Meeting of Stockholders  was held  Wednesday,  June
                  21, 2000, to consider and act upon the following matters:

                  (a) The  stockholders  elected for one-year  terms all persons
                      nominated  for  directors  as set  forth in the  Company's
                      proxy  statement  filed May 18,  2000.  Each  nominee  for
                      director was elected as follows:
<TABLE>

                                                                               For                Withheld
                                                                         ----------------      ----------------
                      <S>                                                     <C>                    <C>
                      Election of directors as a slate
                           Francis X. Basile                                  25,409,543               908,473
                           Paul Buxbaum                                       25,015,320             1,302,696
                           Alan Cohen                                         25,408,023               909,993
                           Joseph R. Ettore                                   25,409,063               908,953
                           Richard M. Felner                                  25,410,593               907,423
                           Sidney S. Pearlman                                 25,408,358               909,658
</TABLE>

(b) The stockholders ratified and approved the appointment of Arthur Andersen
    LLP as independent certified public accountants and auditors for the Company
    for the fiscal year ending February 3, 2001 as follows:


       For                        Against                     Abstentions
-----------------------        -------------------           -------------------
     26,206,639                     96,271                        15,106
=======================        ===================           ===================

(c) The stockholders ratified and approved the adoption of the Associate Stock
    Purchase  Plan  as  set  forth  in  the Company's proxy statement filed
    May 18, 2000 as follows:

       For                        Against                     Abstentions
-----------------------        -------------------           -------------------
     19,823,184                    890,351                       544,049
=======================        ===================           ===================

(d) The  stockholders  ratified and approved the amendment and restatement of
    the 1998  Management  Stock  Incentive Plan (as amended and restated,  the
    "1998  Incentive  Plan") as set forth in the Company's  proxy  statement
    filed May 18, 2000 as follows:
       For                        Against                     Abstentions
-----------------------        -------------------           -------------------
     16,624,308                   4,327,043                      306,233
=======================        ===================           ===================


Item 5.           Other Information.

              As of April 16, 1999, June 1, 1999, October 15, 1999, January 18,
                  2000,  January 27, 2000,  May 8, 2000 and July 25,  2000, the
                  Company  amended  the Credit  Agreement  with Bank of America,
                  N.A., as agent,  and a syndicate  consisting of nineteen other
                  banks and financial institutions, copies of which are filed as
                  Exhibits hereto.

                                      -14-
<PAGE>


                  On August 21,  2000,  the Company  announced  the  election of
                  Joseph A. Pollicino to its Board of Directors.  Mr.  Pollicino
                  has served as Vice Chairman of the CIT Group, Inc.;  President
                  of the former CIT  Factoring and Finance  Group;  President of
                  the CIT  Group/Business  Credit unit; and, as a Vice President
                  with Manufacturers Hanover.

Item 6.           Exhibits and Reports on Form 8-K.
<TABLE>

(a)      Index to Exhibits

                 Exhibit No.          Exhibit                                                             Page No.
                <S>                   <C>                                                                        <C>

                 11                   Schedule of computation of basic and diluted net income (loss)              17
                                      per share

                 12                   Ratio of Earnings to Fixed Charges                                          18

                 21                   Subsidiaries of the Registrant                                              19

                 10.1                 Credit Agreement amendment ("Amendment Agreement") dated April              20
                                      16, 1999 among certain financial institutions, as lenders,
                                      Bank of America NT&SA, as Administrative agent, and Ames
                                      Merchandising Corporation ("AMC"), Ames FS, Inc. ("AFS"),
                                      Hills Department Store Company ("HDSC").

                 10.2                 Second Amendment, dated June 1, 1999, to the Second Amended                 36
                                      and Restated Credit Agreement, dated December 31, 1998 among
                                      Ames Department Stores, Inc. ("ADS"), AFS, AMC, and certain
                                      lenders including Bank of America NT&SA, as agent.

                 10.3                 Third Amendment to the Credit Agreement, dated as of October                42
                                      15, 1999, among certain lenders and Bank of America NT&SA, as
                                      agent, and AFS and AMC.

                 10.4                 Fourth Amendment to the Credit Agreement, dated as of January               53
                                      18, 2000, among certain lenders and Bank of America, N.A., as
                                      agent, and AFS and AMC.

                 10.5                 Fifth Amendment to the Credit Agreement, dated as of January                65
                                      27, 2000, among certain lenders and Bank of America, N.A., as
                                      agent, and AFS and AMC.

                 10.6                 Sixth Amendment and Waiver to the Credit Agreement, dated as                79
                                      of May 8, 2000, among certain lenders and Bank of America,
                                      N.A., as agent, and AMC.

                 10.7                 Seventh Amendment and Waiver, dated as of July 25, 2000, among              91
                                      certain lenders, Bank of America, N.A., as agent, and AMC,
                                      AmesPlace.com, Inc., Ames Realty II, Inc., Ames Transportation
                                      Systems, Inc., and ADS.
</TABLE>

(b)      Reports on Form 8-K

     On May 19, 2000,  the Company  filed an  employment  agreement  between the
Company and Grant C. Sanborn,  Executive  Vice  President - Operations,  on Form
8-K.  There  were no other  reports on Form 8-K filed  with the  Securities  and
Exchange Commission during the second quarter.

                                      -15-
<PAGE>


                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.
<TABLE>

                                                                            AMES DEPARTMENT STORES, INC.
                                                                                    (Registrant)
<S>                  <C>                                         <C>

Dated:               September 11, 2000                          /s/ Joseph R. Ettore
                                                                 ----------------------------------------------------
                                                                 Joseph R. Ettore, Chairman, Chief Executive
                                                                 Officer, and Director

Dated:               September 11, 2000                          /s/ Rolando de Aguiar
                                                                 ----------------------------------------------------
                                                                 Rolando de Aguiar, Senior Executive Vice
                                                                 President, Chief Financial and Administrative Officer
</TABLE>

                                      -16-
<PAGE>
<TABLE>

                                                                                                                          Exhibit 11

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
         SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
                    (In Thousands, Except Per Share Amounts)



                                                                For the Thirteen              For the Twenty-Six
                                                                  Weeks Ended                    Weeks Ended
                                                           ---------------------------   -----------------------------
                                                            July 29,       July 31,        July 29,        July 31,
                                                              2000           1999            2000            1999
                                                           -----------    ------------   -------------    ------------
<S>                                                         <C>             <C>             <C>             <C>
Loss before Cumulative Effect adjustment                    $(22,111)       $(21,478)       $(51,196)       $(50,117)
Cumulative Effect adjustment, net of tax                       -               -              -               (1,107)
                                                           -----------    ------------   -------------    ------------
     Net loss                                                (22,111)        (21,478)        (51,196)        (51,224)
                                                           ===========    ============   =============    ============
For Basic Earnings Per Share:
Weighted average number of common shares outstanding
during the period (b)                                          29,404          27,706          29,365          25,914
Basic net loss per share:
Basic net loss per share before Cumulative Effect
adjustment                                                     (0.75)          (0.78)          (1.74)          (1.94)
Cumulative Effect Adjustment, net of tax                       -               -              -                (0.04)
                                                           -----------    ------------   -------------    ------------
     Basic net loss per share                                 $(0.75)         $(0.78)         $(1.74)         $(1.98)
                                                           ===========    ============   =============    ============
For Diluted Earnings Per Share:
Weighted average number of common shares outstanding
during the period (b)                                          29,404          27,706          29,365          25,914
Add common stock equivalent shares represented by:
     Series B Warrants                                        (a)             (a)            (a)              (a)
     Series C Warrants                                        (a)             (a)            (a)              (a)
     Options under 1994 Management Stock Option
     Plan, 1998 Stock Incentive Plan, 1994 Non-
     Employee Director Stock Option Plan and 2000
     Store Manager Stock Option Plan                          (a)             (a)            (a)              (a)
                                                           -----------    ------------   -------------    ------------
Weighted average number of common and common equivalent
shares (b)                                                     29,404          27,706          29,365          25,914

                                                           ===========    ============   =============    ============
Diluted net loss per share before Cumulative Effect
adjustment                                                     (0.75)          (0.78)          (1.74)          (1.94)
Cumulative Effect Adjustment, net of tax                       -               -              -                (0.04)
                                                           -----------    ------------   -------------    ------------
     Diluted net loss per share                               $(0.75)         $(0.78)         $(1.74)         $(1.98)
                                                           ===========    ============   =============    ============

<FN>
(a)  Common stock equivalents have not been included, because the effect would be anti-dilutive.
(b)  The weighted average number of common shares outstanding is net of treasury stock.
</FN>
</TABLE>

                                      -17-
<PAGE>
<TABLE>


                                                                                                                          Exhibit 12

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                       RATIO OF EARNINGS TO FIXED CHARGES
                        (In Thousands, Except Ratio Data)


                               Twenty-Six
                              Weeks Ended                              Fiscal Year Ended
                              -------------  -------------------------------------------------------------------------
                                July 29,     January 29,    January 30,    January 31,     January 25,    January 27,
                                  2000          2000           1999            1998           1997           1996
                              -------------  ------------   ------------   -------------   ------------   ------------
<S>                               <C>           <C>              <C>             <C>            <C>           <C>

Income (loss) before income
    taxes, extraordinary item
       and cumulative effect
       adjustment                 (82,574)      (31,355)         52,605          53,633         26,804        (1,618)

Add:
    Interest expense                40,745        60,843         15,253          11,600         19,043         24,116
    Interest component of
       rental expense               19,133        29,253         21,121          18,409         16,541         16,208
                              -------------  ------------   ------------   -------------   ------------   ------------
Earnings available for fixed
   charges                        (22,696)        58,741         88,979          83,642         62,388         38,706

Fixed Charges:
    Interest expense                40,745        60,843         15,253          11,600         19,043         24,116
    Interest component of
       rental expense               19,133        29,253         21,121          18,409         16,541         16,208
                              -------------  ------------   ------------   -------------   ------------   ------------
Total fixed charges                 59,878        90,096         36,374          30,009         35,584         40,324

Ratio of earnings to fixed
     charges                        (0.4)x          0.7x           2.4x            2.8x           1.8x           1.0x

<FN>
For the purpose of calculating the ratio of earnings to fixed charges,  earnings
consist of income before income taxes,  extraordinary item and cumulative effect
adjustment  plus fixed  charges (net of  capitalized  interest).  Fixed  charges
consist  of  interest  expense on all  indebtedness  and  capitalized  interest,
amortized premiums,  discounts and capitalized expenses related to indebtedness,
and one-third of rent expense on operating leases  representing  that portion of
rent expense  deemed by us to be  attributable  to interest.  For the twenty-six
weeks ended July 29, 2000 and the fiscal year ended January 29, 2000, the amount
of additional  earnings that would have been required to cover fixed charges for
these periods was $82.3 million and $31.4 million, respectively.
</FN>
</TABLE>

                                      -18-
<PAGE>

                                                                      Exhibit 21



                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                         SUBSIDIARIES OF THE REGISTRANT


     As of July 29, 2000, the subsidiaries of the Company were as follows:


Name                                                     State of Incorporation
----                                                     ----------------------
AmesPlace.com, Inc. ..............................................     Delaware

Ames Transportation Systems, Inc..................................     Delaware

Ames Realty II, Inc...............................................     Delaware

Ames Merchandising Corporation....................................     Delaware

                                      -19-
<PAGE>

                                                                    Exhibit 10.1


                               AMENDMENT AGREEMENT


                  AMENDMENT   AGREEMENT,   dated  as  of  April  16,  1999  (the
"Amendment  Agreement"),  among the financial  institutions  named in the Credit
Agreement (as defined below) (such financial  institutions,  together with their
respective successors and assigns, are referred to hereinafter each individually
as a  "Lender"  and  collectively  as the  "Lenders"),  Bank  of  America  NT&SA
(formerly  BankAmerica  Business Credit, Inc. ("BABC")) as administrative  agent
for the Lenders (in its  capacity as  administrative  agent,  together  with any
successor in such capacity, the "Administrative  Agent"), Ames FS, Inc. ("AFS"),
Ames  Merchandising  Corporation  ("AMC"),  and Hills  Department  Store Company
("HDSC", and together with AFS and AMC, each a "Borrower" and collectively,  the
"Borrowers"),  and the other Credit Parties named in and signatory to the Second
Amended and  Restated  Credit  Agreement,  dated as of December  31,  1998,  (as
previously amended and as further amended,  restated,  modified and supplemented
from time to time, the "Credit Agreement") among the Lenders, the Administrative
Agent, the Borrowers, and the other Credit Parties named therein and signatories
thereto.  Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Credit Agreement.

                  WHEREAS,  the Borrowers have informed the Administrative Agent
and the  Lenders  that  they  would  like to effect a  corporate  reorganization
pursuant  to which the  following  will  occur  sequentially:  (1) each of Hills
Distributing Company, Canton Advertising,  Inc., Corporate Vision, Inc., and HDS
Transport,  Inc.  will be merged  with and into  HDSC  and,  as a result of such
merger, the separate corporate existence of each of Hills Distributing  Company,
Canton Advertising,  Inc., Corporate Vision, Inc., and HDS Transport,  Inc. will
cease,  and  HDSC  shall  assume  all  of  the  Obligations  of  each  of  Hills
Distributing Company, Canton Advertising,  Inc., Corporate Vision, Inc., and HDS
Transport,  Inc.;  (2) HDSC will be merged  with and into Hills  Stores  Company
("Hills"),  and as a result of such merger, the separate corporate  existence of
HDSC will cease,  and Hills shall assume all of the Obligations of HDSC; and (3)
Hills will be merged with and into Ames Department Stores, Inc. ("Parent"),  and
as a result of such  merger,  the  separate  corporate  existence  of Hills will
cease,  and Parent shall assume all of the  Obligations  of Hills in addition to
being a  "Credit  Party"  and  "Guarantor"  under  the  Credit  Agreement  and a
"Grantor" and "Pledgor", as such terms are defined in the Security Documents;

                  WHEREAS,  the Parent shall  reaffirm the prior granting to the
Administrative  Agent of a security  interest  in all of its assets and in those
assets it acquires as a result of the merger,  and will execute and deliver such
other documents and  instruments  necessary to carry out the terms of the Credit
Agreement and the Security Documents;

                  WHEREAS,  after  consummation of the mergers,  the Parent will
contribute  all of the  inventory  and certain of the other assets of the former
Hills  Credit  Parties to AMC,  with all other assets of the former Hills Credit
Parties to be distributed to other Credit Parties  thereafter  (all as set forth
on Schedule I attached  hereto),  and the Credit Parties shall each reaffirm the
prior granting to the Administrative  Agent of a security interest in all of its
assets,  including  (without  limitation)  those  assets  contributed,  or to be
contributed, to it by the Parent;

                  WHEREAS,  the Parent has informed the Administrative Agent and
the Lenders that it proposes to issue up to  $275,000,000  in  unsecured  senior
debt under an  Indenture  among the Parent,  the Credit  Parties,  and The Chase
Manhattan  Bank as trustee  (such  Indenture as attached  hereto as Annex A, the
"Ames  Indenture") to be pari passu in right of payment with the Obligations and
debt  under  the  Indenture  (as  defined  in the  Credit  Agreement)  and to be
guaranteed by the Credit Parties;

                  WHEREAS,  Section  9.2 of the Credit  Agreement  requires  the
Parent to, and to cause its Subsidiaries to, maintain their corporate  existence
(except for mergers permitted under Section 9.9);

                  WHEREAS,  Section 9.9 of the Credit  Agreement  prohibits  the
Parent or any of its Subsidiaries  from,  among other things,  entering into any
transaction  of  merger,  reorganization,  or  consolidation,  or  transferring,
selling,  assigning,  leasing,  or otherwise disposing of all or any part of its
property,  or  wind  up,  liquidate  or  dissolve,  or  agree  to do  any of the
foregoing, except under certain circumstances enumerated in such section;

                                      -20-
<PAGE>

                  WHEREAS,  Sections  9.12  and  9.13  of the  Credit  Agreement
prohibits  the  incurrence  or  guarantee  of the  Debt  proposed  by  the  Ames
Indenture;

                  WHEREAS,  Section 9.30 of the Credit  Agreement  prohibits the
Parent and any  Credit  Party  from  entering  into,  or being  subject  to, any
agreement  prohibiting or restricting (1) incurrence,  creation or assumption of
any Debt, (2)  incurrence or creation of any Lien, and (3) sale,  disposition or
pledge of any asset, all of the foregoing being negative covenants  contained in
the Ames Indenture; and

                  WHEREAS,  the Borrowers  have requested that the Lenders agree
to amend certain  provisions of the Credit Agreement and the Security  Documents
to permit the mergers,  the assumption of the  Obligations,  the contribution of
assets to AMC, the issuance,  guarantee and exchange of the notes under the Ames
Indenture, and the change to the definition of Fiscal Year.

                  NOW, THEREFORE,  for valuable  consideration,  the receipt and
sufficiency of which is hereby  acknowledged,  and subject to the fulfillment of
the conditions set forth below, the parties hereto agree hereby as follows:


         SECTION 1.  AMENDMENTS TO THE CREDIT AGREEMENT

                  1.1 Each  reference in the Credit  Agreement to the  Borrowers
shall  mean  each  of AFS and  AMC,  jointly  and  severally  (unless  otherwise
specifically  required by the context of such usage).  The Parent shall remain a
"Guarantor"  and a "Credit  Party",  as such  terms are  defined  in the  Credit
Agreement.  Each  reference to a Hills Credit Party in the Credit  Agreement and
the  Security  Documents  shall be deemed a reference  to AMC (unless  otherwise
required by the context).

                  1.2 The  definition  of "Change in  Control" on Section 1.1 is
hereby amended by adding  immediately prior to the period at the end thereof the
following:

   or (vi) there occurs any "Change of Control" as defined in the Ames Indenture

                  1.3 The  definition  of "Fiscal Year" in Section 1.1 is hereby
amended by  deleting  the word  "last"  where it appears  therein and adding the
words "closest to the  thirty-first"  immediately  following the word "Saturday"
where it appears therein.

     1.4 Section 1.1 is hereby  amended by adding the following  definitions  in
the proper alphabetical order therein:

                           "Amendment  Agreement"  means that certain  Amendment
                  Agreement dated as of April 16, 1999 among the Borrowers,  the
                  Lenders,   the  Administrative  Agent  and  the  other  Credit
                  Parties.

                           "Ames Indenture" means that certain Indenture,  dated
                  as of April 27, 1999,  among the Parent,  the Credit  Parties,
                  and The Chase Manhattan Bank as trustee,  in the form attached
                  as Annex A to the Amendment Agreement.

                           "Subsidiaries  Merger  Documents"  means  any and all
                  merger  agreements,  Certificates  of  Ownership  and  Merger,
                  Certificates   of  Merger,   Articles   of  Merger,   and  all
                  agreements,  documents  and  instruments  pursuant  to  or  in
                  connection  with  the  mergers  of the  Hills  Credit  Parties
                  executed  and  delivered  between  March 30,  1999 and May 15,
                  1999.

                           "Subsidiaries  Merger  Transaction" means the mergers
                  of the Hills Credit  Parties with and into the Parent with the
                  Parent being the  surviving  corporation,  all pursuant to the
                  Subsidiaries Merger Documents.

     1.5  Section  9.6 is hereby  amended by  replacing  "Leases"  with the word
"leases" in the seventh line thereof.

                                      -21-
<PAGE>

                  1.6 Section 9.9 is hereby  amended by adding at the  beginning
of clause (e) therein the words "the mergers in connection with the Subsidiaries
Merger Transaction and," immediately prior to the words "subject to compliance".

                  1.7 Section 9.12 is hereby  amended by (1)  replacing the word
"and" in the third line  thereof  with a comma,  and (2) adding the phrase "and,
(iii)  Guaranties  by any  Credit  Party of the Debt  under the Ames  Indenture"
immediately prior to the period at the end thereof.

                  1.8 Section 9.13 is hereby amended by (1) adding ", landlords"
to clause (b) immediately after the word "suppliers"  therein; and (2) replacing
clause (i) therein with the following new clause (i):

                           (i) Debt  under  the Ames  Indenture  in a  principal
                  amount not to exceed $275,000,000,  but not any increase in or
                  refinancings,  extensions, renewals, exchanges or replacements
                  of such Debt,  other than the  exchange of Exchange  Notes for
                  Initial Notes and Additional Notes (all as defined in the Ames
                  Indenture)  in the limited  circumstances  and pursuant to the
                  terms and conditions set forth in the Ames Indenture;

                  1.9  Section  9.14 is hereby  amended  by: (1) adding an "and"
immediately  before "(y)" therein and adding a closing  parenthesis  immediately
after the first  reference to "Section 9.13 therein;  (2) replacing  "(g)," with
"or" in the tenth line thereof; (3) deleting "or (i)" in the tenth line thereof;
(4)  replacing the closing  parenthesis  and the word "and" in the eleventh line
with a comma; and (5) adding  immediately prior to the ending period thereof the
following:

                  , and (iv) regularly  scheduled payments of interest under the
                  Debt permitted by Section 9.13(i),  in each case to the extent
                  due and payable and permitted to be paid by the terms thereof

                  1.10 Section  9.30 is hereby  amended by adding the words "(x)
to the extent set forth in the Ames Indenture,  and (y)"  immediately  after the
word "except" where it appears in both clauses (i) and (ii) therein.

     1.11 Clause (e) of Section 11.1 of the Credit  Agreement is hereby  amended
by deleting the word "or" appearing at the very end thereof.

                  1.12  Clause (o) of Section  11.1 of the Credit  Agreement  is
hereby amended by replacing the semi-colon  that appears at the end thereof with
a period.

                  1.13 Exhibit A to the Credit  Agreement  is hereby  amended by
deleting such exhibit in its entirety and by  substituting,  in lieu thereof the
Exhibit A attached hereto as Annex B.

                  1.14 The schedules to the Credit  Agreement are hereby amended
to include the information on the schedules attached hereto as Annex C.

         SECTION 2.  AMENDMENTS TO THE AMENDED AND RESTATED
                     PATENT AND TRADEMARK AGREEMENT

                  2.1  Schedules A, B and C to the Amended and  Restated  Patent
and Trademark  Agreement are hereby  amended by deleting such schedules in their
entirety and by  substituting,  in lieu  thereof,  Schedules A, B and C attached
hereto as Annex D.

                                      -22-
<PAGE>

         SECTION 3.  AMENDMENTS TO THE AMENDED AND RESTATED
                                      STOCK PLEDGE AGREEMENT

                  3.1  Schedules  I and II to the  Amended  and  Restated  Stock
Pledge Agreement are hereby amended by deleting such schedules in their entirety
and by  substituting,  in lieu  thereof,  Schedules I and II attached  hereto as
Annex E.

         SECTION 4.  CONDITIONS PRECEDENT TO EFFECTIVE DATE

                  This Amendment  Agreement shall be deemed  effective as of the
date hereof on such date (the  "Effective  Date") that the following  conditions
have been satisfied in full or waived by the Administrative Agent in writing:

                  4.1 This Amendment  Agreement  shall have been executed by the
Credit  Parties,  the  Administrative  Agent and the Majority  Lenders,  and the
Credit  Parties  shall  have  performed  and  shall  be in  compliance  with all
covenants,  agreements and conditions  contained herein, in the Credit Agreement
and in the other Loan Documents each as amended hereby.

                  4.2      The Administrative Agent shall have received:

                           4.2.1 Executed copies of proper financing statements,
         ready  to be  filed  by  the  Administrative  Agent  on or  before  the
         Effective   Date   under  the  UCC  of  all   jurisdictions   that  the
         Administrative  Agent  may  deem  necessary  or  desirable  in order to
         perfect the Administrative Agent's Lien on the Collateral;

                           4.2.2 Stock certificates,  together with stock powers
         executed in blank, and instruments, duly endorsed to the Administrative
         Agent, pledged and not previously delivered under the relevant Security
         Documents  or  reissued  as  a  result  of  the   Subsidiaries   Merger
         Transaction (as defined in Section 1.4 hereinabove);

                           4.2.3 Such opinions of counsel for the Parent and its
         Subsidiaries as the  Administrative  Agent or any Lender shall request,
         each such opinion to be in a form, scope, and substance satisfactory to
         the Administrative Agent, the Lenders, and their respective counsel;

                           4.2.4 (x) a certificate of the Secretary or Assistant
         Secretary of each Credit Party dated within three  Business  Days prior
         to the date  hereof  and  certifying  that (A) the copy of its  By-laws
         attached to the  certificate  of its  Secretary or Assistant  Secretary
         delivered  on the  Closing  Date  is a true  and  complete  copy of its
         By-laws as in effect on the date of the certificate  delivered pursuant
         to this  subsection  and such By-laws  have not been amended  since the
         Closing Date,  (B) attached  thereto is a true and complete copy of the
         resolutions   adopted  by  its  Board  of  Directors   authorizing  the
         execution,  delivery and performance of this Amendment  Agreement,  the
         Ames Indenture and the Subsidiaries  Merger  Transaction (as defined in
         Section 1.4 hereinabove), if applicable, and that such resolutions have
         not been  modified,  rescinded  or  amended  and are in full  force and
         effect,  (C) its certificate or articles of incorporation  has not been
         amended  since  the date of the  last  amendment  thereto  shown on the
         certificate  of good  standing from the Secretary of State of the state
         of its  incorporation  delivered  on the  Closing  Date,  and  (D)  the
         officers  executing this  Amendment  Agreement or any other document to
         which it is a party  delivered in connection  herewith or therewith are
         the incumbent  officers and their  signatures are as set forth thereto;
         and (y) a  certificate  of another  officer  thereof  attesting  to the
         incumbency  and signature of its Secretary or Assistant  Secretary,  as
         the case may be;

                           4.2.5 Such other approvals,  opinions or documents as
the Administrative Agent may reasonably request.

                  4.3 To the extent invoiced,  the Borrowers shall have paid all
fees and expenses of the Administrative Agent and the Attorney Costs incurred in
connection  with this  Amendment  Agreement  and the  transactions  contemplated
hereby.

                                      -23-
<PAGE>

                  4.4 All proceedings  taken in connection with the execution of
this  Amendment  Agreement,  the  Subsidiaries  Merger  Documents (as defined in
Section  1.4  hereinabove)  and all  documents  and papers  relating  hereto and
thereto  shall  be   satisfactory   in  form,   scope,   and  substance  to  the
Administrative Agent and the Majority Lenders.

                  4.5  All  representations  and  warranties  contained  in this
Amendment Agreement or otherwise made in writing to the Administrative  Agent or
the Lenders in  connection  herewith  shall be true and correct in all  material
respects.

                  4.6 No unwaived  event has  occurred and is  continuing  which
constitutes a Default or an Event of Default under the Credit Agreement.

         The execution and delivery to the Administrative Agent by the Borrowers
of  a  counterpart  of  this  Amendment  Agreement  shall  be  deemed  to  be  a
representation  and warranty  made by the Credit  Parties to the effect that the
conditions  precedent to the Effective  Date set forth in 4.5 and 4.6 above have
been satisfied, with the same effect as delivery to the Administrative Agent and
the Lenders of a certificate  signed by a  Responsible  Officer of the Parent or
the Borrowers, dated the Effective Date, to such effect.


         SECTION 5.  ADDITIONAL COVENANTS

                  5.1  Within  five  Business  Days of the  consummation  of the
Subsidiaries  Merger  Transaction (as defined in Section 1.4  hereinabove),  the
Credit Parties shall deliver to the Administrative  Agent executed copies of the
Subsidiaries  Merger  Documents  (as  defined in Section  1.4  hereinabove)  and
evidence of the consummation of the Subsidiaries Merger Transaction.

                  5.2  Within two  Business  Days  after  execution  of the Ames
Indenture, the Credit Parties shall deliver to the Administrative Agent executed
copies of the Ames Indenture.

                  5.3 Within two Business Days after the note issuance under the
Ames  Indenture,  the Credit Parties shall deliver to the  Administrative  Agent
copies of opinions of counsel for the Parent and its  Subsidiaries  delivered in
connection with the issuance of the notes (such opinions to be in a form, scope,
and  substance  satisfactory  to the  Administrative  Agent  and  its  counsel),
accompanied  by a letter of reliance  thereon  addressed  to the  Administrative
Agent and the  Lenders,  and  copies of  certificates,  government  filings  and
consents required in connection therewith.

         SECTION 6.  MISCELLANEOUS

                  6.1   Each   Credit   Party   reaffirms   and   restates   the
representations  and  warranties  set forth in  Articles  6 and 8 of the  Credit
Agreement, as amended by this Amendment Agreement,  and all such representations
and warranties  shall be true and correct on the date hereof with the same force
and effect as if made on such date.  Each Credit Party  represents  and warrants
(which  representations  and warranties shall survive the execution and delivery
hereof) to the Agent that:

                  (a) It has the  corporate  power  and  authority  to  execute,
         deliver  and  carry  out the terms  and  provisions  of this  Amendment
         Agreement  and the  transactions  contemplated  hereby and has taken or
         caused to be taken all  necessary  corporate  action to  authorize  the
         execution, delivery and performance of this Amendment Agreement and the
         transactions contemplated hereby;

                  (b)  No  consent  of  any  other  person  (including,  without
         limitation,  shareholders  or  creditors of any Credit  Party),  and no
         action of, or filing with any  governmental or public body or authority
         is required to authorize,  or is otherwise  required in connection with
         the execution, delivery and performance of this Amendment Agreement and
         the other instruments and documents contemplated hereby, other than the
         filings contemplated by Section 4.2.1 hereof and the consents hereunder
         and filings in connection with the Subsidiaries Merger Transaction;

                  (c) This  Amendment  Agreement and the other  instruments  and
         documents  contemplated hereby have been duly executed and delivered by
         a duly  authorized  officer on behalf of such party,  and constitutes a
         legal, valid and binding  obligation of such party enforceable  against
         such  party  in  accordance  with its  terms,  subject  to  bankruptcy,
         reorganization, insolvency, moratorium and other similar laws affecting
         the  enforcement  of  creditors'  rights  generally and the exercise of
         judicial  discretion in accordance  with general  principles of equity;
         and

                  (d) The execution,  delivery and performance of this Amendment
         Agreement and the other instruments and documents  contemplated  hereby
         will not violate any law, statute or regulation, or any order or decree
         of any court or  governmental  instrumentality,  or conflict  with,  or
         result in the breach of, or constitute a default under any  contractual
         obligation of such party.

                                      -24-
<PAGE>

                  6.2  Nothing  herein  shall be  deemed  to be a waiver  of any
covenant or agreement  contained in the Credit Agreement,  and each Credit Party
hereby agrees that all of the covenants and  agreements  contained in the Credit
Agreement and the other Loan Documents are hereby  ratified and confirmed in all
respects  and shall  remain in full  force and effect in  accordance  with their
respective  terms.  Each Credit Party reaffirms its prior grant under the Credit
Agreement  of a continuing  first  priority  security  interest in, lien on, and
right of set-off  against,  all of the Collateral of such Credit Party,  whether
now owned or existing or  hereafter  acquired  or arising,  regardless  of where
located,  and  each of them  shall  enter  into any  confirmatory  documentation
requested by the Administrative Agent.

                  6.3 All  references  to the  Credit  Agreement  in the  Credit
Agreement or any other Loan  Document and the other  documents  and  instruments
delivered  pursuant to or in connection  therewith  shall mean such agreement as
amended hereby and as each may in the future be amended, restated,  supplemented
or modified from time to time.

                  6.4 This  Amendment  Agreement  may be executed by the parties
hereto  individually or in  combination,  in one or more  counterparts,  each of
which shall be an original  and all of which shall  constitute  one and the same
agreement.

                  6.5 Delivery of an executed counterpart of a signature page by
telecopier shall be effective as delivery of a manually executed counterpart.

                  6.6  This  Amendment  Agreement  shall  be  governed  by,  and
construed and interpreted in accordance with, the laws of the State of New York.

                  6.7 The  parties  hereto  shall,  at any time and from time to
time  following the execution of this Amendment  Agreement,  execute and deliver
all  such  further  instruments  and  take all  such  further  action  as may be
reasonably necessary or appropriate in order to carry out the provisions of this
Amendment Agreement.


                                      -25-
<PAGE>


                  IN WITNESS WHEREOF,  each Borrower,  the Majority Lenders, the
Administrative  Agent,  each  Co-Agent and the other Credit  Parties have caused
this  Amendment  Agreement to be duly  executed by their  respective  authorized
officers as of the day and year first above written.

                                  BANK OF AMERICA NT&SA
                                  (formerly BANKAMERICA BUSINESS CREDIT, INC.),
                                  as the Administrative Agent


                                  By:      /s/ William J. Wilson
                                     -----------------------------------------
                                     Name:  William J. Wilson
                                     Title: Senior Account Executive

                                  Address: 40 East 52nd Street
                                           New York, New York  10022
                                  Attn:             Division Manager
                                  Telecopy No.:  (212) 836-5167


                                  AMES MERCHANDISING CORPORATION, as a Borrower
                                  and Guarantor

                                  By:      /s/ Rolando de Aguiar
                                     ---------------------------------
                                     Name:  Rolando de Aguiar
                                     Title:  Vice President

                                  Address: 2418 Main Street
                                           Rocky Hill, Connecticut  06067
                                  Attn:             Rolando de Aguiar
                                  Telecopy No.:  (860) 563-8560

                                  AMES FS, INC., as a Borrower and Guarantor

                                  By:      /s/ Rolando de Aguiar
                                     ---------------------------------
                                     Name:  Rolando de Aguiar
                                     Title:  Vice President

                                  Address: 2418 Main Street
                                           Rocky Hill, Connecticut  06067
                                  Attn:             Rolando de Aguiar
                                  Telecopy No.:  (860) 563-8560


                                      -26-
<PAGE>



                                  HILLS DEPARTMENT STORE COMPANY, as  a Borrower
                                  and Guarantor


                                  By:      /s/ Rolando de Aguiar
                                     ---------------------------------
                                     Name:  Rolando de Aguiar
                                     Title:  Vice President

                                  Address: 2418 Main Street
                                           Rocky Hill, Connecticut  06067
                                  Attn:             Rolando de Aguiar
                                  Telecopy No.:  (860) 563-8560


                                  AMES DEPARTMENT STORES, INC., as a Guarantor


                                  By:      /s/ Rolando de Aguiar
                                     ---------------------------------
                                     Name:  Rolando de Aguiar
                                     Title: Executive Vice President and CFO

                                     Address: 2418 Main Street
                                              Rocky Hill, Connecticut  06067
                                     Attn:             Rolando de Aguiar
                                     Telecopy No.:  (860) 563-8560


                                  HILLS STORES COMPANY, as a Guarantor


                                  By:      /s/ Rolando de Aguiar
                                     ---------------------------------
                                     Name:  Rolando de Aguiar
                                     Title:  Vice President

                                  Address: 2418 Main Street
                                           Rocky Hill, Connecticut  06067
                                  Attn:             Rolando de Aguiar
                                  Telecopy No.:  (860) 563-8560



                                      -27-
<PAGE>



AMD, INC., as a Guarantor


By: /s/ Rolando de Aguiar
---------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES REALTY II, INC., as a Guarantor


By: /s/ Rolando de Aguiar
---------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES TRANSPORTATION SYSTEMS, INC.,
as a Guarantor


By: /s/ Rolando de Aguiar
---------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560




                                      -28-
<PAGE>




CANTON ADVERTISING, INC.,
as a Guarantor


By: /s/ Rolando de Aguiar
---------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


HDS TRANSPORT, INC.,
as a Guarantor


By: /s/ Rolando de Aguiar
---------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


CORPORATE VISION INC.,
as a Guarantor


By: /s/ Rolando de Aguiar
---------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560




                                      -29-
<PAGE>



HILLS DISTRIBUTING COMPANY,
as a Guarantor


By: /s/ Rolando de Aguiar
---------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


Commitment:  $50,000,000
BANK OF AMERICA NT&SA
(formerly BANKAMERICA BUSINESS CREDIT, INC.),
as a Lender


By: /s/ William J. Wilson
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


Commitment:  $50,000,000
CONGRESS FINANCIAL CORPORATION,
as a Lender


By: /s/ Cindy B. Dennbaum
---------------------------------
Name: Cindy B. Dennbaum
Title: Vice President

Address: 1133 Avenue of the Americas
New York, New York 10036
Attn: Ms. Cindy Dennbaum
Telecopy No.: (212) 545-4283


Commitment:  $50,000,000
GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender


By: /s/ Charles D. Chiodo
-----------------------------------------
Name: Charles D. Chiodo
Title: Authorized Signatory

Address: 201 High Ridge Road
Stamford, Connecticut 06927
Attn: Vice President - Portfolio
Telecopy No.: (203) 316-7893


                                      -30-
<PAGE>

Commitment:  $50,000,000
TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender


By: /s/ Michael S. Burns
-----------------------------------------
Name: Michael S. Burns
Title: Vice President

Address: 555 Theodore Fremd Avenue
Suite 301
Rye, New York 10580
Attn: Mr. Jon Oldham
Telecopy No.: (914) 921-0110


Commitment:  $30,000,000
THE CHASE MANHATTAN BANK,
as a Lender


By: /s/ James M. Dailey
-----------------------------------------
Name: James M. Dailey
Title: Vice President

Address: 633 Third Avenue
New York, New York 10017
Attn: Credit Deputy
Telecopy No.: (212) 622-5218


Commitment:  $25,000,000
FLEET BUSINESS CREDIT CORPORATION,
as a Lender


By:
-----------------------------------------
Name: John P. Masotti
Title: Vice President

Address: 200 Glastonbury Blvd.
Glastonbury, CT 06033
Attn: Mr. John Masotti
Telecopy No.: (860) 657-7759


Commitment:  $25,000,000
LASALLE BUSINESS CREDIT, INC.,
as a Lender


By: /s/ Lawrence P. Garni
-----------------------------------------
Name: Lawrence P. Garni
Title: First Vice President

Address: 477 Madison Avenue
12th Floor
New York, New York 10022
Attn: Mr. Corey Sclar
Telecopy No.: (212) 371-2966

                                      -31-
<PAGE>


Commitment:  $25,000,000
FLEET NATIONAL BANK, as a Lender


By: /s/ Linda Smyth
---------------------------------
Name: Linda Smyth
Title: Vice President

Address: 777 Main Street
MSN 240
Hartford, Connecticut 06115
Attn: Linda Smyth
Telecopy No.: (860) 986-6919


Commitment:  $25,000,000
NATIONAL CITY COMMERCIAL FINANCE, INC.,as a Lender


By: /s/ Matthew D. Sheets
-----------------------------------------
Name: Matthew D. Sheets
Title:Account Executive

Address: 1965 East 6th Street, Suite 400
Cleveland, Ohio 44114
Attn: Ms. Carla Kehres
Telecopy No.: (216) 575-9486


Commitment:  $25,000,000
PNC BANK, NATIONAL ASSOCIATION,
as a Lender


By: /s/ Janeann Fehrle
-----------------------------------------
Name: Janeann Fehrle
Title: Vice President

Address: 1600 Market Street
31st Floor F2-F070-31-2
Philadelphia, Pennsylvania 19103
Attn: Ms. Janeann Fehrle
Telecopy No.: (215) 585-4749


Commitment:  $20,000,000
CITIZENS BUSINESS CREDIT COMPANY,
as a Lender


By: /s/ William H. Creaser
-----------------------------------------
Name: William H. Creaser
Title: Vice President

Address: 237 Main Street
Middletown, Connecticut
Attn: Mr. William Creaser
Telecopy No.: (860) 368-4444



                                      -32-
<PAGE>




Commitment:  $30,000,000
FOOTHILL CAPITAL CORPORATION, as a Lender


By: /s/ Todd Nakamuto
---------------------------------
Name: Todd Nakamuto
Title: Vice President

Address: 11111 Santa Monica Blvd.
Los Angeles, California 90025
Attn: Mr. Todd Nakamoto
Telecopy No.: (310) 479-8952


Commitment:  $20,000,000
AMSOUTH BANK, as a Lender


By: /s/ Kevin P. Rogers
-----------------------------------------
Name: Kevin P. Rogers
Title: Attorney in Fact

Address: c/o AmSouth Capital Corp.
350 Park Avenue
19th Floor
New York, New York 10022
Attn: Mr. Joseph B. Huston
Telecopy No.: (212) 935-7548


Commitment:  $15,000,000
IBJ WHITEHALL BUSINESS CREDIT CORPORATION, as a Lender


By: /s/ James M. Steffy
-----------------------------------------
Name: James M. Steffy
Title: Vice President

Address: One State Street
New York, New York 10004
Attn: Mr. James Steffy
Telecopy No.: (212) 858-2151


Commitment:  $50,000,000
BANKBOSTON RETAIL FINANCE INC.,
as a Lender


By: /s/ Betsy Ratto
---------------------------------
Name: Betsy Ratto
Title: Managing Director

Address: 40 Broad Street
11th Floor
Boston, Massachusetts 02109
Attn: Ms. Betsy Ratto
Telecopy No.: (617) 434-4339


                                      -33-
<PAGE>

Commitment:  $50,000,000
CIT GROUP/BUSINESS CREDIT, INC., as a Lender


By: /s/ Kevin O'Hara
---------------------------------
Name: Kevin O'Hara
Title: Vice President

Address: 1211 Avenue of the Americas
New York, New York 10036
Attn: Mr. Kevin O'Hara
Telecopy No.: (212) 536-1295


Commitment:  $25,000,000
TEXTRON FINANCIAL CORPORATION, as a Lender


By: /s/ John M. Parrott
-----------------------------------------
Name: John M. Parrott
Title: Vice President

Address: 4550 North Point
Suite 400
Alpharetta, Georgia 30022
Attn: Ms. Christine MacKay
Telecopy No.: (770) 360-1672


Commitment:  $50,000,000
HELLER FINANCIAL, INC., as a Lender


By: /s/ John Buff
---------------------------------
Name: John Buff
Title: Senior Vice President

Address: 150 East 42nd Street
7th Floor
New York, New York 10017
Attn: Mr. Thomas Bukowski
Telecopy No.: (212) 880-2960


Commitment:  $10,000,000
FREMONT FINANCIAL CORPORATION, as a Lender


By: /s/ Ruth Yang
-----------------------------------------
Name: Ruth Yang
Title: Portfolio Administrator

Address: 2020 Santa Monica Boulevard
Suite 500
Santa Monica, California 90404
Attn: Ms. Ruth Yang
Telecopy No.: (310) 264-7401


                                      -34-
<PAGE>


Commitment:  $25,000,000
BNY FINANCIAL CORPORATION, as a Lender


By: /s/ Robert E. Nuytkens
-----------------------------------------
Name: Robert E. Nuytkens
Title: Vice President

Address: 1290 Avenue of the Americas
3rd Floor
New York, New York 10004
Attn: Mr. Frank Imperato
Telecopy No.: (212) 408-4317


                                                                     SCHEDULE I

                  DISPOSITION OF ASSETS OF HILLS CREDIT PARTIES

All  inventory,  fixtures,  equipment  and leasehold  improvements  of the Hills
Credit Parties will be transferred to AMC.

All leases and real property of the Hills Credit  Parties will be transferred to
Ames Realty II, Inc.

All other  assets of the Hills  Credit  Parties  will  remain as property of the
Parent.


                                      -35-
<PAGE>


                                                                    Exhibit 10.2


                   SECOND AMENDMENT TO THE SECOND AMENDED AND
                            RESTATED CREDIT AGREEMENT


         SECOND AMENDMENT,  dated as of June 1, 1999 (this "Amendment"),  to the
Second Amended and Restated Credit Agreement,  dated as of December 31, 1998 (as
heretofore amended,  supplemented or otherwise modified, the "Credit Agreement")
among  Ames  Department   Stores,   Inc.,  Ames  FS,  Inc.,  Ames  Merchandising
Corporation and certain Affiliates thereof,  the lenders listed on the signature
pages hereto, who are parties to the Credit Agreement (the "Lenders"),  and Bank
of America National Trust and Savings  Association as administrative  agent (the
"Administrative Agent").


                               W I T N E S S E T H
                               - - - - - - - - - -


         WHEREAS,  the  Borrowers  (as  that  term  is  defined  in  the  Credit
Agreement), the Lenders and the Agent are parties to the Credit Agreement;

         WHEREAS,  the Borrowers  have  requested  that the Credit  Agreement be
amended and the Lenders are willing to amend the Credit Agreement as hereinafter
set forth.

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:

     1. Defined Terms.  Unless otherwise defined herein,  capitalized terms used
herein have the  meanings  set forth in the Credit  Agreement.  2.  Amendment to
Section  3.5 of the Credit  Agreement.  Section 3.5 of the Credit  Agreement  is
hereby amended by adding the following  immediately before the period at the end
of the first sentence thereof:

                   "; provided,  however, that so long as the outstanding amount
                   of Loans and undrawn face amount of all  outstanding  Letters
                   of Credit do not exceed $350,000,000 in any month, the unused
                   line fee for such month shall be determined as if the Maximum
                   Revolver Amount were $450,000,000."

         3. Representations and Warranties. To induce Agent and Lenders to enter
into this Amendment,  each of the Credit Parties hereby  represents and warrants
as follows,  with the same effect as if such representations and warranties were
set forth in the Credit Agreement:

                  (a)      Each  Credit  Party has the power  and  authority  to
                           enter  into  this   Amendment,   and  has  taken  all
                           corporate action required to authorize its execution,
                           delivery  and  performance  of this  Amendment.  This
                           Amendment  has been duly  executed  and  delivered by
                           such  Credit  Party  and  the  Credit  Agreement,  as
                           amended  hereby,  constitutes  the valid and  binding
                           obligation of such Credit Party,  enforceable against
                           such Credit Party in accordance  with its terms.  The
                           execution,   delivery,   and   performance   of  this
                           Amendment  and  the  Credit  Agreement,   as  amended
                           hereby,  by such Credit  Party,  will not violate its
                           certificate  of   incorporation  or  by-laws  or  any
                           agreement or legal requirement binding on such Credit
                           Party.

                  (b)      On the date  hereof  and after  giving  effect to the
                           terms of this Amendment, (i) the Credit Agreement and
                           the other Loan Documents are in full force and effect
                           and,  to the  extent  that a Credit  Party is a party
                           thereto,    constitutes   its   binding   obligation,
                           enforceable  against  it  in  accordance  with  their
                           respective terms; (ii) no Default or Event of Default
                           has occurred and is  continuing;  and (iii) no Credit
                           Party has any defense to or setoff,  counterclaim  or
                           claim   against   payment  of  the  Lender  Debt  and
                           enforcement of the Loan  Documents  based upon a fact
                           or circumstance  existing or occurring on or prior to
                           the date hereof.

                                      -36-
<PAGE>

                  (c)      Each of the Credit Parties hereby restates,  repeats,
                           and  reaffirms  each  of  the   representations   and
                           warranties   contained   in  the  Credit   Agreement,
                           provided that each reference in such  representations
                           and warranties to "this Agreement" shall be deemed to
                           be a reference to the Credit  Agreement as amended by
                           this Amendment.

         4.  Conditions

                  (a)      Notwithstanding   any  term  or   provision  of  this
                           Amendment to the contrary,  no amendment,  consent or
                           other   agreement   contained   herein  shall  become
                           effective until the  Administrative  Agent shall have
                           determined  that  each  of the  following  conditions
                           precedent shall have been satisfied:

                           (i)      All  required   corporate   proceedings   in
                                    connection  with the  execution and delivery
                                    of this Amendment shall have been taken, and
                                    each  shall  be  satisfactory  in  form  and
                                    substance to the  Administrative  Agent, and
                                    the Administrative Agent shall have received
                                    all information and copies of all documents,
                                    including  without  limitation,  records  of
                                    requisite  corporate  action and proceedings
                                    that the Administrative Agent may reasonably
                                    request,  to be certified by the appropriate
                                    corporate person .

                           (ii)     All  representations  and warranties made by
                                    each  of the  Credit  Parties  contained  in
                                    Paragraph 4 hereof shall be true and correct
                                    with  the  same   effect  as   though   such
                                    representations and warranties had been made
                                    on and as of effectiveness of the applicable
                                    provision or provisions  hereof  (unless any
                                    such representation or warranty speaks as of
                                    a particular date, in which case it shall be
                                    deemed repeated as of such date).


                           (iii)    counterparts  of this  Amendment  shall have
                                    been duly  executed and  delivered on behalf
                                    of each of the  Borrowers,  the other Credit
                                    Parties   party   hereto  and  the  Majority
                                    Lenders.

     5. Limited Effect.  Except as expressly  amended hereby,  all of the terms,
covenants  and  provisions  of the  Credit  Agreement  and all  liens,  security
interests and collateral granted by the Credit Parties are and shall continue to
be unmodified and in full force and effect.

     6. GOVERNING  LAW. THIS  AMENDMENT  SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF
LAWS PROVISIONS) OF THE STATE OF NEW YORK.

         7. Counterparts;  Effectiveness.  This Amendment may be executed by the
parties hereto in any number of separate counterparts, each of which shall be an
original,  and all of which taken together shall be deemed to constitute one and
the same instrument.  This Amendment shall not become effective unless and until
Administrative Agent has received an executed counterpart of this Amendment from
each of the Credit Parties and each of the Lenders.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly  executed and  delivered  by their  respective  proper and duly  authorized
officers as of the day and year first above written.

                                      -37-
<PAGE>

"BORROWERS"

AMES MERCHANDISING CORPORATION


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


AMES FS, INC.


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


"OTHER CREDIT PARTIES"

AMES DEPARTMENT STORES, INC.

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



AMD, INC.


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


AMES REALTY II, INC.


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





AMES TRANSPORTATION SYSTEMS, INC.


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



"ADMINISTRATIVE AGENT"

BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
as Administrative Agent


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

                                      -38-
<PAGE>

"LENDERS"

AMSOUTH BANK
as a Lender

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


BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
as a Lender


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


BNY FINANCIAL CORPORATION,
as a Lender


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


CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender


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



CITIZENS BUSINES CREDIT COMPANY,
as a Lender


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



CONGRESS FINANCIAL CORPORATION,
as a Lender


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

                                      -39-
<PAGE>


FLEET CAPITAL CORP.,
as a Lender


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


FLEET NATIONAL BANK,
as a Lender

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



FOOTHILL CAPITAL CORPORATION


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



FREMONT FINANCIAL CORPORATION,
as a Lender

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


GENERAL ELECTRIC CAPITAL
CORPORATION, as a Lender


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


HELLER FINANCIAL, INC.
as a Lender

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

                                      -40-
<PAGE>



IBJ SCHRODER BUSINESS CREDIT
CORPORATION
as a Lender

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



LASALLE BUSINESS CREDIT, INC.,
as a Lender

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


NATIONAL CITY COMMERCIAL
FINANCE, INC.
as a Lender

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


PNC BANK, NATIONAL ASSOCIATION,
as a Lender

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



TEXTRON FINANCIAL CORPORATION,
as a Lender

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



THE CHASE MANHATTAN BANK,
as a Lender


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


TRANSAMERICA BUSINESS CREDIT
CORPORATION, as a Lender


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

                                      -41-
<PAGE>


                                                                   Exhibit 10.3


                                 THIRD AMENDMENT


                  THIRD  AMENDMENT,  dated as of October  15,  1999 (the  "Third
Amendment"),  among the financial institutions named in the Credit Agreement (as
defined  below) (such  financial  institutions,  together with their  respective
successors  and assigns,  are referred to  hereinafter  each  individually  as a
"Lender" and  collectively  as the  "Lenders"),  Bank of America NT&SA (formerly
BankAmerica  Business Credit,  Inc.  ("BABC")) as  administrative  agent for the
Lenders (in its capacity as administrative agent, together with any successor in
such  capacity,  the  "Administrative  Agent"),  Ames FS, Inc.  ("AFS") and Ames
Merchandising  Corporation  ("AMC", and together with AFS, each a "Borrower" and
collectively,  the  "Borrowers"),  and the  other  Credit  Parties  named in and
signatory  to the Second  Amended and  Restated  Credit  Agreement,  dated as of
December  31, 1998 and amended as of April 16, 1999 and as of June 1, 1999,  (as
previously amended and as further amended,  restated,  modified and supplemented
from time to time, the "Credit Agreement") among the Lenders, the Administrative
Agent, the Borrowers, and the other Credit Parties named therein and signatories
thereto.  Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Credit Agreement.

                  WHEREAS,  the Parent has informed the Administrative Agent and
the Lenders that it proposes to repurchase up to  $50,880,000  in face amount of
12.5% Senior Notes due 2003 (the "Hills  Notes") under an Indenture  dated as of
April 19, 1996 between Hills Stores  Company and Fleet National Bank, as trustee
(the "Indenture");

                  WHEREAS,  Section 9.14 of the Credit  Agreement  prohibits the
Parent or any of its  Subsidiaries  from  making any  payment or  prepayment  of
principal  or interest on account of, or purchase,  defease,  acquire or redeem,
any Debt for Borrowed Money;

                  WHEREAS,  the Borrowers  have requested that the Lenders agree
to amend  Section 9.14 of the Credit  Agreement to permit the  repurchase of the
Hills  Notes in an  aggregate  purchase  amount not to exceed  $54,500,000  plus
accrued and unpaid interest.

                  NOW, THEREFORE,  for valuable  consideration,  the receipt and
sufficiency of which is hereby  acknowledged,  and subject to the fulfillment of
the conditions set forth below, the parties hereto agree hereby as follows:


         SECTION 1.  AMENDMENTS TO THE CREDIT AGREEMENT

     1.1 Section 1.1 is hereby  amended by adding the following  definitions  in
the proper alphabetical order therein:
                           "Hills  Notes"  means the 12.5% Senior Notes due 2003
                  issued under the Indenture.

                           "Second   Amendment"   means  that   certain   Second
                  Amendment  dated as of June 1, 1999 among the  Borrowers,  the
                  Lenders,   the  Administrative  Agent  and  the  other  Credit
                  Parties.

                                      -42-
<PAGE>

                           "Third  Amendment" means that certain Third Amendment
                  dated as of October 15, 1999 among the Borrowers, the Lenders,
                  the Administrative Agent and the other Credit Parties.

                  1.2 Section 9.14 is hereby amended by replacing it in its
                  entirety with the following new Section 9.14:
                  Redemptions and Other Payments.  Neither the Parent nor any of
                  its  Subsidiaries  shall  make any  payment or  prepayment  of
                  principal  or interest on account  of, or  purchase,  defease,
                  acquire or redeem,  any Debt for  Borrowed  Money (or give any
                  notice  thereof or establish a sinking  fund,  reserve or like
                  set aside of funds or other property therefor), except (i) the
                  prepayment of Obligations in accordance with the terms of this
                  Agreement,  (ii) payments (other than (x) prepayments,  except
                  to the extent that Net Cash Proceeds with respect to any asset
                  sales permitted by Section 9.9 are available therefor, and (y)
                  prepayments in connection with the termination in the ordinary
                  course of  business of any real or  personal  property  leases
                  listed on Schedule 9.13) of Debt of any Credit Party permitted
                  under clause (b),  (d), or (h) of Section  9.13, in each case,
                  to the  extent  due and  payable,  (iii)  regularly  scheduled
                  payments of Debt of any Credit  Party  permitted  under clause
                  (c) of  Section  9.13,  in  each  case to the  extent  due and
                  payable and  permitted to be paid by the terms  thereof,  (iv)
                  regularly  scheduled  payments  of  interest  under  the  Debt
                  permitted by Section  9.13(i),  in each case to the extent due
                  and payable and permitted to be paid by the terms thereof, and
                  (v)  repurchase of  outstanding  Hills Notes provided that the
                  average weighted purchase price for all such repurchases shall
                  not exceed 107% of the face amount  thereof and the  aggregate
                  amount  spent will not exceed  $54,500,000  plus  accrued  and
                  unpaid interest.


         SECTION 2.  CONDITIONS PRECEDENT TO EFFECTIVE DATE

                  This Third Amendment shall be deemed  effective as of the date
hereof on such date (the  "Effective  Date") that the following  conditions have
been satisfied in full or waived by the Administrative Agent in writing:

                  2.1 This  Third  Amendment  shall  have been  executed  by the
Credit  Parties,  the  Administrative  Agent and the Majority  Lenders,  and the
Credit  Parties  shall  have  performed  and  shall  be in  compliance  with all
covenants,  agreements and conditions  contained herein, in the Credit Agreement
and in the other Loan Documents each as amended hereby.

                  2.2      The Administrative Agent shall have received:



                                      -43-
<PAGE>


                           2.2.1 Such opinions of counsel for the Parent and the
         Borrowers as the Administrative Agent or any Lender shall request, each
         such opinion to be in a form, scope, and substance  satisfactory to the
         Administrative Agent, the Lenders, and their respective counsel;

                           2.2.2 (x) a certificate of the Secretary or Assistant
         Secretary  of each  Credit  Party,  except  in the  case of (C) and (D)
         hereinafter in which case the Parent only,  dated within three Business
         Days prior to the date hereof and  certifying  that (A) the copy of its
         By-laws  attached to the  certificate  of its  Secretary  or  Assistant
         Secretary  delivered on the Closing Date is a true and complete copy of
         its  By-laws  as in  effect  on the date of the  certificate  delivered
         pursuant to this  subsection  and such  By-laws  have not been  amended
         since  the  Closing   Date,   (B)  its   certificate   or  articles  of
         incorporation has not been amended since the date of the last amendment
         thereto shown on the certificate of good standing from the Secretary of
         State of the state of its incorporation  delivered on the Closing Date,
         (C)  attached  thereto is a true and complete  copy of the  resolutions
         adopted by its Board of Directors  authorizing the execution,  delivery
         and  performance  of this Third  Amendment  and the  repurchase  of the
         Senior  Notes  and  that  such  resolutions  have  not  been  modified,
         rescinded  or  amended  and are in full force and  effect,  and (D) the
         officers  executing this Third Amendment or any other document to which
         it is a party  delivered in  connection  herewith or therewith  are the
         incumbent officers and their signatures are as set forth thereto; and

         (y) a  certificate  of another  officer  of the Parent and each  Credit
         Party, as the case may be, attesting to the incumbency and signature of
         its Secretary or Assistant Secretary, as the case may be;

                           2.2.3 Such other approvals,  opinions or documents as
the Administrative Agent may reasonably request.

                  2.3 To the extent invoiced,  the Borrowers shall have paid all
fees and expenses of the Administrative Agent and the Attorney Costs incurred in
connection with this Third Amendment and the transactions contemplated hereby.

                  2.4 All proceedings  taken in connection with the execution of
this Third  Amendment and all documents and papers  relating  hereto and thereto
shall be satisfactory in form, scope, and substance to the Administrative  Agent
and the Majority Lenders.

                  2.5 All representations and warranties contained in this Third
Amendment  or  otherwise  made in  writing  to the  Administrative  Agent or the
Lenders  in  connection  herewith  shall be true  and  correct  in all  material
respects.

                  2.6 No unwaived  event has  occurred and is  continuing  which
constitutes a Default or an Event of Default under the Credit Agreement.


         The execution and delivery to the Administrative Agent by the Borrowers
of a counterpart of this Third Amendment shall be deemed to be a  representation
and  warranty  made by the  Credit  Parties to the  effect  that the  conditions
precedent to the Effective Date set forth hereinabove have been satisfied,  with
the same  effect as delivery  to the  Administrative  Agent and the Lenders of a
certificate  signed by a  Responsible  Officer of the  Parent or the  Borrowers,
dated the Effective Date, to such effect.

         SECTION 3.  MISCELLANEOUS

                  3.1   Each   Credit   Party   reaffirms   and   restates   the
representations  and  warranties  set forth in  Articles  6 and 8 of the  Credit
Agreement, as amended by this Third Amendment,  and all such representations and
warranties  shall be true and correct on the date hereof with the same force and
effect as if made on such date. Each Credit Party represents and warrants (which
representations  and warranties shall survive the execution and delivery hereof)
to the Agent that:

                  (a) It has the  corporate  power  and  authority  to  execute,
         deliver and carry out the terms and provisions of this Third  Amendment
         and the transactions  contemplated hereby and has taken or caused to be
         taken all  necessary  corporate  action  to  authorize  the  execution,
         delivery and performance of this Third  Amendment and the  transactions
         contemplated hereby;

                                      -44-
<PAGE>

                  (b)  No  consent  of  any  other  person  (including,  without
         limitation,  shareholders  or  creditors of any Credit  Party),  and no
         action of, or filing with any  governmental or public body or authority
         is required to authorize,  or is otherwise  required in connection with
         the execution, delivery and performance of this Third Amendment;

                  (c)  This  Third  Amendment  and  the  other  instruments  and
         documents  contemplated hereby have been duly executed and delivered by
         a duly  authorized  officer on behalf of such party,  and constitutes a
         legal, valid and binding  obligation of such party enforceable  against
         such  party  in  accordance  with its  terms,  subject  to  bankruptcy,
         reorganization, insolvency, moratorium and other similar laws affecting
         the  enforcement  of  creditors'  rights  generally and the exercise of
         judicial  discretion in accordance  with general  principles of equity;
         and

                  (d) The  execution,  delivery  and  performance  of this Third
         Amendment and the other instruments and documents  contemplated  hereby
         will not violate any law, statute or regulation, or any order or decree
         of any court or  governmental  instrumentality,  or conflict  with,  or
         result in the breach of, or constitute a default under any  contractual
         obligation of such party.

                  3.2  Nothing  herein  shall be  deemed  to be a waiver  of any
covenant or agreement  contained in the Credit Agreement,  and each Credit Party
hereby agrees that all of the covenants and  agreements  contained in the Credit
Agreement and the other Loan Documents are hereby  ratified and confirmed in all
respects  and shall  remain in full  force and effect in  accordance  with their
respective  terms.  Each Credit Party reaffirms its prior grant under the Credit
Agreement  of a continuing  first  priority  security  interest in, lien on, and
right of set-off  against,  all of the Collateral of such Credit Party,  whether
now owned or existing or  hereafter  acquired  or arising,  regardless  of where
located,  and  each of them  shall  enter  into any  confirmatory  documentation
requested by the Administrative Agent.

                  3.3 All  references  to the  Credit  Agreement  in the  Credit
Agreement or any other Loan  Document and the other  documents  and  instruments
delivered  pursuant to or in connection  therewith  shall mean such agreement as
amended hereby and as each may in the future be amended, restated,  supplemented
or modified from time to time.

                  3.4 This Third Amendment may be executed by the parties hereto
individually or in combination, in one or more counterparts, each of which shall
be an original and all of which shall constitute one and the same agreement.

                  3.5 Delivery of an executed counterpart of a signature page by
telecopier shall be effective as delivery of a manually executed counterpart.

                  3.6 This Third  Amendment  shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.

                  3.7 The  parties  hereto  shall,  at any time and from time to
time  following the execution of this Third  Amendment,  execute and deliver all
such further  instruments  and take all such further action as may be reasonably
necessary  or  appropriate  in order to carry out the  provisions  of this Third
Amendment.


IN WITNESS WHEREOF,  each Borrower,  the Majority  Lenders,  the  Administrative
Agent,  each  Co-Agent  and the other  Credit  Parties  have  caused  this Third
Amendment to be duly executed by their respective  authorized officers as of the
day and year first above written.

                                      -45-
<PAGE>

BANK OF AMERICA NT&SA,
as the Administrative Agent


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


AMES MERCHANDISING CORPORATION, as a Borrower and Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES FS, INC., as a Borrower and Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES DEPARTMENT STORES, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President and CFO

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


                                      -46-
<PAGE>



AMD, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES REALTY II, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES TRANSPORTATION SYSTEMS, INC.,
as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560

                                      -47-
<PAGE>


Commitment:  $50,000,000
BANK OF AMERICA NT&SA
(formerly BANKAMERICA BUSINESS CREDIT, INC.),
as a Lender


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


Commitment:  $50,000,000
CONGRESS FINANCIAL CORPORATION,
as a Lender


By:
-----------------------------------------
Name: Cindy B. Dennbaum
Title: Vice President

Address: 1133 Avenue of the Americas
New York, New York 10036
Attn: Ms. Cindy Dennbaum
Telecopy No.: (212) 545-4283


Commitment:  $50,000,000
GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Steven Metivier
Title: Authorized Signatory

Address: 201 High Ridge Road
Stamford, Connecticut 06927
Attn: Vice President - Portfolio
Telecopy No.: (203) 316-7893


Commitment:  $50,000,000
TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender

By:
-----------------------------------------
Name: Michael S. Burns
Title: Vice President

Address: 555 Theodore Fremd Avenue
Suite 301
Rye, New York 10580
Attn: Mr. Jon Oldham
Telecopy No.: (914) 921-0110

                                      -48-
<PAGE>


Commitment:  $30,000,000
THE CHASE MANHATTAN BANK,
as a Lender


By:
-----------------------------------------
Name: James M. Dailey
Title: Vice President

Address: 633 Third Avenue
New York, New York 10017
Attn: Credit Deputy
Telecopy No.: (212) 622-5218


Commitment:  $25,000,000
FLEET BUSINESS CREDIT CORPORATION,
as a Lender


By:
-----------------------------------------
Name: John P. Masotti
Title: Vice President

Address: 200 Glastonbury Blvd.
Glastonbury, CT 06033
Attn: Mr. John Masotti
Telecopy No.: (860) 657-7759


Commitment:  $25,000,000
LASALLE BUSINESS CREDIT, INC.,
as a Lender


By:
-----------------------------------------
Name: Lawrence P. Garni
Title: First Vice President

Address: 477 Madison Avenue
12th Floor
New York, New York 10022
Attn: Mr. Corey Sclar
Telecopy No.: (212) 371-2966


Commitment:  $25,000,000
FLEET NATIONAL BANK, as a Lender


By:
-----------------------------------------
Name: Linda Smyth
Title: Vice President

Address: 777 Main Street
MSN 240
Hartford, Connecticut 06115
Attn: Linda Smyth
Telecopy No.: (860) 986-6919


                                      -49-
<PAGE>

Commitment:  $25,000,000
NATIONAL CITY COMMERCIAL FINANCE, INC., as a Lender


By:
-----------------------------------------
Name: Matthew D. Sheets
Title:Account Executive

Address: 1965 East 6th Street, Suite 400
Cleveland, Ohio 44114
Attn: Ms. Carla Kehres
Telecopy No.: (216) 575-9486


Commitment:  $25,000,000
PNC BANK, NATIONAL ASSOCIATION,
as a Lender


By:
-----------------------------------------
Name: Janeann Fehrle
Title: Vice President

Address: 1600 Market Street
31st Floor F2-F070-31-2
Philadelphia, Pennsylvania 19103
Attn: Ms. Janeann Fehrle
Telecopy No.: (215) 585-4749


Commitment:  $20,000,000
CITIZENS BUSINESS CREDIT COMPANY,
as a Lender


By:
-----------------------------------------
Name: John Palermo
Title: Vice President

Address: 237 Main Street
Middletown, Connecticut
Attn: Mr. John Palermo
Telecopy No.: (860) 368-4444


Commitment:  $30,000,000
FOOTHILL CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Nakamoto
Title: Vice President

Address: 11111 Santa Monica Blvd.
Los Angeles, California 90025
Attn: Mr. Todd Nakamoto
Telecopy No.: (310) 479-8952


                                      -50-
<PAGE>

Commitment:  $20,000,000
AMSOUTH BANK, as a Lender


By:
-----------------------------------------
Name: Kevin P. Rogers
Title: Attorney in Fact

Address: c/o AmSouth Capital Corp.
350 Park Avenue
19th Floor
New York, New York 10022
Attn: Mr. Joseph B. Huston
Telecopy No.: (212) 935-7548


Commitment:  $15,000,000
IBJ WHITEHALL BUSINESS CREDIT CORPORATION, as a Lender


By:
-----------------------------------------
Name: Andrew Sepe
Title: Vice President

Address: One State Street
New York, New York 10004
Attn: Mr. Andrew Sepe
Telecopy No.: (212) 858-2151

Commitment:  $50,000,000
BANKBOSTON RETAIL FINANCE INC.,
as a Lender


By:
-----------------------------------------
Name: Betsy Ratto
Title: Managing Director

Address: 40 Broad Street
11th Floor
Boston, Massachusetts 02109
Attn: Ms. Betsy Ratto
Telecopy No.: (617) 434-4339


                                      -51-
<PAGE>

Commitment:  $50,000,000
CIT GROUP/BUSINESS CREDIT, INC., as a Lender


By:
-----------------------------------------
Name: Evelyn Kusold
Title: Vice President

Address: 1211 Avenue of the Americas
New York, New York 10036
Attn: Ms. Evelyn Kusold
Telecopy No.: (212) 536-1295


Commitment:  $25,000,000
TEXTRON FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Runge
Title: Vice President

Address: 4550 North Point
Suite 400
Alpharetta, Georgia 30022
Attn: Ms. Christine MacKay
Telecopy No.: (770) 360-1672


Commitment:  $50,000,000
HELLER FINANCIAL, INC., as a Lender


By:
-----------------------------------------
Name: John Buff
Title: Senior Vice President

Address: 150 East 42nd Street
7th Floor
New York, New York 10017
Attn: Mr. Thomas Bukowski
Telecopy No.: (212) 880-2960


Commitment:  $10,000,000
FREMONT FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Ruth Yang
Title: Portfolio Administrator

Address: 2020 Santa Monica Boulevard
Suite 500
Santa Monica, California 90404
Attn: Ms. Ruth Yang
Telecopy No.: (310) 264-7401


Commitment:  $25,000,000
GENERAL MOTORS ACCEPTANCE CORPORATION, as a Lender


By:
-----------------------------------------
Name: Robert E. Nuytkens
Title: Vice President

Address: 1290 Avenue of the Americas
3rd Floor
New York, New York 10004
Attn: Mr. Frank Imperato
Telecopy No.: (212) 408-4317


                                      -52-
<PAGE>


                                                                    Exhibit 10.4


                                FOURTH AMENDMENT


                  FOURTH  AMENDMENT,  dated as of January 18, 2000 (the  "Fourth
Amendment"),  among the financial institutions named in the Credit Agreement (as
defined  below) (such  financial  institutions,  together with their  respective
successors  and assigns,  are referred to  hereinafter  each  individually  as a
"Lender" and  collectively as the "Lenders"),  Bank of America,  N.A.  (formerly
BankAmerica  Business Credit,  Inc.  ("BABC")) as  administrative  agent for the
Lenders (in its capacity as administrative agent, together with any successor in
such  capacity,  the  "Administrative  Agent"),  Ames FS, Inc.  ("AFS") and Ames
Merchandising  Corporation  ("AMC", and together with AFS, each a "Borrower" and
collectively,  the  "Borrowers"),  and the  other  Credit  Parties  named in and
signatory  to the Second  Amended and  Restated  Credit  Agreement,  dated as of
December 31, 1998 and amended as of April 16, 1999, as of June 1, 1999 and as of
October 15,  1999,  (as  previously  amended and as further  amended,  restated,
modified and supplemented  from time to time, the "Credit  Agreement") among the
Lenders, the Administrative  Agent, the Borrowers,  and the other Credit Parties
named therein and  signatories  thereto.  Capitalized  terms used herein and not
otherwise  defined  shall  have  the  meanings  ascribed  to them in the  Credit
Agreement.

                  WHEREAS,  the Borrowers  have requested that the Lenders agree
to amend certain  sections of the Credit  Agreement to reduce the interest rate,
replace the minimum  availability  and fixed charge coverage ratio covenants and
permit the repurchase of public debt and equity in an aggregate  purchase amount
not to exceed $100,000,000 annually.

                  NOW, THEREFORE,  for valuable  consideration,  the receipt and
sufficiency of which is hereby  acknowledged,  and subject to the fulfillment of
the conditions set forth below, the parties hereto agree hereby as follows:


         SECTION 1.  AMENDMENTS TO THE CREDIT AGREEMENT

                  1.1 Section 1.1 is hereby  amended by adding the following
                  definitions  in the proper alphabetical order therein:
                           "Fourth   Amendment"   means  that   certain   Fourth
                  Amendment  dated as of January 18,  2000 among the  Borrowers,
                  the  Lenders,  the  Administrative  Agent and the other Credit
                  Parties.

                  1.2 The  definition of  "Applicable  Margin" in Section 1.1 is
                  hereby  amended  by  replacing  it  in  its  entirety  with
                  the  following  new definition:

                           "Applicable  Margin" means, with respect to any Loan,
                  the  amount  set forth  below  which  corresponds  to the then
                  current senior  unsecured debt rating of the Parent by Moody's
                  Investors Service (the "Debt Rating") set forth below.


                                      -53-
<PAGE>
<TABLE>

                                                                                       Applicable Margin
                  Debt                          Applicable Margin for                         for
                 Rating                           LIBOR Rate Loans                      Base Rate Loans
                  <S>                                   <C>                                 <C>
                  B2 (or higher)                        1.50%                               zero (0)

                  B3                                    1.75%                                .125%

                  Caa1                                  2.00%                                .375%

                  Caa2 (or lower)                       2.25%                                .625%
</TABLE>

                  ; provided, however, that
                    --------  -------

                           (i) on the Effective Date of the Fourth Amendment (as
                  defined  therein) the  Applicable  Margin for LIBOR Rate Loans
                  shall be 1.50% and the  Applicable  Margin for Base Rate Loans
                  shall be 0%;

                           (ii) each increase in the Applicable  Margin shall be
                  automatically  effective  as of the date any  downgrade to the
                  Debt  Rating  is  publicly   announced  by  Moody's  Investors
                  Service;

                           (iii) no  decrease  in the  Applicable  Margin  shall
                  occur in connection with any upgrade in the Debt Rating unless
                  one or more downgrades have occurred; and

                           (iv) if at any time no Debt  Rating  is  provided  by
                  Moody's Investors Service,  then the Administrative  Agent and
                  the Borrowers  shall agree upon (x) a rating agency of similar
                  status that provides debt ratings which are the  equivalent of
                  the Debt Ratings set forth above and (y) the Applicable Margin
                  applicable  to each  such  debt  rating.  Should  no such debt
                  rating agency be available or if the Administrative  Agent and
                  the  Borrowers  do not  agree  on a  rating  agency,  the debt
                  ratings or the Applicable Margins applicable thereto, then the
                  Applicable  Margin,  immediately and without notice or further
                  action,  shall  be  the  highest  Applicable  Margin  provided
                  herein.

                  1.3 Clause (D) in the definition of "EBITDA" in Section 1.1 is
hereby  amended by replacing it in its entirety  with the  following  new clause
(D):

                           (D) all expenses and revenue relating to or resulting
                  from the liquidation of Inventory of any Hills Credit Party or
                  the conversion of Hills stores to Ames stores;

                  1.4      The  definition  of "EBITDA" in Section 1.1 is hereby
                  further  amended by replacing the phrase "The October 28, 1998
                  Projections." with the phrase "Fiscal 2000 Projections." where
                  it appears in the proviso.

                  1.5 The definition of "Fixed Charges" in Section 1.1 is hereby
amended by replacing it in its entirety with the following new definition:

                           "Fixed Charges" means, with respect to the Parent and
                  its consolidated  Subsidiaries for any period,  the sum of (i)
                  Cash   Interest   Expense  for  such   period,   (ii)  Capital
                  Expenditures  made  in  such  period  (excluding  all  Capital
                  Expenditures  relating to or resulting  from the conversion of
                  Hills stores to Ames stores),  (iii) all payments made in such
                  period on account of the principal amount of Debt for Borrowed
                  Money (other than the Obligations),  (iv) all payments made in
                  such period on account of  repurchases  of stock of the Parent
                  permitted  pursuant to Section 9.10 and (v) all payments  made
                  in such period on account of  repurchases  of publicly  issued
                  Debt for Borrowed Money permitted pursuant to Section 9.14.

                                      -54-
<PAGE>

                  1.6 The definition of "Individual Availability" in Section 1.1
is hereby  amended  by  deleting  the  phrase "at any time  during  each  period
commencing  on July 1 and  ending on  November  30 in each  year,  seventy  five
percent (75%), and at any other time" from clause (a)(ii)(x) of such definition.

                  1.7 Paragraph (c) of Section 7.2 is hereby  amended by adding
                  the following immediately prior to the period at the end
                  thereof:

                  and either (x) stating that because the Combined  Availability
                  was not less than  $100,000,000  at any time  during the month
                  then ended Section 9.26 was not  applicable  during such month
                  or (y) setting  forth in  reasonable  detail the  calculations
                  required  to  establish   that  the  Credit  Parties  were  in
                  compliance with the covenants set forth in Section 9.26 at the
                  end of such month

                  1.8 Paragraph  (d) of Section 7.2 is hereby  amended by
                  replacing  it in its entirety  with the  following  new
                  paragraph (d):

                           (d)  With  each  of  the  annual  audited   Financial
                  Statements  delivered  pursuant to Section 7.2(a),  and within
                  forty-five  (45) days after the end of each fiscal quarter (or
                  ninety  (90)  days  in the  case  of the  fourth  quarter),  a
                  certificate of the chief  financial  officer of the Parent (i)
                  stating that, except as explained in reasonable detail in such
                  certificate,  (A) all of the representations and warranties of
                  the Credit  Parties  contained in this Agreement and the other
                  Loan  Documents  are  correct  and  complete  in all  material
                  respects as at the date of such certificate as if made at such
                  time,   (B)  each  Credit  Party  is,  at  the  date  of  such
                  certificate,  in compliance in all material  respects with all
                  of its  respective  covenants and agreements in this Agreement
                  and the  other  Loan  Documents,  (C) no  Default  or Event of
                  Default  then exists or existed  during the period  covered by
                  such Financial Statements, and (D) describing and analyzing in
                  reasonable   detail  all   material   trends,   changes,   and
                  developments  in each and all Financial  Statements,  and (ii)
                  with respect to the  financial  statements  delivered for each
                  fiscal  quarter,  stating that all such  statements  have been
                  prepared in accordance with GAAP and present  fairly,  subject
                  to normal year-end adjustments,  the financial position of the
                  Parent  and  its  consolidated  Subsidiaries  as at the  dates
                  thereof and their results of  operations  for the periods then
                  ended. If such certificate  discloses that a representation or
                  warranty is not correct or  complete,  or that a covenant  has
                  not been complied  with, or that a Default or Event of Default
                  existed  or  exists,  such  certificate  shall set forth  what
                  action the Parent has taken or proposes  to take with  respect
                  thereto.

                  1.9  Section 9.10 is hereby  amended by replacing  the last
                  sentence  thereof in its entirety with the following new
                  sentence:

                  In addition,  the Parent may repurchase shares of its publicly
                  traded   common  stock  at  market   prices  in  one  or  more
                  transactions;  provided,  that (a) the Fixed  Charge  Coverage
                  Ratio for the rolling  twelve month period most recently ended
                  prior to any such repurchase is not less than  1.00:1.00;  (b)
                  after  giving  effect  to any  such  repurchase  the  Combined
                  Availability  is not  less  than  $100,000,000;  and  (c)  the
                  aggregate  repurchase  price of the shares,  together with the
                  repurchase  of Debt  permitted  to be made  pursuant to clause
                  (vi) of Section 9.14 (excluding  accrued  interest),  does not
                  exceed  $25,000,000  in the aggregate in any fiscal quarter or
                  $100,000,000  in the  aggregate in any Fiscal Year;  provided,
                  however,   if  such  repurchases  are  less  than  the  amount
                  permitted in any fiscal  quarter,  then an amount equal to the
                  unused  portion  may  be  carried  forward  and  added  to the
                  $25,000,000  permitted for the immediately  succeeding  fiscal
                  quarter;  provided  further  that  the  amount  spent  in such
                  immediately   succeeding   fiscal  quarter  shall  not  exceed
                  $50,000,000 in the aggregate.

                                      -55-
<PAGE>

                  1.10 Section 9.14 is hereby amended by replacing it in its
                  entirety with the following new Section 9.14:

                  Redemptions and Other Payments.  Neither the Parent nor any of
                  its  Subsidiaries  shall  make any  payment or  prepayment  of
                  principal  or interest on account  of, or  purchase,  defease,
                  acquire or redeem,  any Debt for  Borrowed  Money (or give any
                  notice  thereof or establish a sinking  fund,  reserve or like
                  set aside of funds or other property therefor), except (i) the
                  prepayment of Obligations in accordance with the terms of this
                  Agreement,  (ii) payments (other than (x) prepayments,  except
                  to the extent that Net Cash Proceeds with respect to any asset
                  sales permitted by Section 9.9 are available therefor, and (y)
                  prepayments in connection with the termination in the ordinary
                  course of  business of any real or  personal  property  leases
                  listed on Schedule 9.13) of Debt of any Credit Party permitted
                  under clause (b),  (d), or (h) of Section  9.13, in each case,
                  to the  extent  due and  payable,  (iii)  regularly  scheduled
                  payments of Debt of any Credit  Party  permitted  under clause
                  (c) of  Section  9.13,  in  each  case to the  extent  due and
                  payable and  permitted to be paid by the terms  thereof,  (iv)
                  regularly  scheduled  payments  of  interest  under  the  Debt
                  permitted by Section  9.13(i),  in each case to the extent due
                  and payable and permitted to be paid by the terms thereof, and
                  (v)  repurchase  of  outstanding   publicly  issued  Debt  for
                  Borrowed  Money  provided  that (a) the Fixed Charge  Coverage
                  Ratio for the rolling  twelve month period most recently ended
                  prior to any such repurchase is not less than 1.00:1.00 (after
                  giving  effect to the cash  interest to be paid in  connection
                  with each such  repurchase);  (b) after  giving  effect to any
                  such  repurchase  the Combined  Availability  is not less than
                  $100,000,000;  and (c) the aggregate amount spent for all such
                  repurchases  (excluding accrued  interest),  together with the
                  aggregate repurchase price of shares of the Parent repurchased
                  pursuant to Section 9.10,  does not exceed  $25,000,000 in the
                  aggregate  in  any  fiscal  quarter  or  $100,000,000  in  the
                  aggregate  in any  Fiscal  Year;  provided,  however,  if such
                  repurchases  are less than the amount  permitted in any fiscal
                  quarter,  then an amount  equal to the unused  portion  may be
                  carried forward and added to the $25,000,000 permitted for the
                  immediately  succeeding fiscal quarter;  provided further that
                  the amount spent in such immediately succeeding fiscal quarter
                  shall not exceed $50,000,000 in the aggregate.

                  1.11  Section 9.25 is hereby amended by replacing it in its
                  entirety with the following new Section 9.25:

                  [Intentionally Omitted]
                   ---------------------

                  1.12     Section 9.26 is hereby amended by replacing it in its
                  entirety with the following new Section 9.26:

                  Fixed Charge  Coverage Ratio. If during any month the Combined
                  Availability  is less  than  $100,000,000,  the  Parent  shall
                  maintain  a Fixed  Charge  Coverage  Ratio  of not  less  than
                  1.20:1.00 for the twelve month period ending with the last day
                  of such month.

                  1.13     Section 9.27 is hereby amended by replacing it in its
                  entirety with the following new Section 9.27:

                  [Intentionally Omitted]
                   ---------------------

                  1.14     Paragraph  (b) of Section 10.2 is hereby  amended by
                  replacing it in its  entirety  with the  following  new
                  clause (b):

                           (b) the amount of the Individual  Availability of the
                  relevant  Borrower  shall  equal or exceed  the amount of such
                  Loan or cause the  issuance  or  provision  of such  Letter of
                  Credit  or  Credit  Support;   provided,   however,  that  the
                  foregoing  conditions  precedent  are not  conditions  to each
                  Lender   participating   in  or   reimbursing   BABC   or  the
                  Administrative  Agent for such  Lenders' Pro Rata Share of any
                  BABC Loan or  Administrative  Agent  Advance  as  provided  in
                  Sections 2.2(h), (i) and (j).


                                      -56-
<PAGE>

         SECTION 2.  CONDITIONS PRECEDENT TO EFFECTIVE DATE

                  This Fourth Amendment shall be deemed effective as of the date
hereof on such date (the  "Effective  Date") that the following  conditions have
been satisfied in full or waived by the Administrative Agent in writing:

                  2.1 This  Fourth  Amendment  shall have been  executed  by the
Credit Parties, the Administrative Agent and the Lenders, and the Credit Parties
shall have performed and shall be in compliance  with all covenants,  agreements
and conditions  contained  herein, in the Credit Agreement and in the other Loan
Documents each as amended hereby.

                  2.2 All  required  corporate  actions in  connection  with the
execution and delivery of this Fourth  Amendment shall have been taken, and each
shall be satisfactory in form and substance to the Administrative Agent, and the
Administrative  Agent  shall have  received  all  information  and copies of all
documents,  including, without limitation, records of requisite corporate action
that the  Administrative  Agent may reasonably  request,  to be certified by the
appropriate corporate person or government authorities.

                  2.3 To the extent invoiced,  the Borrowers shall have paid all
fees and expenses of the Administrative Agent and the Attorney Costs incurred in
connection with this Fourth Amendment and the transactions contemplated hereby.

                  2.4 All proceedings  taken in connection with the execution of
this Fourth  Amendment and all documents and papers  relating hereto and thereto
shall be satisfactory in form, scope, and substance to the Administrative  Agent
and the Lenders.

                  2.5  All  representations  and  warranties  contained  in this
Fourth Amendment or otherwise made in writing to the Administrative Agent or the
Lenders  in  connection  herewith  shall be true  and  correct  in all  material
respects.

                  2.6 No unwaived  event has  occurred and is  continuing  which
constitutes a Default or an Event of Default under the Credit Agreement.

         The execution and delivery to the Administrative Agent by the Borrowers
of a counterpart of this Fourth Amendment shall be deemed to be a representation
and  warranty  made by the  Credit  Parties to the  effect  that the  conditions
precedent to the Effective Date set forth hereinabove have been satisfied,  with
the same  effect as delivery  to the  Administrative  Agent and the Lenders of a
certificate  signed by a  Responsible  Officer of the  Parent or the  Borrowers,
dated the Effective Date, to such effect.

         SECTION 3.  MISCELLANEOUS

                  3.1   Each   Credit   Party   reaffirms   and   restates   the
representations  and  warranties  set forth in  Articles  6 and 8 of the  Credit
Agreement, as amended by this Fourth Amendment, and all such representations and
warranties  shall be true and correct on the date hereof with the same force and
effect as if made on such date. Each Credit Party represents and warrants (which
representations  and warranties shall survive the execution and delivery hereof)
to the Agent that:

                  (a) It has the  corporate  power  and  authority  to  execute,
         deliver and carry out the terms and provisions of this Fourth Amendment
         and the transactions  contemplated hereby and has taken or caused to be
         taken all  necessary  corporate  action  to  authorize  the  execution,
         delivery and performance of this Fourth  Amendment and the transactions
         contemplated hereby;

                  (b)  No  consent  of  any  other  person  (including,  without
         limitation,  shareholders  or  creditors of any Credit  Party),  and no
         action of, or filing with any  governmental or public body or authority
         is required to authorize,  or is otherwise  required in connection with
         the execution, delivery and performance of this Fourth Amendment;

                                      -57-
<PAGE>

                  (c)  This  Fourth  Amendment  and the  other  instruments  and
         documents  contemplated hereby have been duly executed and delivered by
         a duly  authorized  officer on behalf of such party,  and constitutes a
         legal, valid and binding  obligation of such party enforceable  against
         such  party  in  accordance  with its  terms,  subject  to  bankruptcy,
         reorganization, insolvency, moratorium and other similar laws affecting
         the  enforcement  of  creditors'  rights  generally and the exercise of
         judicial  discretion in accordance  with general  principles of equity;
         and

                  (d) The  execution,  delivery and  performance  of this Fourth
         Amendment and the other instruments and documents  contemplated  hereby
         will not violate any law, statute or regulation, or any order or decree
         of any court or  governmental  instrumentality,  or conflict  with,  or
         result in the breach of, or constitute a default under any  contractual
         obligation of such party.

                  3.2  Nothing  herein  shall be  deemed  to be a waiver  of any
covenant or agreement  contained in the Credit Agreement,  and each Credit Party
hereby agrees that all of the covenants and  agreements  contained in the Credit
Agreement and the other Loan Documents are hereby  ratified and confirmed in all
respects  and shall  remain in full  force and effect in  accordance  with their
respective  terms.  Each Credit Party reaffirms its prior grant under the Credit
Agreement  of a continuing  first  priority  security  interest in, lien on, and
right of set-off  against,  all of the Collateral of such Credit Party,  whether
now owned or existing or  hereafter  acquired  or arising,  regardless  of where
located,  and  each of them  shall  enter  into any  confirmatory  documentation
requested by the Administrative Agent.

                  3.3 All  references  to the  Credit  Agreement  in the  Credit
Agreement or any other Loan  Document and the other  documents  and  instruments
delivered  pursuant to or in connection  therewith  shall mean such agreement as
amended hereby and as each may in the future be amended, restated,  supplemented
or modified from time to time.

                  3.4 This  Fourth  Amendment  may be  executed  by the  parties
hereto  individually or in  combination,  in one or more  counterparts,  each of
which shall be an original  and all of which shall  constitute  one and the same
agreement.

                  3.5 Delivery of an executed counterpart of a signature page by
telecopier shall be effective as delivery of a manually executed counterpart.

                  3.6 This Fourth  Amendment shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.

                  3.7 The  parties  hereto  shall,  at any time and from time to
time following the execution of this Fourth  Amendment,  execute and deliver all
such further  instruments  and take all such further action as may be reasonably
necessary or  appropriate  in order to carry out the  provisions  of this Fourth
Amendment.

                  IN  WITNESS   WHEREOF,   each  Borrower,   each  Lender,   the
Administrative  Agent, each Co-Agent and each other Credit Party has caused this
Fourth Amendment to be duly executed by its respective authorized officers as of
the day and year first above written.

BANK OF AMERICA NT&SA,
as the Administrative Agent


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167



                                      -58-
<PAGE>



AMES MERCHANDISING CORPORATION, as a Borrower and Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES FS, INC., as a Borrower and Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES DEPARTMENT STORES, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President and CFO

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMD, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


                                      -59-
<PAGE>


AMES REALTY II, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES TRANSPORTATION SYSTEMS, INC.,
as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


Commitment:  $50,000,000
BANK OF AMERICA NT&SA
(formerly BANKAMERICA BUSINESS CREDIT, INC.),
as a Lender


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


Commitment:  $50,000,000
CONGRESS FINANCIAL CORPORATION,
as a Lender


By:
-----------------------------------------
Name: Cindy B. Dennbaum
Title: Vice President

Address: 1133 Avenue of the Americas
New York, New York 10036
Attn: Ms. Cindy Dennbaum
Telecopy No.: (212) 545-4283


                                      -60-
<PAGE>

Commitment:  $50,000,000
GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Steven Metivier
Title: Authorized Signatory

Address: 201 High Ridge Road
Stamford, Connecticut 06927
Attn: Vice President - Portfolio
Telecopy No.: (203) 316-7893


Commitment:  $50,000,000
TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender


By:
-----------------------------------------
Name: Michael S. Burns
Title: Vice President

Address: 555 Theodore Fremd Avenue
Suite 301
Rye, New York 10580
Attn: Mr. Jon Oldham
Telecopy No.: (914) 921-0110


Commitment:  $30,000,000
THE CHASE MANHATTAN BANK,
as a Lender


By:
-----------------------------------------
Name: James M. Dailey
Title: Vice President

Address: 633 Third Avenue
New York, New York 10017
Attn: Credit Deputy
Telecopy No.: (212) 622-5218


Commitment:  $25,000,000
FLEET BUSINESS CREDIT CORPORATION,
as a Lender


By:
-----------------------------------------
Name: John P. Masotti
Title: Vice President

Address: 200 Glastonbury Blvd.
Glastonbury, CT 06033
Attn: Mr. John Masotti
Telecopy No.: (860) 657-7759


                                      -61-
<PAGE>


Commitment:  $25,000,000
LASALLE BUSINESS CREDIT, INC.,
as a Lender


By:
-----------------------------------------
Name: Lawrence P. Garni
Title: First Vice President

Address: 477 Madison Avenue
12th Floor
New York, New York 10022
Attn: Mr. Corey Sclar
Telecopy No.: (212) 371-2966


Commitment:  $25,000,000
FLEET NATIONAL BANK, as a Lender


By:
-----------------------------------------
Name: Linda Smyth
Title: Vice President

Address: 777 Main Street
MSN 240
Hartford, Connecticut 06115
Attn: Linda Smyth
Telecopy No.: (860) 986-6919


Commitment:  $25,000,000
NATIONAL CITY COMMERCIAL FINANCE, INC., as a Lender


By:
-----------------------------------------
Name: Matthew D. Sheets
Title: Account Executive

Address: 1965 East 6th Street, Suite 400
Cleveland, Ohio 44114
Attn: Ms. Carla Kehres
Telecopy No.: (216) 575-9486


Commitment:  $25,000,000
PNC BANK, NATIONAL ASSOCIATION,
as a Lender


By:
-----------------------------------------
Name: Janeann Fehrle
Title: Vice President

Address: 1600 Market Street
31st Floor F2-F070-31-2
Philadelphia, Pennsylvania 19103
Attn: Ms. Janeann Fehrle
Telecopy No.: (215) 585-4749


                                      -62-
<PAGE>

Commitment:  $20,000,000
CITIZENS BUSINESS CREDIT COMPANY,
as a Lender


By:
-----------------------------------------
Name: John Palermo
Title: Vice President

Address: 237 Main Street
Middletown, Connecticut
Attn: Mr. John Palermo
Telecopy No.: (860) 368-4444


Commitment:  $30,000,000
FOOTHILL CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Nakamoto
Title: Vice President

Address: 11111 Santa Monica Blvd.
Los Angeles, California 90025
Attn: Mr. Todd Nakamoto
Telecopy No.: (310) 479-8952


Commitment:  $20,000,000
AMSOUTH BANK, as a Lender


By:
-----------------------------------------
Name: Kevin P. Rogers
Title: Attorney in Fact

Address: c/o AmSouth Capital Corp.
350 Park Avenue
19th Floor
New York, New York 10022
Attn: Mr. Joseph B. Huston
Telecopy No.: (212) 935-7548


Commitment:  $15,000,000
IBJ WHITEHALL BUSINESS CREDIT CORPORATION, as a Lender


By:
-----------------------------------------
Name: Andrew Sepe
Title: Vice President

Address: One State Street
New York, New York 10004
Attn: Mr. Andrew Sepe
Telecopy No.: (212) 858-2151


                                      -63-
<PAGE>

Commitment:  $50,000,000
BANKBOSTON RETAIL FINANCE INC.,
as a Lender


By:
-----------------------------------------
Name: Betsy Ratto
Title: Managing Director

Address: 40 Broad Street
11th Floor
Boston, Massachusetts 02109
Attn: Ms. Betsy Ratto
Telecopy No.: (617) 434-4339


Commitment:  $50,000,000
CIT GROUP/BUSINESS CREDIT, INC., as a Lender


By:
-----------------------------------------
Name: Evelyn Kusold
Title: Vice President

Address: 1211 Avenue of the Americas
New York, New York 10036
Attn: Ms. Evelyn Kusold
Telecopy No.: (212) 536-1295


Commitment:  $25,000,000
TEXTRON FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Runge
Title: Vice President

Address: 4550 North Point
Suite 400
Alpharetta, Georgia 30022
Attn: Ms. Christine MacKay
Telecopy No.: (770) 360-1672


Commitment:  $50,000,000
HELLER FINANCIAL, INC., as a Lender


By:
-----------------------------------------
Name: John Buff
Title: Senior Vice President

Address: 150 East 42nd Street
7th Floor
New York, New York 10017
Attn: Mr. Thomas Bukowski
Telecopy No.: (212) 880-2960


Commitment:  $10,000,000
FREMONT FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Ruth Yang
Title: Portfolio Administrator

Address: 2020 Santa Monica Boulevard
Suite 500
Santa Monica, California 90404
Attn: Ms. Ruth Yang
Telecopy No.: (310) 264-7401


                                      -64-
<PAGE>

Commitment:  $25,000,000
GMAC COMMERCIAL CREDIT LLC, as a Lender


By:
-----------------------------------------
Name: Robert E. Nuytkens
Title: Vice President

Address: 1290 Avenue of the Americas
3rd Floor
New York, New York 10004
Attn: Mr. Robert E. Nuytkens
Telecopy No.: (212) 408-4317


                                                                   Exhibit 10.5


                                 FIFTH AMENDMENT


                  FIFTH  AMENDMENT,  dated as of January  27,  2000 (the  "Fifth
Amendment"),  among the financial institutions named in the Credit Agreement (as
defined  below) (such  financial  institutions,  together with their  respective
successors  and assigns,  are referred to  hereinafter  each  individually  as a
"Lender" and  collectively as the "Lenders"),  Bank of America,  N.A.  (formerly
BankAmerica  Business Credit,  Inc.  ("BABC")) as  administrative  agent for the
Lenders (in its capacity as administrative agent, together with any successor in
such  capacity,  the  "Administrative  Agent"),  Ames FS, Inc.  ("AFS") and Ames
Merchandising  Corporation  ("AMC", and together with AFS, each a "Borrower" and
collectively,  the  "Borrowers"),  and the  other  Credit  Parties  named in and
signatory  to the Second  Amended and  Restated  Credit  Agreement,  dated as of
December 31, 1998,  and amended as of April 16, 1999,  as of June 1, 1999, as of
October 15, 1999,  and as of January 18,  2000,  (as  previously  amended and as
further  amended,  restated,  modified and  supplemented  from time to time, the
"Credit Agreement") among the Lenders, the Administrative  Agent, the Borrowers,
and the other Credit Parties named therein and signatories thereto.  Capitalized
terms used herein and not otherwise  defined shall have the meanings ascribed to
them in the Credit Agreement.

                  WHEREAS,  the Borrowers have informed the Administrative Agent
and the  Lenders  that  they  would  like to effect a  corporate  reorganization
pursuant to which the following will occur  sequentially:  (1) AMD, Inc. will be
merged with and into AFS and, as a result of such merger, the separate corporate
existence of AMD, Inc. will cease,  and AFS shall assume all of the  Obligations
of AMD, Inc.; (2) all assets of AFS will be transferred to AMC; and (3) AFS will
be merged with and into Ames Department Stores, Inc. ("Parent"), and as a result
of such merger, the separate  corporate  existence of AFS will cease, and Parent
shall assume all of the Obligations of AFS in addition to being a "Credit Party"
and  "Guarantor"  under the Credit  Agreement and a "Grantor" and "Pledgor",  as
such terms are defined in the Security Documents;

                  WHEREAS,   AMC  shall  reaffirm  the  prior  granting  to  the
Administrative  Agent of a security  interest  in all of its assets and in those
assets it acquires  from AFS, and will execute and deliver such other  documents
and instruments necessary to carry out the terms of the Credit Agreement and the
Security Documents;

                  WHEREAS, the Borrowers and the Administrative Agent desire to
enter into an interest rate protection agreement; and

                  WHEREAS,  the Borrowers  have requested that the Lenders agree
to amend certain  provisions of the Credit Agreement and the Security  Documents
to  permit  the  mergers,   the  transfer  of  assets,  the  assumption  of  the
Obligations,  and the inclusion of the interest rate agreement in the definition
of Obligations.

                  NOW, THEREFORE,  for valuable  consideration,  the receipt and
sufficiency of which is hereby  acknowledged,  and subject to the fulfillment of
the conditions set forth below, the parties hereto agree hereby as follows:



                                      -65-
<PAGE>


         SECTION 1.  AMENDMENTS TO THE CREDIT AGREEMENT

                  1.1 Each reference in the Credit  Agreement to the Borrower or
the  Borrowers  shall mean AMC (unless  otherwise  specifically  required by the
context of such  usage).  The Parent shall  remain a  "Guarantor"  and a "Credit
Party", as such terms are defined in the Credit Agreement. Each reference to AFS
in the Credit  Agreement and the Security  Documents shall be deemed a reference
to AMC (unless otherwise required by the context).

                  1.2  The  definition  of  "Administrative  Agent's  Liens"  in
Section 1.1 is hereby amended by replacing it in its entirety with the following
new definition:

                  "Administrative  Agent's Liens" means the Liens granted to the
                  Administrative  Agent, for the ratable benefit of the Lenders,
                  BABC,  the  Administrative  Agent and any  other  holder of an
                  Obligation  pursuant to this  Agreement and the other Security
                  Documents.

                  1.3 The definition of  "Obligations"  in Section 1.1 is hereby
amended  by  replacing  the  last  sentence  thereof  in its  entirety  with the
following new sentence:

                  "Obligations"   includes,   without  limitation,   all  debts,
                  liabilities,  and  obligations now or hereafter owing from any
                  Borrower to the  Administrative  Agent and/or any Lender under
                  or in  connection  with (i) the Letters of Credit and (ii) the
                  Rate Protection Agreements.

                  1.4 The definition of "Rate Protection  Agreements" in Section
1.1 is hereby  amended by replacing it in its entirety  with the  following  new
definition:

                  "Rate Protection  Agreements"  means (a) any and all rate swap
                  transactions,   basis  swaps,   forward   rate   transactions,
                  commodity  swaps,   commodity   options,   forward   commodity
                  contracts,  equity or equity  index swaps or options,  bond or
                  bond price or bond index  swaps or options or forward  bond or
                  forward  bond  price  or  forward  bond  index   transactions,
                  interest rate options,  forward foreign exchange transactions,
                  cap transactions,  floor  transactions,  collar  transactions,
                  currency   swap   transactions,   cross-currency   rate   swap
                  transactions,   currency   options,   or  any  other   similar
                  transactions  or any  combination  of  any  of  the  foregoing
                  (including  any  options to enter into any of the  foregoing),
                  whether or not any such  transaction is governed by or subject
                  to any master  agreement,  or (b) any and all  transactions of
                  any kind, and the related confirmations,  which are subject to
                  the  terms and  conditions  of, or  governed  by,  any form of
                  master  agreement  published  by the  International  Swaps and
                  Derivatives Associations,  Inc., or any other master agreement
                  (any  such  master   agreement,   together  with  any  related
                  schedules,  as amended,  restated,  extended,  supplemented or
                  otherwise  modified  in writing  from time to time,  a "Master
                  Agreement",  including but not limited to any such obligations
                  or liabilities under any Master Agreement.

                  1.5      Section 1.1 is hereby amended by adding the following
                        definitions in the proper alphabetical order therein:

                           "Fifth  Amendment" means that certain Fifth Amendment
                  dated as of January 27, 2000 among the Borrowers, the Lenders,
                  the Administrative Agent and the other Credit Parties.

                           "AFS  Merger  Documents"  means  any and  all  merger
                  agreements, Certificates of Ownership and Merger, Certificates
                  of Merger, Articles of Merger, asset sale agreements, bills of
                  sale  and all  other  agreements,  documents  and  instruments
                  executed  and/or  delivered  pursuant to or in connection with
                  the merger of AMD,  Inc.  into AFS, the transfer of all assets
                  of AFS to AMC and the merger of AFS into the Parent.

                           "AFS Merger Transaction" means collectively,  (i) the
                  merger  of AMD,  Inc.  with and into  AFS with AFS  being  the
                  surviving corporation,  (ii) the transfer of all assets of AFS
                  to AMC and  (iii) the  merger of AFS with and into the  Parent
                  with the Parent being the surviving corporation,  all pursuant
                  to the AFS Merger Documents.

                                      -66-
<PAGE>

                  1.6 Paragraph (b) of Section 2.2 is hereby amended by deleting
the phrase "and no less than  $100,000,000  of Combined  Availability"  where it
appears therein.

                  1.7 Paragraph (d) of Section 2.4 is hereby amended by deleting
the phrase "or cause the  Combined  Availability  to be less than  $100,000,000"
where it appears in clause (ii) thereof.

                  1.8      Section 4.1 is hereby amended by (1) deleting  "(i)"
where it appears therein and  (2) deleting  clause (ii)thereof in its entirety.

                  1.9      Section 6.8 is hereby amended by (1) deleting  clause
(y) thereof in its entirety and (2) renumbering clause (z) to be clause (y).

                  1.10  Section 9.9 is hereby  amended by (1)  deleting the word
"and" before clause (g) and (2) adding the following new clause (h)  immediately
prior to the period at the end thereof:

                  (h) the mergers and asset transfers consummated in connection
with the AFS Merger Transaction

                  1.11   Section 9.15 is hereby amended by adding the following
new sentence at the end thereof:

                  Notwithstanding the foregoing, the Parent and its Subsidiaries
                  may consummate the transfer of assets to be made in connection
                  with the AFS Merger Transaction.

                  1.12 Exhibit A to the Credit  Agreement  is hereby  amended by
deleting such exhibit in its entirety and by  substituting,  in lieu thereof the
Exhibit A attached hereto as Annex A.

                  1.13 The schedules to the Credit  Agreement are hereby amended
to include the information on the schedules attached hereto as Annex B.


         SECTION 2.  AMENDMENTS TO THE AMENDED AND RESTATED
                                      STOCK PLEDGE AGREEMENT

                  2.1  Schedules  I and II to the  Amended  and  Restated  Stock
Pledge Agreement are hereby amended by deleting such schedules in their entirety
and by  substituting,  in lieu  thereof,  Schedules I and II attached  hereto as
Annex C.


         SECTION 3.  CONDITIONS PRECEDENT TO EFFECTIVE DATE

                  This Fifth Amendment shall be deemed  effective as of the date
hereof on such date (the  "Effective  Date") that the following  conditions have
been satisfied in full or waived by the Administrative Agent in writing:

                  3.1 This  Fifth  Amendment  shall  have been  executed  by the
Credit  Parties,  the  Administrative  Agent and the Majority  Lenders,  and the
Credit  Parties  shall  have  performed  and  shall  be in  compliance  with all
covenants,  agreements and conditions  contained herein, in the Credit Agreement
and in the other Loan Documents each as amended hereby.

                  3.2      The Administrative Agent shall have received:

                           3.2.1 Executed copies of proper financing statements,
         ready  to be  filed  by  the  Administrative  Agent  on or  before  the
         Effective   Date   under  the  UCC  of  all   jurisdictions   that  the
         Administrative  Agent  may  deem  necessary  or  desirable  in order to
         perfect the Administrative Agent's Lien on the Collateral;

                           3.2.2 Stock certificates,  together with stock powers
         executed in blank, and instruments, duly endorsed to the Administrative
         Agent, pledged and not previously delivered under the relevant Security
         Documents  or  reissued as a result of the AFS Merger  Transaction  (as
         defined in Section 1.5 above);


                                      -67-
<PAGE>

                           3.2.3 Such opinions of counsel for the Parent and its
         Subsidiaries as the  Administrative  Agent or any Lender shall request,
         each such opinion to be in a form, scope, and substance satisfactory to
         the Administrative Agent, the Lenders, and their respective counsel;

                           3.2.4 (x) a certificate of the Secretary or Assistant
         Secretary  of each  Credit  Party  certifying  that (A) the copy of its
         By-laws  attached to the  certificate  of its  Secretary  or  Assistant
         Secretary  delivered on the Closing Date is a true and complete copy of
         its  By-laws  as in  effect  on the date of the  certificate  delivered
         pursuant to this  subsection  and such  By-laws  have not been  amended
         since  the  Closing  Date,  (B)  all  required   corporate  actions  in
         connection  with the execution,  delivery and performance of this Fifth
         Amendment  and the AFS Merger  Transaction  (as  defined in Section 1.5
         above),  if applicable,  have been taken and, if resolutions  have been
         adopted  by its  Board of  Directors  or  shareholders,  that  attached
         thereto is a true and complete copy of such  resolutions  and that such
         resolutions  have not been  modified,  rescinded  or amended and are in
         full force and effect, (C) its certificate or articles of incorporation
         has not been amended since the date of the last amendment thereto shown
         on the  certificate of good standing from the Secretary of State of the
         state of its  incorporation  delivered on the Closing Date, and (D) the
         officers  executing this Fifth Amendment or any other document to which
         it is a party  delivered in  connection  herewith or therewith  are the
         incumbent  officers and their signatures are as set forth thereto;  and
         (y)  a  certificate  of  another  officer  thereof   attesting  to  the
         incumbency  and signature of its Secretary or Assistant  Secretary,  as
         the case may be;

                           3.2.5 Such other approvals,  opinions or documents as
the Administrative Agent may reasonably request.

                  3.3 To the extent invoiced,  the Borrowers shall have paid all
fees and expenses of the Administrative Agent and the Attorney Costs incurred in
connection with this Fifth Amendment and the transactions contemplated hereby.

                  3.4 All proceedings  taken in connection with the execution of
this Fifth Amendment, the AFS Merger Documents (as defined in Section 1.5 above)
and all documents and papers  relating  hereto and thereto shall be satisfactory
in form, scope, and substance to the Administrative Agent.

                  3.5 All representations and warranties contained in this Fifth
Amendment  or  otherwise  made in  writing  to the  Administrative  Agent or the
Lenders  in  connection  herewith  shall be true  and  correct  in all  material
respects.

                  3.6 No unwaived  event has  occurred and is  continuing  which
constitutes a Default or an Event of Default under the Credit Agreement.

         The execution and delivery to the Administrative Agent by the Borrowers
of a counterpart of this Fifth Amendment shall be deemed to be a  representation
and  warranty  made by the  Credit  Parties to the  effect  that the  conditions
precedent  to the  Effective  Date set  forth  in 3.5 and 3.6  above  have  been
satisfied,  with the same effect as delivery to the Administrative Agent and the
Lenders of a certificate  signed by a  Responsible  Officer of the Parent or the
Borrowers, dated the Effective Date, to such effect.

         SECTION 4.  ADDITIONAL COVENANTS

                  4.1 Within five Business Days of the  consummation  of the AFS
Merger  Transaction (as defined in Section 1.5 above),  the Credit Parties shall
deliver to the Administrative  Agent executed copies of the AFS Merger Documents
(as defined in Section 1.5 above) and  evidence of the  consummation  of the AFS
Merger Transaction.


                                      -68-
<PAGE>

         SECTION 5.  MISCELLANEOUS

                  5.1   Each   Credit   Party   reaffirms   and   restates   the
representations  and  warranties  set forth in  Articles  6 and 8 of the  Credit
Agreement, as amended by this Fifth Amendment,  and all such representations and
warranties  shall be true and correct on the date hereof with the same force and
effect as if made on such date. Each Credit Party represents and warrants (which
representations  and warranties shall survive the execution and delivery hereof)
to the Agent that:

                  (a) It has the  corporate  power  and  authority  to  execute,
         deliver and carry out the terms and provisions of this Fifth  Amendment
         and the transactions  contemplated hereby and has taken or caused to be
         taken all  necessary  corporate  action  to  authorize  the  execution,
         delivery and performance of this Fifth  Amendment and the  transactions
         contemplated hereby;

                  (b)  No  consent  of  any  other  person  (including,  without
         limitation,  shareholders  or  creditors of any Credit  Party),  and no
         action of, or filing with any  governmental or public body or authority
         is required to authorize,  or is otherwise  required in connection with
         the execution, delivery and performance of this Fifth Amendment and the
         other  instruments and documents  contemplated  hereby,  other than the
         filings contemplated by Section 3.2.1 hereof and the consents hereunder
         and filings in connection with the AFS Merger Transaction;

                  (c)  This  Fifth  Amendment  and  the  other  instruments  and
         documents  contemplated hereby have been duly executed and delivered by
         a duly  authorized  officer on behalf of such party,  and constitutes a
         legal, valid and binding  obligation of such party enforceable  against
         such  party  in  accordance  with its  terms,  subject  to  bankruptcy,
         reorganization, insolvency, moratorium and other similar laws affecting
         the  enforcement  of  creditors'  rights  generally and the exercise of
         judicial  discretion in accordance  with general  principles of equity;
         and

                  (d) The  execution,  delivery  and  performance  of this Fifth
         Amendment and the other instruments and documents  contemplated  hereby
         will not violate any law, statute or regulation, or any order or decree
         of any court or  governmental  instrumentality,  or conflict  with,  or
         result in the breach of, or constitute a default under any  contractual
         obligation of such party.

                  5.2  Nothing  herein  shall be  deemed  to be a waiver  of any
covenant or agreement  contained in the Credit Agreement,  and each Credit Party
hereby agrees that all of the covenants and  agreements  contained in the Credit
Agreement and the other Loan Documents are hereby  ratified and confirmed in all
respects  and shall  remain in full  force and effect in  accordance  with their
respective  terms.  Each Credit Party reaffirms its prior grant under the Credit
Agreement  of a continuing  first  priority  security  interest in, lien on, and
right of set-off  against,  all of the Collateral of such Credit Party,  whether
now owned or existing or  hereafter  acquired  or arising,  regardless  of where
located,  and  each of them  shall  enter  into any  confirmatory  documentation
requested by the Administrative Agent.

                  5.3 All  references  to the  Credit  Agreement  in the  Credit
Agreement or any other Loan  Document and the other  documents  and  instruments
delivered  pursuant to or in connection  therewith  shall mean such agreement as
amended hereby and as each may in the future be amended, restated,  supplemented
or modified from time to time.

                  5.4 This Fifth Amendment may be executed by the parties hereto
individually or in combination, in one or more counterparts, each of which shall
be an original and all of which shall constitute one and the same agreement.

                  5.5 Delivery of an executed counterpart of a signature page by
telecopier shall be effective as delivery of a manually executed counterpart.

                  5.6 This Fifth  Amendment  shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.

                                      -69-
<PAGE>

                  5.7 The  parties  hereto  shall,  at any time and from time to
time  following the execution of this Fifth  Amendment,  execute and deliver all
such further  instruments  and take all such further action as may be reasonably
necessary  or  appropriate  in order to carry out the  provisions  of this Fifth
Amendment.


                                       [REMAINDER OF PAGE INTENTIONALLY BLANK]


                                      -70-
<PAGE>

                  IN WITNESS WHEREOF,  each Borrower,  the Majority Lenders, the
Administrative  Agent  and the other  Credit  Parties  have  caused  this  Fifth
Amendment to be duly executed by their respective  authorized officers as of the
day and year first above written.

BANK OF AMERICA, N.A., as the Administrative Agent


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


AMES MERCHANDISING CORPORATION, as a Borrower and Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES FS, INC., as a Borrower and Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES DEPARTMENT STORES, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President and CFO

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560

                                      -71-
<PAGE>


AMD, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES REALTY II, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES TRANSPORTATION SYSTEMS, INC.,
as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


Commitment:  $50,000,000
BANK OF AMERICA, N.A.
(formerly BANKAMERICA BUSINESS CREDIT, INC.),
as a Lender


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


                                      -73-
<PAGE>

Commitment:  $50,000,000
CONGRESS FINANCIAL CORPORATION,
as a Lender


By:
-----------------------------------------
Name: Cindy B. Dennbaum
Title: Vice President

Address: 1133 Avenue of the Americas
New York, New York 10036
Attn: Ms. Cindy Dennbaum
Telecopy No.: (212) 545-4283


Commitment:  $50,000,000
GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Sean McWhinnie
Title: Authorized Signatory

Address: 800 Connecticut Avenue, 2 North
Norwalk, Connecticut 06854
Attn: Vice President - Portfolio
Telecopy No.: (203) 316-7893


Commitment:  $50,000,000
TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender


By:
-----------------------------------------
Name: Michael S. Burns
Title: Vice President

Address: 555 Theodore Fremd Avenue
Suite 301
Rye, New York 10580
Attn: Mr. Jon Oldham
Telecopy No.: (914) 921-0110


Commitment:  $30,000,000
THE CHASE MANHATTAN BANK,
as a Lender


By:
-----------------------------------------
Name: James M. Dailey
Title: Vice President

Address: 633 Third Avenue
New York, New York 10017
Attn: Credit Deputy
Telecopy No.: (212) 622-5218


                                      -74-
<PAGE>


Commitment:  $25,000,000
FLEET BUSINESS CREDIT CORPORATION,
as a Lender


By:
-----------------------------------------
Name: John P. Masotti
Title: Vice President

Address: 200 Glastonbury Blvd.
Glastonbury, CT 06033
Attn: Mr. John Masotti
Telecopy No.: (860) 657-7759


Commitment:  $25,000,000
LASALLE BUSINESS CREDIT, INC.,
as a Lender


By:
-----------------------------------------
Name: Lawrence P. Garni
Title: First Vice President

Address: 477 Madison Avenue
12th Floor
New York, New York 10022
Attn: Mr. Corey Sclar
Telecopy No.: (212) 371-2966


Commitment:  $25,000,000
FLEET NATIONAL BANK, as a Lender


By:
-----------------------------------------
Name: Linda Smyth
Title: Vice President

Address: 777 Main Street
MSN 240
Hartford, Connecticut 06115
Attn: Linda Smyth
Telecopy No.: (860) 986-6919


Commitment:  $25,000,000
NATIONAL CITY COMMERCIAL FINANCE, INC., as a Lender


By:
-----------------------------------------
Name: Matthew D. Sheets
Title: Account Executive

Address: 1965 East 6th Street, Suite 400
Cleveland, Ohio 44114
Attn: Ms. Carla Kehres
Telecopy No.: (216) 575-9486


                                      -75-
<PAGE>

Commitment:  $25,000,000
PNC BANK, NATIONAL ASSOCIATION,
as a Lender


By:
-----------------------------------------
Name: Janeann Fehrle
Title: Vice President

Address: 1600 Market Street
31st Floor F2-F070-31-2
Philadelphia, Pennsylvania 19103
Attn: Ms. Janeann Fehrle
Telecopy No.: (215) 585-4749


Commitment:  $20,000,000
CITIZENS BUSINESS CREDIT COMPANY,


Commitment:  $30,000,000
FOOTHILL CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Nakamoto
Title: Vice President

Address: 11111 Santa Monica Blvd.
Los Angeles, California 90025
Attn: Mr. Todd Nakamoto
Telecopy No.: (310) 479-8952


Commitment:  $20,000,000
AMSOUTH BANK, as a Lender


By:
-----------------------------------------
Name: Kevin P. Rogers
Title: Attorney in Fact

Address: c/o AmSouth Capital Corp.
350 Park Avenue
19th Floor
New York, New York 10022
Attn: Mr. Joseph B. Huston
Telecopy No.: (212) 935-7548


                                      -76-
<PAGE>

Commitment:  $15,000,000
IBJ WHITEHALL BUSINESS CREDIT CORPORATION, as a Lender


By:
-----------------------------------------
Name: Andrew Sepe
Title: Vice President

Address: One State Street
New York, New York 10004
Attn: Mr. Andrew Sepe
Telecopy No.: (212) 858-2151


Commitment:  $50,000,000
FLEET RETAIL FINANCE INC.,
as a Lender


By:
-----------------------------------------
Name: Betsy Ratto
Title: Managing Director

Address: 40 Broad Street
11th Floor
Boston, Massachusetts 02109
Attn: Ms. Betsy Ratto
Telecopy No.: (617) 434-4339


Commitment:  $50,000,000
CIT GROUP/BUSINESS CREDIT, INC., as a Lender


By:
-----------------------------------------
Name: Evelyn Kusold
Title: Vice President

Address: 1211 Avenue of the Americas
New York, New York 10036
Attn: Ms. Evelyn Kusold
Telecopy No.: (212) 536-1295


Commitment:  $25,000,000
TEXTRON FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Runge
Title: Vice President

Address: 4550 North Point
Suite 400
Alpharetta, Georgia 30022
Attn: Ms. Christine MacKay
Telecopy No.: (770) 360-1672


                                      -77-
<PAGE>

Commitment:  $50,000,000
HELLER FINANCIAL, INC., as a Lender


By:
-----------------------------------------
Name: John Buff
Title: Senior Vice President

Address: 150 East 42nd Street
7th Floor
New York, New York 10017
Attn: Mr. Thomas Bukowski
Telecopy No.: (212) 880-2960


Commitment:  $10,000,000
FREMONT FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Ruth Yang
Title: Portfolio Administrator

Address: 2020 Santa Monica Boulevard
Suite 500
Santa Monica, California 90404
Attn: Ms. Ruth Yang
Telecopy No.: (310) 264-7401


Commitment:  $25,000,000
GMAC COMMERCIAL CREDIT LLC, as a Lender


By:
-----------------------------------------
Name: Robert E. Nuytkens
Title: Vice President

Address: 1290 Avenue of the Americas
3rd Floor
New York, New York 10004
Attn: Mr. Robert E. Nuytkens
Telecopy No.: (212) 408-4317


                                      -78-
<PAGE>




                                                                   Exhibit 10.6


                                 SIXTH AMENDMENT


                  SIXTH  AMENDMENT  AND  WAIVER,  dated as of May 8,  2000  (the
"Sixth  Amendment"),  among  the  financial  institutions  named  in the  Credit
Agreement (as defined below) (such financial  institutions,  together with their
respective successors and assigns, are referred to hereinafter each individually
as a  "Lender"  and  collectively  as the  "Lenders"),  Bank  of  America,  N.A.
(formerly  BankAmerica  Business Credit, Inc. ("BABC")) as administrative  agent
for the Lenders (in its  capacity as  administrative  agent,  together  with any
successor in such capacity,  the  "Administrative  Agent"),  Ames  Merchandising
Corporation  ("AMC" and  "Borrower"),  and the other Credit Parties named in and
signatory  to the Second  Amended and  Restated  Credit  Agreement,  dated as of
December 31, 1998,  and amended as of April 16, 1999,  as of June 1, 1999, as of
October  15,  1999,  as of January  18,  2000,  and as of January  27,  2000 (as
previously amended, the "Original Agreement",  and as further amended, restated,
modified and supplemented  from time to time, the "Credit  Agreement") among the
Lenders,  the Administrative  Agent, the Borrower,  and the other Credit Parties
named therein and  signatories  thereto.  Capitalized  terms used herein and not
otherwise  defined  shall have the  meanings  ascribed  to them in the  Original
Agreement.

                  WHEREAS,  the Borrower has informed the Administrative  Agent
and the Lenders that a new Subsidiary of the Parent has been formed, namely
AmesPlace.com, Inc., a Delaware corporation ("AP.com");

                  WHEREAS,  pursuant to Section 9.21 of the Credit Agreement, no
new  Subsidiaries  are  permitted  to be formed and the  creation of AP.com is a
violation thereof;

                  WHEREAS,  the Borrower has requested that the Lenders agree to
waive the violation of Section 9.21 and to amend the Original  Agreement for the
inclusion of AP.com as a Credit  Party and  Guarantor  thereunder  and AP.com is
desirous of becoming a Credit Party and Guarantor; and

                  WHEREAS,  AP.com  shall  grant to the  Administrative  Agent a
security  interest in all of its assets and will  execute and deliver such other
documents  and  instruments  necessary  to carry  out the  terms  of the  Credit
Agreement  and the Security  Documents and to fulfill all its  obligations  as a
Credit Party and a Guarantor;

                  NOW, THEREFORE,  for valuable  consideration,  the receipt and
sufficiency of which is hereby  acknowledged,  and subject to the fulfillment of
the conditions set forth below, the parties hereto agree hereby as follows:


         SECTION 1.  AMENDMENTS TO THE ORIGINAL AGREEMENT

                  1.1 Each reference in the Original Agreement to a Credit Party
or a Guarantor shall include AP.com (unless otherwise  specifically  required by
the context of such usage).

                  1.2      Section 1.1 is hereby amended by adding the following
definition in the proper alphabetical order therein:

                           "Sixth  Amendment" means that certain Sixth Amendment
                  dated as of May 8, 2000 among the Borrower,  the Lenders,  the
                  Administrative Agent and the other Credit Parties.

                  1.3 The schedules to the Original Agreement are hereby amended
to include the information on the schedules attached hereto as Annex A.


                                      -79-
<PAGE>

         SECTION 2.  AMENDMENTS TO THE AMENDED AND RESTATED
                                      STOCK PLEDGE AGREEMENT

                  2.1  Schedules  I and II to the  Amended  and  Restated  Stock
Pledge Agreement are hereby amended by deleting such schedules in their entirety
and by  substituting,  in lieu  thereof,  Schedules I and II attached  hereto as
Annex B.


         SECTION 3.  CONDITIONS PRECEDENT TO EFFECTIVE DATE

                  This Sixth Amendment shall be deemed  effective as of the date
hereof on such date (the  "Effective  Date") that the following  conditions have
been satisfied in full or waived by the Administrative Agent in writing:

                  3.1 This  Sixth  Amendment  shall  have been  executed  by the
Credit  Parties,  the  Administrative  Agent and the Majority  Lenders,  and the
Credit  Parties  shall  have  performed  and  shall  be in  compliance  with all
covenants, agreements and conditions contained herein, in the Original Agreement
and in the other Loan Documents each as amended hereby.

                  3.2      The Administrative Agent shall have received:

                           3.2.1 Executed copies of proper financing  statements
         showing AP.com as debtor, ready to be filed by the Administrative Agent
         on or before the Effective Date under the UCC of all jurisdictions that
         the  Administrative  Agent may deem  necessary or desirable in order to
         perfect the Administrative Agent's Lien on the Collateral;

                           3.2.2 Stock certificates  issued by AP.com,  together
         with stock powers executed in blank, and instruments,  duly endorsed to
         the Administrative  Agent,  pledged and not previously  delivered under
         the relevant Security Documents;

                           3.2.3 Such opinions of counsel for the Parent and the
         other Credit  Parties as the  Administrative  Agent or any Lender shall
         request,  each  such  opinion  to be in a form,  scope,  and  substance
         satisfactory  to the  Administrative  Agent,  the  Lenders,  and  their
         respective counsel;

                           3.2.4 (x) a certificate of the Secretary or Assistant
         Secretary  of each  Credit  Party  certifying  that (A) the copy of its
         By-laws  attached to the  certificate  of its  Secretary  or  Assistant
         Secretary  delivered on the Closing  Date,  or in the case of AP.com as
         delivered in  connection  herewith,  is a true and complete copy of its
         By-laws as in effect on the date of the certificate  delivered pursuant
         to this  subsection  and such By-laws  have not been amended  since the
         Closing Date, (B) all required corporate actions in connection with the
         execution,  delivery and  performance of this Sixth Amendment have been
         taken and, if  resolutions  have been adopted by its Board of Directors
         or  shareholders,  that attached thereto is a true and complete copy of
         such  resolutions  and that such  resolutions  have not been  modified,
         rescinded  or  amended  and  are in  full  force  and  effect,  (C) its
         certificate or articles of incorporation has not been amended since the
         date of the last  amendment  thereto shown on the  certificate  of good
         standing from the Secretary of State of the state of its  incorporation
         delivered  on the Closing  Date and in the case of AP.com,  the date of
         the good standing certificate  delivered in connection herewith and (D)
         the officers  executing  this Sixth  Amendment or any other document to
         which it is a party  delivered in connection  herewith or therewith are
         the incumbent  officers and their  signatures are as set forth thereto;
         and (y) a  certificate  of another  officer  thereof  attesting  to the
         incumbency  and signature of its Secretary or Assistant  Secretary,  as
         the case may be;

                           3.2.5 Such other approvals,  opinions or documents as
the Administrative Agent may reasonably request.

                  3.3 To the extent  invoiced,  the Borrower shall have paid all
fees and expenses of the Administrative Agent and the Attorney Costs incurred in
connection with this Sixth Amendment and the transactions contemplated hereby.

                                      -80-
<PAGE>

                  3.4 All proceedings  taken in connection with the execution of
this Sixth  Amendment and all documents and papers  relating  hereto and thereto
shall be satisfactory in form, scope, and substance to the Administrative Agent.

                  3.5 All representations and warranties contained in this Sixth
Amendment  or  otherwise  made in  writing  to the  Administrative  Agent or the
Lenders  in  connection  herewith  shall be true  and  correct  in all  material
respects.

                  3.6  After  the  effectiveness  of this  Sixth  Amendment,  no
unwaived event has occurred and is continuing which  constitutes a Default or an
Event of Default under the Credit Agreement.

         The  execution and delivery to the  Administrative  Agent by the Credit
Parties  of a  counterpart  of this  Sixth  Amendment  shall be  deemed  to be a
representation  and  warranty  made by each Credit  Party to the effect that the
conditions  precedent to the Effective  Date set forth in 3.5 and 3.6 above have
been satisfied, with the same effect as delivery to the Administrative Agent and
the  Lenders of a  certificate  signed by a  Responsible  Officer of each Credit
Party, dated the Effective Date, to such effect.

         SECTION 4.  AGREEMENTS BY AP.COM

                  4.1  AP.com  hereby  agrees  to each and  every  provision  of
Article 15 of the Credit Agreement and assumes all responsibilities,  duties and
obligations  of a Guarantor  under the Credit  Agreement.  This Sixth  Amendment
shall  constitute a counterpart to the Credit  Agreement and AP.com's  execution
and delivery hereof shall effectuate its Guaranty under Article 15 of the Credit
Agreement.

                  4.2 As security for all present and future Obligations, AP.com
as a Guarantor and Credit Party, hereby grants to the Administrative  Agent, for
the ratable benefit of the  Administrative  Agent and the Lenders,  a continuing
first priority security interest in, lien on, and right of set-off against,  all
of its  Collateral  whether  now owned or  existing  or  hereafter  acquired  or
arising, regardless of where located.

                  4.3  As  security  for  all  the  Obligations,   Ap.com  shall
simultaneously  herewith execute a counterpart signature page to the Amended and
Restated  Security  Agreement and Mortgage - Trademarks,  Patents and Copyrights
dated as of December 31, 1998 and agrees to be a Grantor thereunder, assumes all
of the  responsibilities,  duties and obligations of a Grantor  thereunder,  and
covenants to perform as set forth therein.


         SECTION 5.  MISCELLANEOUS

                  5.1 Each Credit  Party  affirms,  reaffirms  and  restates the
representations  and  warranties  set forth in Articles 6 and 8 of the  Original
Agreement, as amended by this Sixth Amendment,  and all such representations and
warranties  shall be true and correct on the date hereof with the same force and
effect as if made on such date. Each Credit Party represents and warrants (which
representations  and warranties shall survive the execution and delivery hereof)
to the Agent that:

                  (a) It has the  corporate  power  and  authority  to  execute,
         deliver and carry out the terms and provisions of this Sixth  Amendment
         and the transactions  contemplated hereby and has taken or caused to be
         taken all  necessary  corporate  action  to  authorize  the  execution,
         delivery and performance of this Sixth  Amendment and the  transactions
         contemplated hereby;

                  (b)  No  consent  of  any  other  person  (including,  without
         limitation,  shareholders  or  creditors of any Credit  Party),  and no
         action of, or filing with any  governmental or public body or authority
         is required to authorize,  or is otherwise  required in connection with
         the execution, delivery and performance of this Sixth Amendment and the
         other instruments and documents contemplated hereby;

                  (c)  This  Sixth  Amendment  and  the  other  instruments  and
         documents  contemplated hereby have been duly executed and delivered by
         a duly  authorized  officer on behalf of such party,  and constitutes a
         legal, valid and binding  obligation of such party enforceable  against
         such  party  in  accordance  with its  terms,  subject  to  bankruptcy,
         reorganization, insolvency, moratorium and other similar laws affecting
         the  enforcement  of  creditors'  rights  generally and the exercise of
         judicial  discretion in accordance  with general  principles of equity;
         and


                                      -81-
<PAGE>


                  (d) The  execution,  delivery  and  performance  of this Sixth
         Amendment and the other instruments and documents  contemplated  hereby
         will not violate any law, statute or regulation, or any order or decree
         of any court or  governmental  instrumentality,  or conflict  with,  or
         result in the breach of, or constitute a default under any  contractual
         obligation of such party.

                  5.2  Nothing  herein  shall be  deemed  to be a waiver  of any
covenant or agreement contained in the Original Agreement, and each Credit Party
hereby agrees that all of the covenants and agreements contained in the Original
Agreement and the other Loan Documents are hereby  ratified and confirmed in all
respects  and shall  remain in full  force and effect in  accordance  with their
respective  terms.  Each Credit Party affirms its prior grant under the Original
Agreement  of a continuing  first  priority  security  interest in, lien on, and
right of set-off  against,  all of the Collateral of such Credit Party,  whether
now owned or existing or  hereafter  acquired  or arising,  regardless  of where
located,  and  each of them  shall  enter  into any  confirmatory  documentation
requested by the Administrative Agent.

                  5.3 All  references  to the  Credit  Agreement  in the  Credit
Agreement or any other Loan  Document and the other  documents  and  instruments
delivered  pursuant to or in connection  therewith  shall mean such agreement as
amended hereby and as each may in the future be amended, restated,  supplemented
or modified from time to time.

                  5.4 This Sixth Amendment may be executed by the parties hereto
individually or in combination, in one or more counterparts, each of which shall
be an original and all of which shall constitute one and the same agreement.

                  5.5 Delivery of an executed counterpart of a signature page by
telecopier shall be effective as delivery of a manually executed counterpart.

                  5.6 This Sixth  Amendment  shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.

                  5.7 The  parties  hereto  shall,  at any time and from time to
time  following the execution of this Sixth  Amendment,  execute and deliver all
such further  instruments  and take all such further action as may be reasonably
necessary  or  appropriate  in order to carry out the  provisions  of this Sixth
Amendment.


                                       [REMAINDER OF PAGE INTENTIONALLY BLANK]



                                      -82-
<PAGE>



                  IN WITNESS WHEREOF,  the Borrower,  the Majority Lenders,  the
Administrative  Agent  and the other  Credit  Parties  have  caused  this  Sixth
Amendment to be duly executed by their respective  authorized officers as of the
day and year first above written.

BANK OF AMERICA, N.A., as the Administrative Agent


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


BORROWER: AMES MERCHANDISING CORPORATION


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES DEPARTMENT STORES, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President and CFO

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMESPLACE.COM, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560

                                      -83-
<PAGE>


AMES REALTY II, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES TRANSPORTATION SYSTEMS, INC.,
as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


Commitment:  $50,000,000
BANK OF AMERICA, N.A.
(formerly BANKAMERICA BUSINESS CREDIT, INC.),
as a Lender


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


Commitment:  $50,000,000
CONGRESS FINANCIAL CORPORATION,
as a Lender


By:
-----------------------------------------
Name: Cindy B. Dennbaum
Title: Vice President

Address: 1133 Avenue of the Americas
New York, New York 10036
Attn: Ms. Cindy Dennbaum
Telecopy No.: (212) 545-4283


                                      -84-
<PAGE>

Commitment:  $50,000,000
GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Sean McWhinnie
Title: Authorized Signatory

Address: 800 Connecticut Avenue, 2 North
Norwalk, Connecticut 06854
Attn: Vice President - Portfolio
Telecopy No.: (203) 316-7893


Commitment:  $50,000,000
TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender


By:
-----------------------------------------
Name: Michael S. Burns
Title: Vice President

Address: 555 Theodore Fremd Avenue, Suite 301
Rye, New York 10580
Attn: Mr. Jon Oldham
Telecopy No.: (914) 921-0110


Commitment:  $30,000,000
THE CHASE MANHATTAN BANK,
as a Lender


By:
-----------------------------------------
Name: James M. Dailey
Title: Vice President

Address: 633 Third Avenue
New York, New York 10017
Attn: Credit Deputy
Telecopy No.: (212) 622-5218


Commitment:  $25,000,000
FLEET BUSINESS CREDIT CORPORATION,
as a Lender


By:
-----------------------------------------
Name: John P. Masotti
Title: Vice President

Address: 200 Glastonbury Blvd.
Glastonbury, CT 06033
Attn: Mr. John Masotti
Telecopy No.: (860) 657-7759


                                      -85-
<PAGE>


Commitment:  $25,000,000
LASALLE BUSINESS CREDIT, INC.,




Commitment:  $25,000,000
FLEET NATIONAL BANK, as a Lender






Commitment:  $25,000,000
NATIONAL CITY COMMERCIAL FINANCE, INC., as a Lender


By:
-----------------------------------------
Name: Matthew D. Sheets
Title: Account Executive

Address: 1965 East 6th Street, Suite 400
Cleveland, Ohio 44114
Attn: Ms. Carla Kehres
Telecopy No.: (216) 575-9486


Commitment:  $25,000,000
PNC BANK, NATIONAL ASSOCIATION,
as a Lender


By:
-----------------------------------------
Name: Janeann Fehrle
Title: Vice President

Address: 1600 Market Street, 31st Floor F2-F070-31-2
Philadelphia, Pennsylvania 19103
Attn: Ms. Janeann Fehrle
Telecopy No.: (215) 585-4749


                                      -86-
<PAGE>

Commitment:  $20,000,000
CITIZENS BUSINESS CREDIT COMPANY,
as a Lender


By:
-----------------------------------------
Name: John Atanasoff
Title: Vice President

Address: 40 Court Street
Boston, Massachusetts 02108
Attn: Mr. John Atanasoff
Telecopy No.: (617) 695-4748


Commitment:  $30,000,000
FOOTHILL CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Nakamoto
Title: Vice President

Address: 11111 Santa Monica Blvd.
Los Angeles, California 90025
Attn: Mr. Todd Nakamoto
Telecopy No.: (310) 479-8952


Commitment:  $20,000,000
AMSOUTH BANK, as a Lender


By:
-----------------------------------------
Name: Kevin P. Rogers
Title: Attorney in Fact

Address: c/o AmSouth Capital Corp.
350 Park Avenue, 19th Floor
New York, New York 10022
Attn: Mr. Joseph B. Huston
Telecopy No.: (212) 935-7548


Commitment:  $15,000,000
IBJ WHITEHALL BUSINESS CREDIT CORPORATION, as a Lender


By:
-----------------------------------------
Name: Andrew Sepe
Title: Vice President

Address: One State Street
New York, New York 10004
Attn: Mr. Andrew Sepe
Telecopy No.: (212) 858-2151


                                      -87-
<PAGE>

Commitment:  $50,000,000
FLEET RETAIL FINANCE INC.,
as a Lender


By:
-----------------------------------------
Name: Betsy Ratto
Title: Managing Director

Address: 40 Broad Street, 11th Floor
Boston, Massachusetts 02109
Attn: Ms. Betsy Ratto
Telecopy No.: (617) 434-4339


Commitment:  $50,000,000
CIT GROUP/BUSINESS CREDIT, INC., as a Lender


By:
-----------------------------------------
Name: Evelyn Kusold
Title: Vice President

Address: 1211 Avenue of the Americas
New York, New York 10036
Attn: Ms. Evelyn Kusold
Telecopy No.: (212) 536-1295


Commitment:  $25,000,000
TEXTRON FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Runge
Title: Vice President

Address: 4550 North Point, Suite 400
Alpharetta, Georgia 30022
Attn: Ms. Christine MacKay
Telecopy No.: (770) 360-1672


Commitment:  $50,000,000
HELLER FINANCIAL, INC., as a Lender


By:
-----------------------------------------
Name: John Buff
Title: Senior Vice President

Address: 150 East 42nd Street, 7th Floor
New York, New York 10017
Attn: Mr. Thomas Bukowski
Telecopy No.: (212) 880-2960


                                      -88-
<PAGE>

Commitment:  $10,000,000
FREMONT FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Ruth Yang
Title: Portfolio Administrator

Address: 2020 Santa Monica Boulevard, Suite 500
Santa Monica, California 90404
Attn: Ms. Ruth Yang
Telecopy No.: (310) 264-7401


Commitment:  $25,000,000
GMAC COMMERCIAL CREDIT LLC, as a Lender


By:
-----------------------------------------
Name: Robert E. Nuytkens
Title: Vice President

Address: 1290 Avenue of the Americas, 3rd Floor
New York, New York 10004
Attn: Mr. Robert E. Nuytkens
Telecopy No.: (212) 408-4317





                                      -89-
<PAGE>
<TABLE>


                                                                                                 ANNEX B


                                   Replacement Schedules for the Pledge Agreement


                     Amended Schedule I to Amended and Restated Pledge Agreement (Capital Stock)
                     ---------------------------------------------------------------------------

                                    Attached to and forming part of that certain
                                                Amended and Restated
                          Pledge Agreement (Capital Stock) dated as of December 31, 1998 by


                                     List and Description of Pledged Securities

Description of Pledged Securities:

Issuer                                 Class of               Certificate          Number of   Percentage of
of Stock                                 Stock                   Number              Shares         total shares
--------                               ----------             -----------          ---------        ------------
<S>                                     <C>                     <C>                   <C>              <C>

Ames Merchandising                      common                  2                     1,000            100%
Corporation

Ames Realty II, Inc.                    common                  1                     1,000            100%

Ames Transportation                     common                  1                     1,000            100%
 Systems, Inc.

AmesPlace.com, Inc.                     common                   1                    _____            100%
</TABLE>


  Amended Schedule II to Amended and Restated Pledge Agreement (Capital Stock)
  ----------------------------------------------------------------------------


                  Attached to and forming part of that certain
                              Amended and Restated
        Pledge Agreement (Capital Stock) dated as of December 31, 1998 by
                    AMES DEPARTMENT STORES, INC., as Pledgor
          to BANKAMERICA BUSINESS CREDIT, INC., as Administrative Agent

                     Jurisdiction of Organization of Issuers

                                                Jurisdiction of
Name of Issuer                                  Organization


Ames Merchandising Corporation                  Delaware
(formerly known as Zayre Central Corp.
and successor-in-interest to Ames Stores
and Zayre New England Corp.)

Ames Realty II, Inc.                            Delaware

Ames Transportation                             Delaware
 Systems, Inc.

AmesPlace.com, Inc.                             Delaware


                                      -90-
<PAGE>

                                                                   Exhibit 10.7



                                SEVENTH AMENDMENT


                  SEVENTH  AMENDMENT AND WAIVER,  dated as of July 25, 2000 (the
"Seventh  Amendment"),  among the  financial  institutions  named in the  Credit
Agreement (as defined below) (such financial  institutions,  together with their
respective successors and assigns, are referred to hereinafter each individually
as a  "Lender"  and  collectively  as the  "Lenders"),  Bank  of  America,  N.A.
(formerly  BankAmerica  Business Credit, Inc. ("BABC")) as administrative  agent
for the Lenders (in its  capacity as  administrative  agent,  together  with any
successor in such capacity,  the  "Administrative  Agent"),  Ames  Merchandising
Corporation  ("AMC" and  "Borrower"),  and the other Credit Parties named in and
signatory  to the Second  Amended and  Restated  Credit  Agreement,  dated as of
December 31, 1998,  and amended as of April 16, 1999,  as of June 1, 1999, as of
October 15, 1999, as of January 18, 2000, as of January 27, 2000,  and as of May
8,  2000 (as  previously  amended,  the  "Original  Agreement",  and as  further
amended,  restated,  modified and  supplemented  from time to time,  the "Credit
Agreement") among the Lenders, the Administrative  Agent, the Borrower,  and the
other Credit Parties named therein and signatories  thereto.  Capitalized  terms
used herein and not otherwise  defined shall have the meanings  ascribed to them
in the Original Agreement.

                  WHEREAS, the Credit Parties wish to amend and waive certain
provisions of the Original Agreement;

                  NOW, THEREFORE,  for valuable  consideration,  the receipt and
sufficiency of which is hereby  acknowledged,  and subject to the fulfillment of
the conditions set forth below, the parties hereto agree hereby as follows:

         SECTION 1.  AMENDMENTS TO THE ORIGINAL AGREEMENT

                  1.1   Section 1.1 is hereby  amended by adding the  following
new  definitions  in the proper  alphabetical  order therein:

                           "Inventory  Appraisal"  means  an  appraisal  of  the
                  Borrower's   Inventory  performed  by  Gordon  Brothers  which
                  appraisal  shall be in form and substance  satisfactory to the
                  Administrative Agent.

                           "Seventh   Amendment"   means  that  certain  Seventh
                  Amendment  dated as of July 25, 2000 among the  Borrower,  the
                  Lenders,   the  Administrative  Agent  and  the  other  Credit
                  Parties.

                  1.2 The  definition of  "Applicable  Margin" in Section 1.1 is
hereby  amended  by  replacing  it  in  its  entirety  with  the  following  new
definition:

                           "Applicable  Margin" means, with respect to any Loan,
                  the  amount  set forth  below  which  corresponds  to the then
                  current senior  unsecured debt rating of the Parent by Moody's
                  Investors Service (the "Debt Rating") set forth below.

<TABLE>

                                                                                       Applicable Margin
                  Debt                          Applicable Margin for                         for
                 Rating                           LIBOR Rate Loans                      Base Rate Loans
                  <S>                                   <C>                                  <C>
                  B1 (or higher)                        1.75%                                0.125%

                  B2                                    2.00%                                .375%

                  B3                                    2.25%                                .625%

                  Caa1  (or lower)                      2.50%                                .750%

                                      -91-
<PAGE>

<FN>

                  ; provided, however, that
                    --------  -------

                           (i)  as  of  the  "Effective  Date"  of  the  Seventh
                  Amendment  (as defined  therein),  the  Applicable  Margin for
                  LIBOR Rate Loans shall be 1.75% and the Applicable  Margin for
                  Base Rate Loans shall be 0.125%;

                           (ii) each increase in the Applicable  Margin shall be
                  automatically  effective  as of the date any  downgrade to the
                  Debt  Rating  is  publicly   announced  by  Moody's  Investors
                  Service;  each  decrease  in the  Applicable  Margin  shall be
                  automatically effective as of the date any upgrade to the Debt
                  Rating is publicly announced by Moody's Investors Service;

                           (iii) no  decrease  in the  Applicable  Margin  shall
                  occur in connection with any upgrade in the Debt Rating unless
                  one or more downgrades have occurred;

                           (iv) if at any time no Debt  Rating  is  provided  by
                  Moody's Investors Service,  then the Administrative  Agent and
                  the Borrower  shall agree upon (x) a rating  agency of similar
                  status that provides debt ratings which are the  equivalent of
                  the Debt Ratings set forth above and (y) the Applicable Margin
                  applicable  to each  such  debt  rating;  should  no such debt
                  rating agency be available or if the Administrative  Agent and
                  the Borrower do not agree on a rating agency, the debt ratings
                  or  the  Applicable  Margins  applicable  thereto,   then  the
                  Applicable  Margin,  immediately and without notice or further
                  action,  shall  be  the  highest  Applicable  Margin  provided
                  herein; and

                           (v) if at any time and for so long as the Debt Rating
                  is B1 or higher and the Fixed  Charge  Coverage  Ratio for the
                  twelve  month  period  ended  as at the  last  day of the most
                  recently  ended  month for  which  financial  statements  were
                  required to be submitted to the Administrative  Agent pursuant
                  to  Section  7.2   hereunder  is  equal  to  or  greater  than
                  1.50:1.00, the Applicable Margin for LIBOR Rate Loans shall be
                  1.50% and the  Applicable  Margin for Base Rate Loans shall be
                  zero  (0.0%);   provided,   that  any  such  decrease  in  the
                  Applicable  Margin shall only take effect upon the  Borrower's
                  delivery  of both  notification  of the  Debt  Rating  and the
                  applicable Fixed Charge Coverage Ratio Certificate.
</FN>
</TABLE>

                  1.3 The  definition of  "Commitment"  in Section 1.1 is hereby
amended by replacing it in its entirety with the following new definition:

                           "Commitment"  means,  at any time with  respect  to a
                  Lender,  the  principal  amount for such time set forth beside
                  such Lender's name under the heading  "Commitment" on Schedule
                  I attached to the Seventh  Amendment  and made a part  thereof
                  or, on the signature  page of the  Assignment  and  Acceptance
                  pursuant to which such  Lender  became a Lender  hereunder  in
                  accordance  with  the  provisions  of  Section  13.3,  as such
                  Commitment  may be  adjusted  from time to time in  accordance
                  with the provisions of Section 13.3, and "Commitments"  means,
                  collectively,  the aggregate  amount of the commitments of all
                  the Lenders.

                  1.4  The  first  paragraph  contained  in  the  definition  of
"Individual  Availability"  in Section 1.1 is hereby  amended by replacing it in
its entirety with the following new paragraph:

                                      -92-
<PAGE>

                           "Individual  Availability"  means  at any  time  with
respect to the Borrower:

                  (a) the least of: (i) the Maximum Revolver Amount minus the
Individual Outstandings of the Borrower at such time; or

     (ii) the sum of: (x) at any time,  (1)  seventy  percent  (70%) of the Book
Value of Eligible Inventory of the Borrower (excluding  Inventory referred to in
clause (y) below) or (2) during the period commencing on the "Effective Date" of
the Seventh  Amendment  (as  defined  therein)  and ending on October 31,  2000,
seventy  five  percent  (75%) of the Book  Value of  Eligible  Inventory  of the
Borrower,  (in each case,  excluding Inventory referred to in clause (y) below),
plus (y) fifty  percent (50%) of the Book Value of finished  goods  Inventory of
the Borrower not in the possession of such Borrower as to which a merchandise or
documentary  Letter of Credit has been issued and which, if in possession of the
Borrower,  would be treated as Eligible  Inventory of the Borrower,  but only if
such  Inventory  is covered  by  insurance  with  recognized  insurers  on terms
(including,  without limitation, types of coverage, policy limits and deductible
amounts) not materially  different from those of the insurance maintained by the
Borrower  with  respect to such  Inventory  on the Closing  Date or is otherwise
deemed  adequate by the  Administrative  Agent;  or (iii) the maximum  amount of
indebtedness  under the Credit Agreement (as defined in the Ames Indenture) then
permitted to be outstanding pursuant to Section 4.09 of the Ames Indenture;

minus
-----

     (b) the sum of: (i) the unpaid  balance  of Loans of the  Borrower  at such
time,  (ii) the aggregate  amount of Pending Loans of the Borrower at such time,
(iii) the aggregate  undrawn amount of all outstanding  Letters of Credit issued
for the  account of  Borrower  at such time,  (iv) the  aggregate  amount of any
unpaid  reimbursement  obligations  of the Borrower in respect of the Letters of
Credit,  (v) reserves for accrued  interest on the Obligations  established with
respect to the Borrower,  (vi) the Environmental  Compliance Reserve established
with  respect  to  the  Borrower,   and  (vii)  all  other  reserves  which  the
Administrative  Agent deems  necessary or appropriate in its sole  discretion to
maintain with respect to the Borrower's account, including,  without limitation,
reserves  for any amounts  which the  Administrative  Agent or any Lender may be
obligated to pay in the future for the account of the Borrower.

     1.5 The  definition of "Maximum  Revolver  Amount" in Section 1.1 is hereby
amended by replacing  it in its  entirety  with the  following  new  definition:
"Maximum Revolver Amount" means: (i) from August 1, 2000 until close of business
on November  30,  2000,  $705,000,000;  and (ii) at all times prior to August 1,
2000 and from and after  December  1,  2000,  $650,000,000;  provided  that such
amount may be reduced from time to time  pursuant to Section 4.2.
        1.6  Paragraph (c) of Section 7.2 is hereby  amended by  replacing
clause (x) therein with the following new clause (x):


                                      -93-
<PAGE>

     (x) stating that Section 9.26 was not applicable  during such month because
the  Combined  Availability  was not less  than  the  minimum  monthly  Combined
Availability  amount  specified in Section  9.26 for such month,  or 1.7 Section
9.26 is hereby  amended by replacing it in its entirety  with the  following new
Section 9.26:  Fixed Charge Coverage Ratio. If at any time during any month that
occurs in the time  periods  below the  Combined  Availability  is less than the
respective amount set forth below for such time period:


                             Time Period           Minimum Combined Availability
                             -----------           -----------------------------
                             7/25/00 through 8/31/00            $ 90,000,000
                             9/01/00 and thereafter             $100,000,000


                           the Parent  shall  maintain a Fixed  Charge  Coverage
                           Ratio of not  less  than the  respective  amount  set
                           forth below for the  appropriate  time period for the
                           most  recently  ended  twelve  month period for which
                           financial statements were required to be submitted to
                           the  Administrative  Agent  pursuant  to Section  7.2
                           hereunder:

                               Time Period           Fixed Charge Coverage Ratio
                               -----------           ---------------------------
                               5/31/00 through 8/31/00            .50:1.00
                               9/01/00 through 10/31/00           .60:1.00
                               11/1/00 through 11/30/00           .70:1.00
                               12/01/00 through 2/28/01           .85:1.00
                               3/01/01 through 3/31/01            .90:1.00
                               4/01/01 through 4/30/01            .95:1.00

                           and  thereafter,  the Parent  shall  maintain a Fixed
                           Charge Coverage Ratio of not less than 1.00:1.00.

                  SECTION 2.  AGREEMENTS OF THE PARTIES HERETO

                           2.1      Waiver.  (a) Subject to the  satisfaction
     of all the  conditions  set forth in Section 3 below,  the  Lenders  hereby
waive  compliance  by the Borrower  with Section 9.26 of the Original  Agreement
through  the date  hereof and any Event of Default  under  clause (c) of Section
11.1 of the Original Agreement resulting solely from such failure to comply.

                           (b) Except as  expressly  waived  hereby,  all of the
     representations,   warranties,  terms,  covenants  and  conditions  of  the
Original  Agreement  shall  remain in full force and effect in  accordance  with
their respective  terms. The waiver set forth herein shall be limited  precisely
as provided for herein and shall not be deemed to be waivers of,  amendments of,
consents to or modifications of any term or provision of the Credit Agreement or
any other  document or instrument  referred to therein or of any  transaction or
further or future  action on the part of the Borrower  requiring  the consent of
the Lenders  except to the extent  specifically  provided for herein.  Except as
expressly set forth herein, the Lenders have not and shall not be deemed to have
waived any of their rights and remedies against the Borrower for any existing or
future Events of Default.

                           2.2      Amendment  Fee.  The Borrower  agrees to
     pay to the  Administrative  Agent,  for the  account of the  Lenders as set
forth in Schedule II attached  hereto,  a nonrefundable  fee in consideration of
the special  accommodations  made  hereunder  of  $808,462,  payable as follows:
$202,115.50 on August 1, 2000,  September 1, 2000,  October 2, 2000 and November
1, 2000. The total amendment fee payable  hereunder shall be earned in full upon
execution and delivery of this Seventh Amendment by the parties hereto. Upon the
occurrence  of an Event of Default or  termination  of the Credit  Agreement all
remaining unpaid installments of such fee shall be immediately due and payable.

                                      -94-
<PAGE>

                  SECTION 3.  CONDITIONS PRECEDENT TO EFFECTIVE DATE

                           This Seventh  Amendment shall be deemed  effective as
of the date hereof on such date (the "Effective Date")
that the  following  conditions  have  been  satisfied  in full or waived by the
Administrative Agent in writing:

                           3.1      This Seventh  Amendment shall have been
     executed  by the  Credit  Parties,  the  Administrative  Agent  and all the
Lenders,  and the Credit Parties shall have performed and shall be in compliance
with all covenants,  agreements and conditions contained herein, in the Original
Agreement and in the other Loan Documents each as amended hereby.

                           3.2     The Administrative Agent shall have received:

                                    3.2.1   The Inventory Appraisal;

                                    3.2.2  Such  opinions  of  counsel  for  the
                  Parent  and the other  Credit  Parties  as the  Administrative
                  Agent or any Lender shall request,  each such opinion to be in
                  a   form,   scope,   and   substance   satisfactory   to   the
                  Administrative   Agent,  the  Lenders,  and  their  respective
                  counsel;

                                    3.2.3 (x) a certificate  of the Secretary or
                  Assistant  Secretary of each Credit Party  certifying that (A)
                  the copy of its  By-laws  attached to the  certificate  of its
                  Secretary  or  Assistant  Secretary  delivered  on the Closing
                  Date,  or  in  the  case  of  AmesPlace.com  as  delivered  in
                  connection  with the Sixth  Amendment,  is a true and complete
                  copy  of  its  By-laws  as  in  effect  on  the  date  of  the
                  certificate  delivered  pursuant to this  subsection  and such
                  By-laws have not been amended since the Closing Date,  (B) all
                  required  corporate  actions in connection with the execution,
                  delivery and  performance of this Seventh  Amendment have been
                  taken and, if  resolutions  have been  adopted by its Board of
                  Directors or shareholders, that attached thereto is a true and
                  complete copy of such  resolutions  and that such  resolutions
                  have not been  modified,  rescinded or amended and are in full
                  force  and  effect,   (C)  its   certificate  or  articles  of
                  incorporation  has not been amended since the date of the last
                  amendment  thereto shown on the  certificate  of good standing
                  from the Secretary of State of the state of its  incorporation
                  delivered   on  the   Closing   Date   and  in  the   case  of
                  AmesPlace.com,  the  date  of the  good  standing  certificate
                  delivered in connection  with the Sixth  Amendment and (D) the
                  officers   executing  this  Seventh  Amendment  or  any  other
                  document  to  which  it is a  party  delivered  in  connection
                  herewith or  therewith  are the  incumbent  officers and their
                  signatures are as set forth thereto;  and (y) a certificate of
                  another  officer  thereof  attesting  to  the  incumbency  and
                  signature of its Secretary or Assistant Secretary, as the case
                  may be;

     3.2.4 Such other  approvals,  opinions or documents  as the  Administrative
Agent may reasonably request; and
        3.2.5 Such amendments and modifications to the
other Loan Documents as the Administrative  Agent may reasonably request.

     3.3 To the  extent  invoiced,  the  Borrower  shall  have paid all fees and
expenses  of the  Administrative  Agent  and  the  Attorney  Costs  incurred  in
connection with this Seventh Amendment and the transactions contemplated hereby.

     3.4 All proceedings  taken in connection with the execution of this Seventh
Amendment  and all  documents  and papers  relating  hereto and thereto shall be
satisfactory in form, scope, and substance to the Administrative Agent.

     3.5 All representations and warranties  contained in this Seventh Amendment
or  otherwise  made in writing  to the  Administrative  Agent or the  Lenders in
connection herewith shall be true and correct in all material respects.

     3.6 After the  effectiveness of this Seventh  Amendment,  no unwaived event
has  occurred  and is  continuing  which  constitutes  a Default  or an Event of
Default under the Credit Agreement.

                                      -95-
<PAGE>

                  The execution and delivery to the Administrative  Agent by the
Credit Parties of a counterpart of this Seventh  Amendment shall be deemed to be
a  representation  and warranty made by each Credit Party to the effect that the
conditions  precedent to the Effective  Date set forth in 3.5 and 3.6 above have
been satisfied, with the same effect as delivery to the Administrative Agent and
the  Lenders of a  certificate  signed by a  Responsible  Officer of each Credit
Party, dated the Effective Date, to such effect.

                  SECTION 4.  MISCELLANEOUS

     4.1 Each Credit Party affirms,  reaffirms and restates the  representations
and  warranties  set forth in  Articles 6 and 8 of the  Original  Agreement,  as
amended by this Seventh Amendment,  and all such  representations and warranties
shall be true and  correct on the date  hereof with the same force and effect as
if made on such date.

     4.2 Each Credit Party  represents  and warrants that the Borrower is and at
all times will  continue to be the sole Credit  Party which owns  Inventory  and
that all such Inventory is subject to no Liens except Permitted Liens.

     4.3 Each Credit Party  represents and warrants (which  representations  and
warranties shall survive the execution and delivery hereof) to the Agent that:

                           (a) It has  the  corporate  power  and  authority  to
                  execute,  deliver  and carry out the terms and  provisions  of
                  this  Seventh  Amendment  and  the  transactions  contemplated
                  hereby  and has  taken or  caused  to be taken  all  necessary
                  corporate  action to  authorize  the  execution,  delivery and
                  performance  of this Seventh  Amendment  and the  transactions
                  contemplated hereby;

                           (b)  No  consent  of  any  other  person  (including,
                  without  limitation,  shareholders  or creditors of any Credit
                  Party),  and no action of, or filing with any  governmental or
                  public  body or  authority  is required  to  authorize,  or is
                  otherwise required in connection with the execution,  delivery
                  and  performance  of this  Seventh  Amendment  and  the  other
                  instruments and documents contemplated hereby;

                           (c) This Seventh  Amendment and the other instruments
                  and documents  contemplated hereby have been duly executed and
                  delivered  by a duly  authorized  officer  on  behalf  of such
                  party, and constitutes a legal,  valid and binding  obligation
                  of such party  enforceable  against  such party in  accordance
                  with  its  terms,   subject  to  bankruptcy,   reorganization,
                  insolvency,  moratorium  and other similar laws  affecting the
                  enforcement of creditors' rights generally and the exercise of
                  judicial  discretion in accordance with general  principles of
                  equity; and

                           (d) The execution,  delivery and  performance of this
                  Seventh  Amendment  and the other  instruments  and  documents
                  contemplated  hereby  will not  violate  any law,  statute  or
                  regulation,   or  any   order  or   decree  of  any  court  or
                  governmental  instrumentality,  or conflict with, or result in
                  the breach of, or constitute a default  under any  contractual
                  obligation of such party.

                           4.4      Other than as  expressly  set forth  herein,
     nothing  herein shall be deemed to be a waiver of any covenant or agreement
contained in the Original  Agreement,  and each Credit Party hereby  agrees that
all of the covenants and agreements  contained in the Original Agreement and the
other Loan Documents are hereby ratified and confirmed in all respects and shall
remain in full force and effect in accordance with their respective  terms. Each
Credit  Party  affirms  its  prior  grant  under  the  Original  Agreement  of a
continuing  first priority  security  interest in, lien on, and right of set-off
against,  all of the  Collateral  of such  Credit  Party,  whether  now owned or
existing or hereafter acquired or arising, regardless of where located, and each
of them  shall  enter  into  any  confirmatory  documentation  requested  by the
Administrative Agent.

                           4.5      All references to the Credit  Agreement in
     the Credit Agreement or any other Loan Document and the other documents and
instruments  delivered  pursuant to or in connection  therewith  shall mean such
agreement as amended hereby and as each may in the future be amended,  restated,
supplemented or modified from time to time.

                                      -96-
<PAGE>

                           4.6      This Seventh  Amendment may be executed by
     the  parties  hereto  individually  or  in  combination,  in  one  or  more
counterparts,  each  of  which  shall  be an  original  and all of  which  shall
constitute one and the same agreement.

                           4.7      Delivery of an executed  counterpart  of a
     signature  page by telecopier  shall be effective as delivery of a manually
executed counterpart.

                           4.8      This Seventh Amendment shall be governed by,
     and construed and interpreted in accordance  with, the laws of the State of
New York.

                           4.9      The  parties  hereto  shall,  at any time
     and from time to time  following the  execution of this Seventh  Amendment,
execute and  deliver  all such  further  instruments  and take all such  further
action as may be reasonably  necessary or  appropriate in order to carry out the
provisions of this Seventh Amendment.


                           IN WITNESS  WHEREOF,  the Borrower,  the Majority
     Lenders,  the Administrative Agent and the other Credit Parties have caused
this  Seventh  Amendment  to be duly  executed  by their  respective  authorized
officers as of the day and year first above written.

BANK OF AMERICA, N.A., as the Administrative Agent


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167

BORROWER: AMES MERCHANDISING CORPORATION


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES DEPARTMENT STORES, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Senior Executive Vice President and CFO

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560

                                      -97-
<PAGE>


AMESPLACE.COM, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES REALTY II, INC., as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560


AMES TRANSPORTATION SYSTEMS, INC.,
as a Guarantor


By:
-----------------------------------------
Name: Rolando de Aguiar
Title: Vice President

Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560



BANK OF AMERICA, N.A.,
as a Lender


By:
-----------------------------------------
Name: William J. Wilson
Title: Senior Account Executive

Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167


                                      -98-
<PAGE>



CONGRESS FINANCIAL CORPORATION,
as a Lender


By:
-----------------------------------------
Name: Cindy B. Dennbaum
Title: Vice President

Address: 1133 Avenue of the Americas
New York, New York 10036
Attn: Ms. Cindy Dennbaum
Telecopy No.: (212) 545-4283


GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Sean McWhinnie
Title: Authorized Signatory

Address: 800 Connecticut Avenue, 2 North
Norwalk, Connecticut 06854
Attn: Vice President - Portfolio
Telecopy No.: (203) 316-7893


TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender


By:
------------------------------------
Name: Michael S. Burns
Title: Vice President

Address: 555 Theodore Fremd Avenue, Suite 301
Rye, New York 10580
Attn: Mr. Jon Oldham
Telecopy No.: (914) 921-0110


THE CHASE MANHATTAN BANK,
as a Lender


By:
-----------------------------------------
Name: James M. Dailey
Title: Vice President

Address: 633 Third Avenue
New York, New York 10017
Attn: Credit Deputy
Telecopy No.: (212) 622-5218

                                      -99-
<PAGE>


FLEET CAPITAL CORPORATION,
as a Lender


By:
-----------------------------------------
Name: John P. Masotti
Title: Vice President

Address: 200 Glastonbury Blvd.
Glastonbury, CT 06033
Attn: Mr. John Masotti
Telecopy No.: (860) 657-7759


LASALLE BUSINESS CREDIT, INC.,
as a Lender


By:
-----------------------------------------
Name: Lawrence P. Garni
Title: First Vice President

Address: 477 Madison Avenue, 12th Floor
New York, New York 10022
Attn: Mr. Corey Sclar
Telecopy No.: (212) 371-2966


FLEET NATIONAL BANK, as a Lender


By:
-----------------------------------------
Name: Linda Smyth
Title: Vice President

Address: 777 Main Street
MSN 240
Hartford, Connecticut 06115
Attn: Linda Smyth
Telecopy No.: (860) 986-6919


NATIONAL CITY COMMERCIAL FINANCE, INC., as a Lender


By:
-----------------------------------------
Name: Matthew D. Sheets
Title: Account Executive

Address: 1965 East 6th Street, Suite 400
Cleveland, Ohio 44114
Attn: Ms. Carla Kehres
Telecopy No.: (216) 575-9486

                                     -100-
<PAGE>


PNC BANK, NATIONAL ASSOCIATION,
as a Lender


By:
-----------------------------------------
Name: Janeann Fehrle
Title: Vice President

Address: 1600 Market Street, 31st Floor F2-F070-31-2
Philadelphia, Pennsylvania 19103
Attn: Ms. Janeann Fehrle
Telecopy No.: (215) 585-4749


CITIZENS BUSINESS CREDIT COMPANY,
as a Lender


By:
-----------------------------------------
Name: John Atanasoff
Title: Vice President

Address: 40 Court Street
Boston, Massachusetts 02108
Attn: Mr. John Atanasoff
Telecopy No.: (617) 695-4748


FOOTHILL CAPITAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Nakamoto
Title: Vice President

Address: 11111 Santa Monica Blvd.
Los Angeles, California 90025
Attn: Mr. Todd Nakamoto
Telecopy No.: (310) 479-8952


AMSOUTH BANK, as a Lender


By:
-----------------------------------------
Name: Kevin P. Rogers
Title: Attorney in Fact

Address: c/o AmSouth Capital Corp.
350 Park Avenue, 19th Floor
New York, New York 10022
Attn: Mr. Joseph B. Huston
Telecopy No.: (212) 935-7548


                                     -101-
<PAGE>


IBJ WHITEHALL BUSINESS CREDIT CORPORATION, as a Lender


By:
-----------------------------------------
Name: Andrew Sepe
Title: Vice President

Address: One State Street
New York, New York 10004
Attn: Mr. Andrew Sepe
Telecopy No.: (212) 858-2151


FLEET RETAIL FINANCE INC.,
as a Lender


By:
-----------------------------------------
Name: Betsy Ratto
Title: Managing Director

Address: 40 Broad Street, 11th Floor
Boston, Massachusetts 02109
Attn: Ms. Betsy Ratto
Telecopy No.: (617) 434-4339


CIT GROUP/BUSINESS CREDIT, INC., as a Lender


By:
-----------------------------------------
Name: Evelyn Kusold
Title: Vice President

Address: 1211 Avenue of the Americas
New York, New York 10036
Attn: Ms. Evelyn Kusold
Telecopy No.: (212) 536-1295


TEXTRON FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Todd Runge
Title: Vice President

Address: 4550 North Point, Suite 400
Alpharetta, Georgia 30022
Attn: Ms. Christine MacKay
Telecopy No.: (770) 360-1672

                                     -102-
<PAGE>


HELLER FINANCIAL, INC., as a Lender


By:
-----------------------------------------
Name: John Buff
Title: Senior Vice President

Address: 150 East 42nd Street, 7th Floor
New York, New York 10017
Attn: Mr. Thomas Bukowski
Telecopy No.: (212) 880-2960


FINOVA FINANCIAL CORPORATION, as a Lender


By:
-----------------------------------------
Name: Bruce Mettle
Title: Portfolio Administrator

Address: 311 South Wacker Drive, Suite 4400
Chicago, IL 60606
Attn: Mr. Bruce Mettle
Telecopy No.: (312) 322-7250


GMAC COMMERCIAL CREDIT LLC, as a Lender


By:
-----------------------------------------
Name: Robert E. Nuytkens
Title: Vice President

Address: 1290 Avenue of the Americas, 3rd Floor
New York, New York 10004
Attn: Mr. Robert E. Nuytkens
Telecopy No.: (212) 408-4317


                                     -103-
<PAGE>
<TABLE>


                                                       SCHEDULE I
                                                       COMMITMENTS


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

                            Name of Lender                                   Commitment                Commitment
                                                                             to 11/30/00             thereafter
-------------------------------------------------------------------------- ------------------------- --------------------
-------------------------------------------------------------------------- ------------------------- --------------------
  <S>                                                                        <C>                       <C>
  BANK OF AMERICA, N.A.                                                      $57,432,000               $50,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  CONGRESS FINANCIAL CORPORATION                                             $50,000,000               $50,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  GENERAL ELECTRIC CAPITAL CORPORATION                                       $57,432,000               $50,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  TRANSAMERICA BUSINESS CREDIT CORPORATION                                   $50,000,000               $50,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  THE CHASE MANHATTAN BANK                                                   $34,460,000               $30,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  FLEET CAPITAL CORPORATION                                                  $28,716,000               $25,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  LASALLE BUSINESS CREDIT, INC.                                              $25,000,000               $25,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  FLEET NATIONAL BANK                                                        $11,487,000               $10,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  NATIONAL CITY COMMERCIAL FINANCE, INC.                                     $28,716,000               $25,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  PNC BANK, NATIONAL ASSOCIATION                                             $25,000,000               $25,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  CITIZENS BUSINESS CREDIT COMPANY                                           $20,000,000               $20,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  FOOTHILL CAPITAL CORPORATION                                               $57,432,000               $50,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  AMSOUTH BANK                                                               $22,973,000               $20,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  IBJ WHITEHALL BUSINESS CREDIT CORPORATION                                  $17,230,000               $15,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  FLEET RETAIL FINANCE INC.                                                  $40,203,000               $35,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  CIT GROUP/BUSINESS CREDIT, INC.                                            $50,000,000               $50,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  TEXTRON FINANCIAL CORPORATION                                              $28,716,000               $25,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  HELLER FINANCIAL, INC.                                                     $50,000,000               $50,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  FINOVA FINANCIAL CORPORATION                                               $10,000,000               $10,000,000
-------------------------------------------------------------------------- ------------------------- --------------------

  GMAC COMMERCIAL CREDIT LLC                                                 $40,203,000               $35,000,000
-------------------------------------------------------------------------- ------------------------- --------------------
</TABLE>

                                     -104-
<PAGE>


<TABLE>

                                                       SCHEDULE II
                                                          FEES


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

                                Name of Lender                                      Amendment Fee
--------------------------------------------------------------------------------- ------------------------
  <S>                                                                               <C>
  BANK OF AMERICA, N.A.                                                             $74,324
--------------------------------------------------------------------------------- ------------------------

  CONGRESS FINANCIAL CORPORATION                                                    $46,154
--------------------------------------------------------------------------------- ------------------------

  GENERAL ELECTRIC CAPITAL CORPORATION                                              $74,324
--------------------------------------------------------------------------------- ------------------------

  TRANSAMERICA BUSINESS CREDIT CORPORATION                                          $46,154
--------------------------------------------------------------------------------- ------------------------

  THE CHASE MANHATTAN BANK                                                          $44,596
--------------------------------------------------------------------------------- ------------------------

  FLEET CAPITAL CORPORATION                                                         $37,162
--------------------------------------------------------------------------------- ------------------------

  LASALLE BUSINESS CREDIT, INC.                                                     $23,077
--------------------------------------------------------------------------------- ------------------------

  FLEET NATIONAL BANK                                                               $14,865
--------------------------------------------------------------------------------- ------------------------

  NATIONAL CITY COMMERCIAL FINANCE, INC.                                            $37,162
--------------------------------------------------------------------------------- ------------------------

  PNC BANK, NATIONAL ASSOCIATION                                                    $23,077
--------------------------------------------------------------------------------- ------------------------

  CITIZENS BUSINESS CREDIT COMPANY                                                  $18,461
--------------------------------------------------------------------------------- ------------------------

  FOOTHILL CAPITAL CORPORATION                                                      $74,324
--------------------------------------------------------------------------------- ------------------------

  AMSOUTH BANK                                                                      $29,730
--------------------------------------------------------------------------------- ------------------------

  IBJ WHITEHALL BUSINESS CREDIT CORPORATION                                         $22,297
--------------------------------------------------------------------------------- ------------------------

  FLEET RETAIL FINANCE INC.                                                         $52,027
--------------------------------------------------------------------------------- ------------------------

  CIT GROUP/BUSINESS CREDIT, INC.                                                   $46,154
--------------------------------------------------------------------------------- ------------------------

  TEXTRON FINANCIAL CORPORATION                                                     $37,162
--------------------------------------------------------------------------------- ------------------------

  HELLER FINANCIAL, INC.                                                            $46,154
--------------------------------------------------------------------------------- ------------------------

  FINOVA FINANCIAL CORPORATION                                                      $9,231
--------------------------------------------------------------------------------- ------------------------

  GMAC COMMERCIAL CREDIT LLC                                                        $52,027
--------------------------------------------------------------------------------- ------------------------
</TABLE>

                                     -105-
<PAGE>