<TABLE>

<S>                                                                              <C>



                                               SECURITIES AND EXCHANGE COMMISSION
                                                     WASHINGTON, D.C. 20549
                                                           FORM 10-K

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

                                           For the fiscal year ended February 2, 2002
                                                                    -----------------
                                                             OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                                           For the transition period from to _______


                                                    AMES DEPARTMENT STORES, INC.
                                         (Exact Name of Registrant as Specified In its Charter)

                               DELAWARE
                                                                                         04-2269444
                      (State or Other Jurisdiction                        (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
                                                                       --------------------------

                                Securities Registered Pursuant to Section 12(b) of the Act: None

                                   Securities Registered Pursuant to Section 12(g) of the Act:

                                       Title of Each Class     Name of Each Exchange on Which Registered
                                       -------------------    ------------------------------------------
                                       Common Stock, $.01 par value              OTC Bulletin Board
                                       Series B Warrants                                       None

      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 ___
          -----

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      As of March 28, 2002, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $6,929,810 based on the last reported sale
price of the Registrant's Common Stock.

      29,408,057 shares of Common Stock were outstanding on March 28, 2002.



      Documents Incorporated by Reference:  None



Page 1 of 135 pages (including Exhibits)                                             Exhibit Index on page  48

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<PAGE>


                                     PART I

      Certain statements discussed in Item 1 (Business), Item 3 (Legal
Proceedings), Item 7 (Management's Discussion and Analysis of Financial
Condition and Results of Operations), Item 7A (Quantitative and Qualitative
Disclosures About Market Risk) and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements concerning
Management's expectations, strategic objectives, business prospects, anticipated
economic performance and financial condition and other similar matters involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of results to differ
materially from any future results, performance or achievements discussed or
implied by such forward-looking statements. Such risks, uncertainties and other
important factors include, among others: general economic and business
conditions, decreased consumer spending, particularly among those customers who
comprise our primary customer base, increased competition from other discount
retailers, including the major national chains, as well as from merchandise
offerings on the internet, the seasonal nature of our business, severe adverse
weather conditions during the winter months, particularly during the peak
Christmas holiday shopping season, and various other matters, many of which are
beyond the Company's control and other factors as are described at the end of
Item 7 (Management's Discussion and Analysis of Financial Condition and Results
of Operations) of this Form 10-K. Forward-looking statements speak only as of
the date of the document in which they are made. We disclaim any obligation or
undertaking to provide any updates or revisions to any forward-looking statement
to reflect any change in our expectations or any change in events, conditions or
circumstances on which the forward-looking statement is based.

Item 1.    Description of Business

Introduction

     Ames  Department  Stores,  Inc.  ("Ames"  or the  "Company")  is one of the
largest regional  discount  retailers in the United States. We currently operate
333 stores in  fourteen  contiguous  states in the  Northeast  and  Mid-Atlantic
regions,  as well as the District of Columbia.  Our stores offer a wide range of
both brand name and other quality  merchandise for the home and family at prices
below those of  conventional  department  stores and  specialty  retailers.  Our
stores are smaller and more customer  friendly than the stores of most competing
"big box" retailers, including the national discount department store chains.

      Ames is a Delaware corporation organized in 1962 as a successor to a
business originally founded in 1958. Its principal executive offices are located
at 2418 Main Street, Rocky Hill, Connecticut, 06067; its telephone number is
(860) 257-2000; and its web site is http://www.AmesStores.com.


      The Ames fiscal year ends on the Saturday nearest January 31st. Our fiscal
years ended February 2, 2002 and January 29, 2000, which we refer to as "Fiscal
2001" and "Fiscal 1999," respectively, consisted of fifty-two weeks. Our fiscal
year ended February 3, 2001, which we refer to as "Fiscal 2000," consisted of
fifty-three weeks. "Fiscal 2002" will end on February 1, 2003.



Business Developments


Petition for Relief under Chapter 11

      On August 20, 2001, the Company and each of its four subsidiaries
(collectively, the "Debtors") filed voluntary petitions under Chapter 11 of the
U.S. Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"). The
Chapter 11 cases Nos. 01-42217 (REG) through 01-42221 (REG) (the "Chapter 11
Cases") have been consolidated for the purpose of joint administration. As of
August 20, 2001, the Debtors began operating their business as
debtors-in-possession under Chapter 11 of the Bankruptcy Code and are subject to
the jurisdiction of the Bankruptcy Court.

      As a result of these filings, actions to collect pre-petition indebtedness
are stayed and other contractual obligations against the Debtors may not be
enforceable. In addition, under the Bankruptcy Code, the Debtors may assume or
reject executory contracts, including real estate leases, employment contracts,
personal property leases, service contracts and other unexpired executory
pre-petition contracts, subject to Bankruptcy Court approval. Parties affected
by these rejections may file claims with the Bankruptcy Court in accordance with
the Bankruptcy Code. The Debtors cannot presently determine the ultimate
liability that may result from the filing of claims for all contracts that may
be rejected. Estimates have been made however, for certain contracts to be
rejected and are included in the liabilities subject to compromise category.
Substantially all pre-petition liabilities are subject to settlement under a
plan of reorganization to be voted on by the creditors and equity holders and
approved by the Bankruptcy Court. Although the Debtors expect to file a
reorganization plan or plans that provide for emergence from bankruptcy sometime
during Fiscal 2002, there can be no assurance that a reorganization plan or
plans will be proposed by the Debtors or confirmed by the Bankruptcy Court or
that any such plan will be consummated.



      As provided by the Bankruptcy Code, the Debtors have the exclusive right
to submit a plan of reorganization for 120 days from the date of the filing of
the voluntary petitions. On December 5, 2001, the Company filed a motion with
the Bankruptcy Court to extend the period of exclusivity and on December 18,
2001, the court granted an extension of the exclusivity period to May 31, 2002.
If the period of exclusivity is not further extended and the Debtors fail to
file a plan of reorganization during such period, or if such plan is not
accepted by the required number of creditors and equity holders within the
required period, any party in interest may subsequently file its own plan of
reorganization for the Debtors. A plan of reorganization must be confirmed by
the Bankruptcy Court, upon certain findings being made by the Bankruptcy Court
which are required by the Bankruptcy Code. The Bankruptcy Court may confirm a
plan of reorganization notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity holders if certain requirements of the
Bankruptcy Code are met. As part of its restructuring, the Company anticipates
that all existing equity will be cancelled. The Chapter 11 filing, the
uncertainty regarding the eventual outcome of the reorganization case and the
effect of other unknown adverse factors could threaten the Company's existence
as a going concern.



      At the first day hearing held on August 20, 2001 before Judge Robert E.
Gerber, the Bankruptcy Court entered its first day orders granting authority to
the Debtors to, among other things, pay pre-petition and post-petition employee
wages, salaries, benefits and other employee obligations, pay certain
administrative fees and insurance related obligations and honor customer service
programs, including warranties, returns, layaways and gift certificates.



      Schedules have been filed with the Bankruptcy Court setting forth the
assets and liabilities of the Debtors as of the filing date as shown by the
Company's accounting records. The Bankruptcy Court established a March 25, 2002
bar date for claims in the Company's Chapter 11 Cases. Differences between
amounts shown by the Company and claims filed by creditors will be investigated
and, if necessary, unresolved disputes will be determined by the Bankruptcy
Court. The ultimate settlement terms for such liabilities are subject to a plan
of reorganization, and accordingly, are not presently determinable.



Closing Stores

      In November 2000, the Company announced the planned closing of thirty-two
stores. Thirty-one of the stores were under-performing stores acquired from the
former Hills Stores Company ("Hills"). The other store was closed as a result of
the expiration of its lease. Liquidation sales at these stores began December
31, 2000. All thirty-two stores were closed by the end of March 2001. The
Company recorded a $139.3 million expense in Fiscal 2000 in connection with
these closings, including $9.5 million for inventory write-offs. These charges
represent future costs to be paid for these stores and expenses related to the
actual cessation of business in these locations.



      In August 2001, the Company announced that it would close 47 store
locations. The stores began liquidation sales immediately and closed in October
2001. Two other stores were also closed in August 2001. The Company recorded a
$75.9 million charge related to these store closings in August 2001. The charge
includes provisions for employee severance, the write off of fixed assets and
the estimated cost of the leases to be rejected in the Chapter 11 proceedings.
The Company also recorded a $13.3 million charge to cost of merchandise sold for
the impairment of inventory value in these stores.



      In November 2001, the Company announced that it would close 16 store
locations. The stores began liquidation sales immediately and closed in January
2002. The Company also announced that it would close its distribution center in
Columbus, Ohio. The distribution center closed in March 2002. The Company
recorded a charge in November 2001 of $53 million related to these closings. The
charge includes provisions for employee severance, the write-off of fixed assets
and the estimated cost of the leases to be rejected in the Chapter 11
proceedings. The Company also recorded a $6.2 million charge to cost of
merchandise sold for the impairment of inventory value in these stores.



      In December 2001, the Company announced that it would close 54 store
locations. The stores began liquidation sales in December 2001 and closed in
March 2002. The Company recorded a charge in December 2001 of $85.8 million
related to these closings. The charge includes provisions for employee
severance, the write-off of fixed assets and the estimated cost of the leases to
be rejected in the Chapter 11 proceedings. The Company also recorded a $14.2
million charge to cost of merchandise sold for the impairment of inventory value
in these stores.



Growth Strategy

     As a result of its  Chapter 11 filing  and the  resulting  restrictions  on
corporate  resources,  it is unlikely  that the Company will  increase its store
base until after emerging from Bankruptcy Court protection.  During and prior to
the  reorganization,  Ames has taken a variety of actions to address its problem
areas and to assure its success as a reorganized  entity.  Foremost  among these
has been its action in closing,  since the start of Fiscal  2001, a total of 151
store locations as well as one  distribution  center.  However,  there can be no
assurance that a reorganization plan or plans will be proposed by the Debtors or
confirmed by the Bankruptcy Court or that any such plan will be consummated.

Customers

      Our customer base consists primarily of working women with families and
senior citizens. They have an average annual household income between $25,000
and $40,000 and their purchasing decisions are determined primarily by a desire
for low prices and shopping convenience. Our merchandise offerings, prices,
store design, and focus on customer service are targeted to meet the needs of
these cost-conscious consumers, who, we believe, are generally underserved by
other large discount retailers. We reinforce our image and drive customer
traffic by employing a "high/low" pricing strategy that is supplemented by
weekly advertising circulars and recurring promotional programs. We believe that
our knowledge of and focus on our target customers have enabled us to develop an
advantage in an increasingly competitive discount-retailing environment.



Merchandising and Customer Service

      Our mission is to provide our customers a broad selection of quality
merchandise at prices they can afford in a shopping environment that is friendly
and convenient. Our merchandising strategy is targeted to our customer base, and
we believe this strategy has enabled us to develop a distinct competitive
advantage in serving our targeted customer base.

      Ames sells merchandise in three major categories: home lines, softlines
and hardlines. The following table sets forth the types of merchandise offered
within each of these three categories and the percentage of our net sales
(excluding leased department and closed store sales) in Fiscal 2001 attributable
to each category:
<TABLE>
<S>                                 <C>                                         <C>


 Home Lines 40%                     Softlines 32%                               Hardlines 28%
---------------                    -----------------------------------------   -------------
o    Domestics, such as sheets,    o     Women's apparel, consisting           o     Health and beauty care
     towels and bath accessories         primarily of non-fashion basic              products
                                         items, sportswear and intimates
o    Window treatments                                                         o     Toys
                                   o     Men's workwear, denims,
o    Home entertainment                  fleece goods, hosiery and             o     Hardware and paints
     products                            underwear
                                                                               o     Automotive supplies
o    Small appliances              o     Children's apparel
                                                                               o     Sporting goods
o    Housewares                    o     Jewelry
                                                                               o     Stationery
o    Ready-to-assemble
     furniture                                                                 o     Seasonal items, such as
                                                                                     Christmas and other
o    Patio furniture                                                                 holiday decorations.

o    Crafts
</TABLE>


In addition, all Ames stores include a shoe department operated by a licensee
that accounted for approximately 4.2% of our total sales in Fiscal 2001.

      A significant portion of our net sales is derived from the sale of
products that bear readily-recognized brand names, including American
Greeting(R), Cannon(R), Coleman(R), Dickies(R), Fisher-Price(R), Fruit of the
Loom(R), Hanes(R), Kodak(R), Magnavox(R), Mattel(R), Procter and Gamble(R),
Proctor-Silex(R), Rider(R), Rubbermaid(R), Salton(R), Timex(R) and Wrangler(R).

      Women's apparel is the only product line that accounts for more than 10%
of our sales, generating approximately 12.6% of our Fiscal 2001 net sales. We
carry primarily staple, casual items of basic women's apparel, including
outerwear, sportswear, and intimates, with a particularly broad selection of
merchandise in "plus" sizes for the larger woman. Similarly, our selection of
men's apparel is limited to staple, non-fashion items that women frequently
purchase for the men in their families and that are most commonly sought by men
within our target customer base. We believe that our focus on basic apparel
limits our exposure to risks associated with changing fashion trends.

      Our hardlines merchandise also consists primarily of products that are
most frequently purchased by women, such as health and beauty care products,
toys, stationery, household commodities, housewares, photo, gift wrap and
holiday decorations. We concentrate our hardware offerings on basic home repair
and maintenance items, many of which are purchased by women. Although we sell a
number of hardware items and automotive supplies that are more commonly
purchased by men, our offerings of these products are more limited than those of
other large discount retailers.

      Our home lines, which also consist primarily of products that are
purchased by women, include a "Crafts and More" department. The crafts
department has become a destination shop for Ames customers, and accounted for
approximately 3.4% of our Fiscal 2001 net sales.

      In certain of our markets, we are able to customize or localize our
merchandising. We tailor our selection of discount products and customize each
store based on its demographics and purchasing patterns of our diverse customer
base. In our stores located in college towns, we offer a larger assortment of
the items most frequently desired by students for their dormitory rooms, as well
as stationery supplies, jeans, sweatshirts, athletic apparel, and similar
products. In our stores located in resort or vacation communities we feature
broader selections of such seasonal items as beach and camping supplies, and we
continue to stock those items throughout the duration of the related vacation
season. This micro-marketing strategy drives customer traffic to those stores
and develops and improves the loyalty of each store's customer base.

      In addition to offering a merchandise selection that is specifically
tailored to the needs and preferences of our target customers, we strive to make
each customer's shopping experience pleasant and convenient. We offer an
extensive layaway program that accounted for approximately 4.4% of our Fiscal
2001 net sales. We have a fully staffed customer service desk at a location away
from the most heavily trafficked areas in the store to afford customers greater
privacy. We also implemented an "A+ Customer Service Program" which encourages
our store personnel to enhance customer satisfaction.



Marketing

      We use a "high/low" promotional pricing strategy to attract customers to
our stores by offering greater discounts on selected items or categories of
merchandise while maintaining our regular discount prices on all other
merchandise. The "high/low" strategy also provides us greater control over
margins and inventory levels by allowing us to quickly adjust the number and mix
of deeply discounted items and increase or decrease our average pricing
discount. We are also able to tailor our selection of more heavily discounted
products to customer demographics.

     Our marketing theme, "Bargains by the Bagful(R)," is designed to emphasize
our value pricing. We support the "Bargains by the Bagful(R)" theme through
several promotional programs, including "Special Buy" and "55Gold(R) Savings"
programs, as well as periodic event sales:

o     Our "Special Buy" program  allows us to offer  selected items of
      recognizable  brand name and other quality  merchandise to consumers at
      deep discounts,  thereby providing the customer with readily  recognizable
      values.  "Special Buy" items are generally  not actively  advertised.
      Instead,  we use special  signage and fixtures to make  "Special  Buy"
      merchandise easily  recognizable  to customers,  who are often drawn to
      our stores as a result of their desire to discover the latest
      "Special  Buy"  offerings.  We are able to offer these deep  discounts
      because of our ability to react quickly to buying opportunities  for
      closeout and end-of-run  products that are popular with our customers.
      Apparel comprises the majority of the merchandise offered through our
      "Special Buy" program.  The Company has further extended the
      "Special Buy" program to other Homeline and Hardline merchandise
      categories.

o     Our "55Gold(R) Savings" program provides a 10% discount on all
      merchandise, including sale and "Special Buy" items, for consumers aged
      fifty-five and older who present a "55Gold(R) Savings" card when
      shopping on Tuesdays. Since its inception in late 1994, on average,
      Tuesday has moved from being the lowest to the highest selling day in
      the week. During Fiscal 2001, the "55Gold(R) Savings" program generated
      sales of approximately $347 million. The number of active cardholders
      is currently approximately 2.3 million.

o     Our periodic "event" sales are heavily advertised, vendor-supported
      promotions of selected categories of merchandise as well as promotions
      that are intended to capitalize on seasonal shopping trends. Examples
      include our "Baby Sale," "Housewares Spectacular," "Patio Plaza," "Shoe
      Sale" and "Underwear Fair." Our most successful special sale promotions
      include the "Amazing March Sale," the October "Home Sale" and the
      November "Ames Biggest Toy Sale," which is designed to attract
      Christmas shoppers. Because of the substantial increase in unit volume
      generated by these "event" sales, they are supported by many of our
      major vendors either through gross margin allowances or cooperative
      advertising.

     We reinforce Ames's "Bargains by the Bagful(R)" theme through extensive use
of weekly full-color newspaper circulars. We distributed fifty-two circulars in
Fiscal 2001, with an average weekly circulation to 15.8 million households.
These circulars generated approximately 41% of our net sales in Fiscal 2001.

     During Fiscal 2001, for certain specific merchandise categories, the
Company has increased its "Everyday Low Price" strategy initiatives, so that
these categories are no longer part of the "high/low" pricing strategy.

Store Layout and Design

      Ames stores, which range from 26,736 to 77,506 square feet of selling
space and average approximately 53,000 square feet of selling space, are smaller
and, we believe, more customer friendly than those of most competing big box
retailers, particularly the national discount store chains. Their smaller size
appeals to Ames's target customer base of working mothers and senior citizens,
who prefer an easy-to-shop, convenient store environment. The prototype Ames
store features an open floor plan and wide aisles that allow customers to see
the entire store at a glance. Bright, attractive signage and "soft" corners
highlight key departments and make finding the right department easy. The home
lines department, our largest merchandise category, typically spans the back
wall of the store, with promotional pallet and bin displays bordering the main
aisle. Promotional items are placed throughout the store near similar
merchandise.


Store Locations

      We currently operate 333 on-going stores located in the Northeast, Midwest
and Mid-Atlantic regions. The following table sets forth, as of March 31, 2002,
the locations of our existing Ames stores:

                 Number of Stores
                ------------------

Pennsylvania                           68
New York                               86
Ohio                                   12
Massachusetts                          34
Maryland                               21
Maine                                  20
Connecticut                            22
New Hampshire                          19
New Jersey                             15
Virginia                                6
West Virginia                           6
Vermont                                12
Rhode Island                            7
Delaware                                4
District of Columbia                    1
                                        -
                       Total:          333
                                       ===


Purchasing

      We buy merchandise from more than 3,000 vendors, approximately 83% of whom
are located in the United States. Merchandise is purchased centrally for all
stores by buyers who are based at Ames headquarters. No single supplier
accounted for more than 4% of our purchases in Fiscal 2001. The continued
availability of merchandise is likely to depend on our ability to meet our sales
and margin plans in the coming months.

     We work  actively  with  our  vendors  to  reduce  costs  and  improve  the
efficiency  of  our  supply  chain.  Nearly  2,400  vendors  participate  in our
electronic ordering and invoicing program.

Distribution

      We operate distribution centers in Leesport, Pennsylvania; Mansfield,
Massachusetts; and Westfield, Massachusetts, which aggregate approximately 2.4
million square feet. Merchandise is shipped by vendors either directly to our
stores or to our distribution centers, which then make deliveries to the stores
using our own fleet of trucks or contract carriers.


Management Information Systems

      In Fiscal 2001, we invested approximately $3.0 million in technology and
equipment, primarily for home office administrative and store level needs.

      In Fiscal 2000, we invested approximately $26.6 million in technology and
equipment, which included an implementation of a Data Warehouse system acquired
from Retek. This system supplies the merchandising and allocation divisions with
information on our inventory, selling, and vendor performance at the individual
SKU and store level of detail, and provides new and better views of critical
information in substantially less time than before, allowing quicker and better
informed merchandising decisions.

      In Fiscal 2000, we implemented financial systems developed by Oracle
Corporation. These financial systems provide us with an integrated solution for
much of our financial information with significantly enhanced reporting and
analytical capabilities.

      We developed and implemented a target marketing tool that has enabled us
to evaluate and use customer information derived from our "55Gold(R) Savings"
program to enhance our ability to selectively market to these customer groups.
This marketing vehicle, which was fully implemented in January 2000, has enabled
us to perform direct mailings and identify customers with cross-shop marketing
opportunities.


Competition

      The retail industry is highly competitive and we expect competition to
increase in the future. We compete with many smaller stores offering a similar
range of products. Although Ames is a large regional discount retailer, we are
still considerably smaller in terms of our total number of stores, sales and
earnings than the three leading national chains: Wal-Mart, Kmart, and Target
Stores. Each of these chains, as well as other regional operators, currently
operates stores within our regional market and competes with us for customers
and potential store locations. We anticipate a further increase in competition
from these national discount store chains.

      Our merchandising focus is primarily directed to consumers who, we
believe, are underserved by the major national chains. Although this approach,
combined with our smaller store size, has enabled us to compete effectively with
these chains and operate in proximity to their stores, we remain vulnerable to
the marketing power and high level of consumer recognition of the major national
discount chains. We expect to face increased competition in the future which
could adversely affect our business, results of operations, and financial
condition.

      The efficient operation of our business is heavily dependent on our
information systems. We depend on others to maintain and periodically upgrade
many of these systems so that they can continue to support our business. The
software programs supporting many of our systems were licensed to us by
independent software developers. The inability of these developers to continue
to maintain and upgrade these information systems and software programs would
disrupt our operations if we were unable to convert to alternate systems in an
efficient and timely manner.

      Our business is dependent on continued good relations with our vendors. In
particular, we believe that we generally are able to obtain attractive pricing
and other terms from vendors because we are perceived as a desirable customer.
Our failure to maintain good relations with our vendors could increase our
exposure to shifts in market demand, which may in turn lead to improper
inventory levels and increased inventory markdown rates.


Seasonality


      Our business is seasonal in nature, with a large portion of our net sales
occurring in the second half of our fiscal year as a result of the
back-to-school and Christmas shopping seasons. Net sales are highest in the last
fiscal quarter (30% and 34% of our annual net sales in Fiscal 2001 and Fiscal
2000, respectively). The demand for working capital is heaviest in May and from
August through November, when sufficient merchandise must be purchased for the
spring, back-to-school, and Christmas seasons, respectively.


Employees

      As of March 4, 2002, we employed approximately 22,000 people.
Approximately 19,000 of our employees work in various capacities within our
stores, approximately 2,000 are employed in our distribution centers and the
balance is based at our corporate and regional offices. With the exception of
approximately 1,350 employees at our distribution centers who are covered by
collective bargaining agreements that expire at various times from December 2002
to December 2003, none of our employees are represented by a union.


Patents, Trademarks and Licenses

      The mark "Ames" is registered with the United States Patent and Trademark
Office. We consider this mark and the associated name recognition to be valuable
to our business. We have a number of other trademarks, trade names, and service
marks including "Bargains by the Bagful, (R)" "Crafts & More, (R)" and
"Pawsitively Pets. (R)" Although we consider these additional marks and licenses
to be valuable in the aggregate, none of them individually is currently
considered to have a material impact on our business.


Item 2.    Properties

      As of March 31, 2002, the Company's 333 operating stores covered a total
of approximately 21.7 million square feet. The average store size is
approximately 65,200 square feet, of which approximately 81% is selling area.

      The construction of one store, located in Monroeville, Pennsylvania, was
financed with an industrial development bond. Ames has an option to purchase
this location at nominal cost at the expiration of the lease term in May 2003.
Ames owns the building and leases the land occupied by the store in Mercerville,
New Jersey. The land and buildings for three open and two closed store locations
are owned by Ames. Ames leases the remainder of its stores with leases whose
terms expire at various times between 2002 and 2026. The leases generally have
one or more renewal options, typically permitting an extension for at least five
years. In addition, the leases generally provide for fixed annual rentals,
payment of certain taxes, insurance, and other charges, and additional rentals
based on a percentage of sales in excess of certain fixed amounts. Except for
vendor-owned greeting card equipment and leased shoe department equipment, Ames
owns the fixtures and equipment in its other stores, some of which is subject to
various financing arrangements.

      Ames warehouse and distribution facilities in Leesport, Pennsylvania and
Mansfield, Massachusetts are owned by the Company and occupy approximately 1.7
million square feet in the aggregate. The warehouse and distribution facility in
Westfield, Massachusetts is a leased property that comprises approximately
649,000 square feet. Ames leases approximately 386,000 square feet of space in
Rochester, New York under a lease expiring on December 31, 2007, with two
ten-year renewal options. This location has been subleased to an unaffiliated
tenant for the remainder of the lease term.

      Ames owns and occupies its 225,000 square foot corporate office in Rocky
Hill, Connecticut. Ames has a lease for 11,000 square feet for its
plan-o-gramming facility in Rocky Hill, which expires in November 2006, and a
lease, which expires in April 2006, for a 33,000 square foot in-house
photography studio and print shop in Rocky Hill.


Item 3.    Legal Proceedings

     On December  15, 1998,  a class  action  complaint  was filed in the United
States District Court for the District of Connecticut entitled Edmond Smoot, III
and  Yousef  S.A.  Syed,  Individually  and on  Behalf of All  Others  Similarly
Situated v. Ames Department  Stores,  Inc. (the "Smoot  Action").  The Complaint
alleged that Ames violated the Fair Labor  Standards Act and state laws in those
states in which it does  business  by  failing  to pay  Smoot,  Syed,  and other
similarly  situated  Assistant managers time and one-half their regular rates of
pay for hours worked in excess of 40 hours a week. The  allegations  are similar
to a previous class action lawsuit entitled Colleen Austin, on Behalf of herself
and others Similarly Situated v. Ames Department Stores, Inc. et al, as reported
in the  Company's  Form 10-K for the fiscal  year ended  January 29,  2000.  The
Company  settled  the  Austin  class  action  lawsuit  as well as other  similar
lawsuits  that were filed in 1995 and 1996,  as reported in the  Company's  Form
10-K for the fiscal year ended January 29, 2000.  The class the current  lawsuit
attempts to  represent  is those  Assistant  managers  who did not opt-in to the
settlement of the Austin complaint, those who opted in and continued to work for
Ames,  and those who worked for Ames as an  Assistant  manager  after August 19,
1998, but who are not otherwise covered by the previous  categories.  Ames filed
an answer in the case in which it denied  liability  on the basis that Smoot and
Syed and other similarly  situated Assistant managers were exempt employees and,
thus,  not  entitled to  overtime  pay. On  November  14,  2000,  the Court gave
preliminary  approval to a class action  settlement that had been reached by the
parties. Notice of the settlement and Fairness Hearing for final approval of the
settlement  was mailed to class members.  No objections to the  settlement  were
filed by class members. On April 30, 2001, the parties appeared before the Court
for the  Fairness  Hearings  and on June  22,  2001,  the  Court  issued a Final
Approval of  Settlement  approving  the terms of the  parties'  settlement  (the
"Settlement").  The  Settlement  requires an  evidentiary  hearing on the proper
classification  of  the  Assistant  manager  position.  The  total  cost  of the
Settlement  to the  Company  will  depend  upon the  outcome of the  evidentiary
hearing.  In the event the Company prevails,  the total cost to the Company will
be $1 million dollars,  inclusive of attorney's fees. If the plaintiffs  prevail
at the evidentiary  hearing, the cost to the Company will be $3 million dollars,
exclusive of attorney's fees.

      As a result of the voluntary filing of the Chapter 11 cases, the Smoot
Action is subject to the automatic stay provisions as set forth at Section
362(a) of the Bankruptcy Code. By motion dated December 4, 2001 (the "Motion"),
the plaintiffs sought relief from the automatic stay provisions in order to
continue the litigation. The parties have recently entered into an agreement
which, subject to the approval of the Bankruptcy Court, provides that the Motion
is withdrawn and the automatic stay modified only to the extent of permitting
the parties to resolve the remaining issues pursuant to the terms of the
Settlement. The parties further consent to removal of the Smoot Action to the
Southern District of New York and to referring it thereafter to the Bankruptcy
Court. If the agreement is approved by the Bankruptcy Court, a date for the
evidentiary hearing will be scheduled. Whatever the outcome of that hearing, the
plaintiffs will have a claim which can only be paid in accordance with a
confirmed plan or reorganization.


  Other Matters

      Ames is party to various claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of its business. All matters
which arose prior to August 20, 2001 are subject to the automatic stay.


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

      There were no matters submitted during the fourth quarter of Fiscal 2001
to a vote of security holders, through the solicitation of proxies or otherwise.
<PAGE>


                                     PART II


Item 5. Market for the Registrant's Common Stock and Related Matters Concerning
        Security Holders

       Prior to the voluntary filing of the Chapter 11 cases on August 20, 2001,
our common stock traded on the NASDAQ National Market System under the symbol
"AMES." Subsequent to the Chapter 11 filing, our stock trades "over the
counter" under the symbol "AMESQ". The following table provides the high and low
sale prices for our common stock as reported on NASDAQ and over the counter for
the fiscal quarterly periods indicated below. The Company was delisted from the
NASDAQ National Market System on September 18, 2001 in the wake of our
bankruptcy filing. These prices do not include retail brokerage markups,
markdowns or commissions.
<TABLE>
<S>                                        <C>                             <C>

                                                   Fiscal 2001                     Fiscal 2000
                                            -----------------------        ----------------------
                                                  Low         High               Low        High
                                                ------       ------           -------     -------
      1st Quarter..........................     $ 1.53       $ 6.03           $ 13.63     $ 29.38
      2nd Quarter..........................        .78         3.13              6.25       19.06
      3rd Quarter..........................       1.02          .10              3.63        8.38
      4th Quarter..........................        .11          .44               .44        6.34
</TABLE>


      On March 28, 2002, there were approximately 6,031 holders of record of
Ames common stock. On that date, the reported closing sale price of our common
stock was $.17.

      We paid no quarterly dividends to the holders of our common stock during
these periods. Dividends cannot be declared under the terms of our DIP
Facilities.



Item 6.    Selected Financial Data

      The following selected financial data of Ames should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as the Consolidated Financial Statements and
related Notes appearing elsewhere in this annual report on Form 10-K.

<TABLE>

<S>                                    <C>              <C>             <C>              <C>               <C>



                                                                 (In millions, except per share data)

                                        --------------- ---------------- --------------- ----------------- ---------------
                                        Fiscal Year      Fiscal Year      Fiscal Year        Fiscal Year      Fiscal Year
                                           Ended            Ended            Ended              Ended             Ended
                                        Feb. 2, 2002     Feb. 3, 2001     Jan. 29, 2000     Jan. 30, 1999    Jan. 31, 1998
                                        ------------    -------------    --------------- ----------------- ---------------
                                                              (b)                                                 (b)
      Net sales (a).............            $3,254.0         $3,953.6        $3,836.9          $2,498.6        $2,225.5
      Net (loss) income.........             (813.1)(c)       (240.6)(d)         17.1(e)           33.8(f)         34.5(g)
      Basic net  (loss)  income
      per common share.........              (27.65)(c)        (8.19)(d)         0.62(e)           1.47(f)         1.59(g)
      Diluted net (loss)income
      per common share.........              (27.65)(c)        (8.19)(d)         0.62(e)           1.40(f)         1.46(g)
      Total assets.............              1,083.7          1,995.7         1,975.3           1,483.4           610.0
      Long-term debt and capital
      leases..................                  80.8(h)         771.4           602.2             287.7            35.7
</TABLE>
------------------------------
(a) Net sales for fiscal years ended February 2, 2002, February 3, 2001 and
    January 29, 2000 reflect the change in accounting for layaway sales adopted
    pursuant to SAB No. 101 (see Note 1 to the Consolidated Financial
    Statements) and net sales for fiscal years ended January 30, 1999 and
    January 31, 1998 reflect adjustments due to the effect of recording
    promotional coupons issued by Ames as markdowns, which conforms to the
    current treatment for coupon accounting.
(b) Fiscal years ended February 3, 2001 and January 31, 1998 consisted of
    fifty-three weeks; all other years presented consisted of fifty-two weeks.
(c) Includes charges for $177.1 million for the costs associated with the
    closing of one hundred and nineteen stores, including a charge for
    reorganization of $28.7 million and $33.7 million for inventory impairment,
    offset by $100 million of prior store closing reserves recaptured in the
    profit and loss statement. Also includes $429.7 million of deferred tax
    benefits written off.
(d) Includes charges of $139.3 million for the costs associated with the closing
    of thirty-two stores, including a $9.5 million charge for inventory
    impairment, also includes an extraordinary loss, net of tax, of $7.0 million
    for the early extinguishment of debt.
(e) Includes cumulative effect adjustment for change in accounting for layaway
    sales of $1.1 million, net of $0.6 million tax benefit, and the recognition
    of approximately $38 million in tax benefits.
(f) Includes charges of $8.2 million for the costs associated with the closing
    of seven stores.
(g) Includes charges of $1.6 million for the costs associated with the closing
    of two stores.
(h) Amounts previously recorded as long term debt are currently classified as
    current portion of long term debt or liabilities subject to compromise.


Item 7. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

      The Ames fiscal year ends on the Saturday nearest January 31st. Our fiscal
years ended February 2, 2002 and January 29, 2000, which we refer to as "Fiscal
2001" and "Fiscal 1999," respectively, consisted of fifty-two weeks. Our fiscal
year ended February 3, 2001, which we refer to as "Fiscal 2000," consisted of
fifty-three weeks. "Fiscal 2002" will end on February 1, 2003.

      The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related Notes appearing elsewhere in
this annual report on Form 10-K.

Chapter 11 Filing

      On August 20, 2001, the Company and each of its four subsidiaries
(collectively, the "Debtors") filed voluntary petitions under Chapter 11 of the
U.S. Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"). The
Chapter 11 cases Nos. 01-42217 (REG) through 01-42221 (REG) (the "Chapter 11
Cases") have been consolidated for the purpose of joint administration. As of
August 20, 2001, the Debtors began operating their business as
debtors-in-possession under Chapter 11 of the Bankruptcy Code and are subject to
the jurisdiction of the Bankruptcy Court.

      As a result of these filings, actions to collect pre-petition indebtedness
are stayed and other contractual obligations against the Debtors may not be
enforceable. In addition, under the Bankruptcy Code, the Debtors may assume or
reject executory contracts, including real estate leases, employment contracts,
personal property leases, service contracts and other unexpired executory
pre-petition contracts, subject to Bankruptcy Court approval. Parties affected
by these rejections may file claims with the Bankruptcy Court in accordance with
the Bankruptcy Code. The Debtors cannot presently determine the ultimate
liability that may result from the filing of claims for all contracts that may
be rejected. Estimates have been made, however, for certain contracts to be
rejected and are included in the liabilities subject to compromise.
Substantially all pre-petition liabilities are subject to settlement under a
plan of reorganization to be voted on by the creditors and equity holders and
approved by the Bankruptcy Court. Although the Debtors expect to file a
reorganization plan or plans that provide for emergence from bankruptcy sometime
during Fiscal 2002, there can be no assurance that a reorganization plan or
plans will be proposed by the Debtors or confirmed by the Bankruptcy Court or
that any such plan will be consummated.



      As provided by the Bankruptcy Code, the Debtors have the exclusive right
to submit a plan of reorganization for 120 days from the date of the filing of
the voluntary petitions. On December 5, 2001, the Company filed a motion with
the Bankruptcy Court to extend the period of exclusivity and on December 18,
2001, the court granted an extension of the exclusivity period to May 31, 2002.
If the period of exclusivity is not further extended and the Debtors fail to
file a plan of reorganization during such period, or if such plan is not
accepted by the required number of creditors and equity holders within the
required period, any party in interest may subsequently file its own plan of
reorganization for the Debtors. A plan of reorganization must be confirmed by
the Bankruptcy Court, upon certain findings being made by the Bankruptcy Court
which are required by the Bankruptcy Code. The Bankruptcy Court may confirm a
plan of reorganization notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity holders if certain requirements of the
Bankruptcy Code are met. As part of its restructuring, the Company anticipates
that all existing equity will be cancelled. The Chapter 11 filing, the
uncertainty regarding the eventual outcome of the reorganization case and the
effect of other unknown adverse factors could threaten the Company's existence
as a going concern.



      At the first day hearing held on August 20, 2001 before Judge Robert E.
Gerber, the Bankruptcy Court entered its first day orders granting authority to
the Debtors to, among other things, pay pre-petition and post-petition employee
wages, salaries, benefits and other employee obligations, pay certain
administrative fees and insurance related obligations and honor customer service
programs, including warranties, returns, layaways and gift certificates.



      Schedules have been filed with the Bankruptcy Court setting forth the
assets and liabilities of the Debtors as of the filing date as shown by the
Company's accounting records. The Bankruptcy Court established a March 25, 2002
bar date for claims in the Company's Chapter 11 Cases. Differences between
amounts shown by the Company and claims filed by creditors will be investigated
and, if necessary, unresolved disputes will be determined by the Bankruptcy
Court. The ultimate settlement terms for such liabilities are subject to a plan
of reorganization, and accordingly, are not presently determinable.


Basis of Presentation

      The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business and do not reflect any adjustments that might result if the Company is
unable to continue as a going concern. The filing of the voluntary Chapter 11
petitions referred to above, losses from operations and negative cash flow from
operations raise doubt about the Company's ability to continue as a going
concern. The appropriateness of using a going concern basis is dependent upon,
among other things, confirmation of a plan or plans of reorganization, future
profitable operations and the ability to generate cash from operations and
financing sources sufficient to meet obligations. As a result of the filing of
the Chapter 11 cases and related circumstances, realization of assets and
liquidation of liabilities is subject to significant uncertainty. While under
the protection of Chapter 11, the Debtors may sell or otherwise dispose of
assets, and liquidate or settle liabilities for amounts other than those
reflected in the consolidated financial statements. Further, a plan or plans of
reorganization could materially change the amounts reported in the accompanying
consolidated financial statements. The consolidated financial statements do not
include any adjustments relating to recoverability of the value of recorded
asset amounts or the amount and classification of liabilities that might be
necessary as a consequence of a plan of reorganization. The Company anticipates
significant adjustments to the consolidated financial statements as a result of
applying the provisions of Statement of Position 90-7 "Financial Reporting by
entities in Reorganization Under the Bankruptcy Code" during the proceedings. At
this time, it is not possible to predict the outcome of the Chapter 11 cases or
their effect on the Company's business, its financial position, results of
operations or cash flows. If it is determined that the liabilities subject to
compromise in the Chapter 11 cases exceed the fair value of the assets,
unsecured claims may be satisfied at less than 100% of their face value. The
Company has previously indicated its belief that all existing equity will be
cancelled as part of the reorganization. The Company believes the DIP Facilities
(as defined below in "Liquidity and Capital Resources"), should provide the
Company with adequate liquidity to conduct its business while it prepares a
reorganization plan. However, the Company's liquidity, capital resources,
results of operations and ability to continue as a going concern are subject to
known and unknown risks and uncertainties, including those set forth under
"Forward-looking Statements."

Results of Operations

Fiscal 2001 compared to Fiscal 2000

      The consolidated results of operations for Fiscal 2001 were adversely
affected by the Company's bankruptcy filing in August and deteriorating
liquidity position prior to that time which resulted in reduced merchandise
shipments from its suppliers.

<TABLE>
<S>                                                                      <C>                <C>                <C>
                                                                            Fiscal              Fiscal          Percentage
                                                                             2001                2000             Change
                                                                         --------------     ---------------    --------------
     (In millions)

     Total Net Sales                                                          $3,254.0            $3,953.6           (17.7%)
     Leased department and other income                                           37.8                46.4           (18.5%)
                                                                         --------------     ---------------
     Total Revenue                                                             3,291.8             4,000.0
     Costs and expenses:
     Cost of merchandise sold                                                  2,438.5             2,932.2           (16.8%)
     Selling, general and administrative expenses                                937.4             1,058.7           (11.5%)
     Depreciation and amortization expense, net                                   79.4                79.7                0%
     Interest and debt expense, net                                               76.2                88.0           (13.4%)
     Closed stores charge, net                                                   114.7               129.8
     Reorganization expenses                                                      28.7                 ---
                                                                         --------------     ---------------
     Loss before income taxes                                                  (383.1)             (288.4)
     Income tax (provision) benefit                                            (430.0)                54.8
                                                                         --------------     ---------------
     Net Loss before extraordinary item                                        (813.1)             (233.6)
     Extraordinary Item                                                            ---               (7.0)
                                                                         --------------     ---------------
     Net Loss                                                                 ($813.1)            ($240.6)
                                                                         ==============     ===============
</TABLE>


      Net Sales and Leased Department and other income decreased 17.7% and
18.5%, respectively from fiscal 2000 due to the closing of 32 stores in March
and 47 stores in October as well as a 12.5% decrease in same store sales.

      The gross margin decreased due to the sales decreases previously noted and
decline in gross margin rate. Gross margin as a percentage of sales decreased
from 25.8% to 25.1% primarily as a result of increased markdowns and merchandise
liquidation sales at closing stores.

      Selling general and administrative expenses decreased 11.5% from Fiscal
2000 primarily as a result of closing stores and the rejection of certain of
those store leases as well as expense control efforts. Selling, general and
administrative expenses as a percentage of revenue increased to 28.5% from 26.5%
primarily as a result of decreased sales.

      Interest expense decreased 13.4% from Fiscal 2000 primarily because we
ceased accruing interest charges on the Ames 10% Senior Notes and Hills 12 1/2%
Senior Notes as a result of our bankruptcy filing.

      The $114.7 million store closing charge in Fiscal 2001 and $129.8 million
in Fiscal 2001 are related to previously announced store closings as described
below. We also recorded a charge of $28.7 million in Fiscal 2001 to write off
deferred financing costs and estimated expenses associated with the Company's
reorganization in bankruptcy.

      We recorded a consolidated tax provision of $430.0 million to fully
reserve for all previously recorded deferred tax assets in Fiscal 2001 as
compared to a tax benefit of $54.8 million in Fiscal 2000. See note 9 to the
Consolidated Financial Statements for additional information.


Fiscal 2000 Compared to Fiscal 1999

      The following table illustrates the consolidated results of operations for
the fifty-three weeks ended February 3, 2001, as compared to the consolidated
results of operations for the fifty-two weeks ended January 29, 2000.
<TABLE>
<S>                                                                       <C>                <C>                <C>


                                                                             Fiscal             Fiscal           Percentage
                                                                              2000               1999              Change
                                                                         ---------------    ----------------    --------------
     (In millions)

     Total Net Sales                                                           $3,953.6            $3,836.8              3.0%
     Leased department and other income                                            46.4                41.7             11.3%
                                                                         ---------------    ----------------
     Total Revenue                                                              4,000.0             3,878.5              3.1%
     Costs and expenses:
     Cost of merchandise sold                                                   2,932.2             2,715.4              8.0%
     Selling, general and administrative expenses                               1,058.7             1,068.2            (1.0%)
     Depreciation and amortization expense, net                                    79.7                65.5             21.7%
     Interest and debt expense, net                                                88.0                60.8             44.7%
     Closed stores charge                                                         129.8                 ---
                                                                         ---------------    ----------------
     Loss before income taxes                                                   (288.4)              (31.4)
     Income tax  benefit                                                           54.8                49.6
                                                                         ---------------    ----------------
     (Loss) income before cumulative effect adjustment                          (233.6)                18.2
     Cumulative effect adjustment, net of tax                                       ---               (1.1)
                                                                         ---------------    ----------------
     Net income (loss)                                                          (233.6)                17.1
     Extraordinary item, net of tax                                               (7.0)                 ---
                                                                         ---------------    ----------------
     Net (loss) income                                                         ($240.6)               $17.1
                                                                         ===============    ================
</TABLE>


      The consolidated results of operations for Fiscal 1999 include the results
of the former Hills stores during the period they were operated by professional
liquidators under an agency agreement.

      During Fiscal 2000, beginning in early spring, our business was affected
by a number of economic conditions. With higher gasoline prices leading the way,
our customers' disposable income levels were reduced, affecting their purchasing
power. This coupled with a cold and wet spring, resulted in lower than forecast
sales. A cool summer, continued high gasoline prices, and an economic slowdown
later in the year further affected our sales.

      As the economy continued to slow in the third quarter, we reacted
decisively with a focus on reducing inventories for the fall and Holiday season,
curtailing selling, general and administrative expenses, limiting capital
expenditures, and reviewing our store base to ensure that we closed all stores
whose closure would result in a net cash flow improvement.

      The increases in net sales and leased department and other income in
Fiscal 2000 compared to Fiscal 1999 are primarily attributable to the net
addition of twenty-four new stores during the year, partially offset by a 2.1%
decrease in same store sales.

      Gross margin decreased $100.0 million in Fiscal 2000 compared to Fiscal
1999. Gross margin as a percentage of sales decreased from 29.2% in Fiscal 1999
to 25.8% in Fiscal 2000. The decrease is primarily attributable to high
markdowns and a reduction in the vendor allowances received in fiscal 2000 when
compared to Fiscal 1999 when we opened 163 new stores. We incurred higher
markdowns in 2000 than in 1999 resulting from significantly higher seasonal
clearance activities in the first half of 2000.

      The decrease in selling, general and administrative expenses during Fiscal
2000 compared to Fiscal 1999 was primarily a result of a decrease in pre-opening
expenses partially offset by a full year of operating expenses in the converted
former Hills stores. Selling, general, and administrative expenses decreased as
a percentage of sales from 27.8% in Fiscal 1999 to 26.8% in Fiscal 2000.

      The increase in depreciation and amortization expense during Fiscal 2000
compared to Fiscal 1999 resulted primarily from a full year's depreciation and
amortization of the fixed assets and beneficial lease rights acquired from Hills
compared to less than a full year's depreciation and amortization in Fiscal
1999.

      The increase in interest expense in Fiscal 2000 is mainly attributable to
a higher level of borrowings under our revolving credit facility as well as a
full year of interest expense associated with the Ames 10% Senior Notes issued
in April 1999.

      The $129.8 million store closing charge is related to the thirty-two store
closings announced in November 2000 and completed in March 2001. We recorded an
extraordinary charge of $7.0 million in Fiscal 2000 for the write-off of
deferred financing costs and other exit expenses associated with the early
termination of our prior revolving credit facility.

     We recorded a consolidation income tax benefit of $54.8 million in Fiscal
2000 compared to $49.6 million in Fiscal 1999. The increase is primarily a
result of our Fiscal 2000 operating loss partially offset by an increase in the
valuation allowance recorded against certain deferred tax assets. See Note 9 to
the consolidated financial statements for additional information.

Store Closing Charges

      On August 16, 2001 the Company announced that it would close 47 store
locations. The stores began liquidation sales immediately and closed in October
2001. In connection with these closings, the Company recorded a $75.9 million
charge in the third quarter. The Company also recorded a $13.3 million charge to
cost of merchandise sold for the impairment of inventory value in these stores.

      As a result of the Chapter 11 filing, the Company rejected many of the
real estate leases for the stores closed prior to August 20, 2001. The Company's
estimate for the rejection claim associated with these leases was well below the
amounts previously reserved for these lease obligations. Accordingly, the
Company recorded a reduction of $100 million to its closed store reserve during
the quarter ended November 3, 2001.

      On November 14, 2001, the Company announced that it would close 16 store
locations. The stores began liquidation sales immediately and closed in January
2002. On November 27, 2001, the Company announced that it would close its
distribution center in Columbus, Ohio. The distribution center closed in March
2002. The Company recorded a charge in November 2001 of $53 million related to
these closings. The Company also recorded a $6.2 million charge to cost of
merchandise sold for the impairment of inventory value in these stores and the
Columbus distribution center.

      On December 5, 2001, the Company announced that it would close 54 store
locations. The stores began liquidation sales in December 2001 and closed in
March 2002. The Company recorded a charge in December 2001 of $85.8 million
related to these closings. A charge of $14.2 million for inventory impairment in
the 54 closing stores is included in cost of merchandise sold.

      In November 2000, the Company announced the planned closing of thirty-two
stores. Liquidation sales at these stores began December 31, 2000. All thirty
two stores were closed by the end of March 2001. We recorded a $139.3 million
expense in Fiscal 2000 in connection with these closings, including $9.5 million
for inventory write-offs recorded in cost of merchandise sold.

      The following items represent the major components of the charges recorded
in connection with the store closings:
<TABLE>
<S>                                                          <C>                   <C>

                                                                             Charge
                                                             --------------------------------------
                     (in thousands)
                                                                Fiscal 2001        Fiscal 2000
                                                             ------------------ -------------------

                     Lease rejection costs                             $70,728             $88,815
                     Net fixed asset writedown                         131,731              29,307
                     Other occupancy costs                               4,327               9,101
                     Severance costs                                     7,946               2,583
                     Reduction in closed store reserve                (100,000)                ---
                                                             ------------------ -------------------
                     Store closing charge                              114,732             129,806
                     Inventory writedown                                33,666               9,453
                                                             ------------------ -------------------
                     Total charges                                    $148,398            $139,259
                                                             ================== ===================
</TABLE>


Liquidity and Capital Resources

      The Company's liquidity position deteriorated in the second and third
quarters primarily due to a continuation of declining sales that resulted in a
significant deficiency in cash necessary for operating activities. As described
above under "Chapter 11 Filing," on August 20, 2001, the Company filed a
voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. The following table reflects certain balance sheet account balances as of
the end of the current year fiscal year compared to the same account balances as
of the beginning of the current fiscal year.

<TABLE>
<S>                                                     <C>                 <C>                   <C>


                                                                                                                       Percentage
    (In thousands)                                      February 2, 2002      February 3, 2001        Change             Change
                                                       ------------------    ------------------    ------------      ---------------
    Cash and cash equivalents                                    29,105                49,761        (20,656)             (41.5)%
    Merchandise inventories                                     532,407               744,132       (211,725)             (28.5)%
    Net fixed assets                                            343,547               547,999       (204,452)             (37.3)%
    Trade accounts payable                                       67,458               345,915       (278,457)             (80.5)%
    Store closing reserves                                       62,928               179,365       (116,437)             (64.9)%
    Accrued expenses                                             70,172               114,205        (44,033)             (38.6)%
    Capital lease and financing obligations                      80,816               165,365        (84,549)             (51.1)%
    Liabilities subject to compromise                           748,731                   ---         748,731                 N/A
</TABLE>

      Our cash position decreased $20.7 million during the year primarily as a
result of closing stores and the decrease in sales.

      The decrease in merchandise inventories is primarily attributable to
liquidation of inventory in the closing stores.

      The decrease in net fixed assets is primarily attributable to the write
off of the fixed assets in the closing stores, totaling $149.2 million, and
$79.9 million in depreciation, partially offset by $25.2 million in capital
expenditures.

      Trade accounts payable decreased 80.5% from the prior year balance
primarily as a result of the reduction in inventory due to closing stores, the
reclassification of some pre-bankruptcy payables to liabilities subject to
compromise and the fact that extended payment terms at the close of Fiscal 2000
for seasonal merchandise were not received in Fiscal 2001.

      Store closing reserves decreased as a result of write offs related to
closing stores and the reclassification of $108.1 million in estimated lease
rejection costs to liabilities subject to compromise.

      Accrued expenses decreased primarily as a result of closing stores,
expense control effort and the reclassification of $41.2 million to liabilities
subject to compromise.

      Capital lease and financing obligations decreased due to the write off of
capital leases associated with closing stores.

      Liabilities subject to compromise consists of the estimated obligations of
the Company as of the August 20, 2001 Chapter 11 filing date (see Note 5 to the
consolidated financial statements for further details).

      Our principal sources of liquidity are our Debtor-In-Possession (DIP)
credit agreements, cash from operations, and cash on hand.

DIP Facilities

      On August 20, 2001, the Company entered into a $700 million
Debtor-In-Possession Credit Agreement, dated as of August 20, 2001 (the "GECC
DIP Facility"), with General Electric Capital Corporation ("GE Capital"). The
Company also entered into a $55 million Credit Agreement, dated as of August 20,
2001 (the "Kimco DIP Facility" and, together with the GECC DIP Facility, the
"DIP Facilities"), with Kimco Funding, LLC ("Kimco"). The GECC DIP Facility
consists of a $575 million Tranche A Revolver (including a Swing Line Commitment
of $30 million as a subfacility thereof), a $50 million fully drawn Tranche B
Revolver and a $75 million Term Loan. The GECC DIP Facility, as amended, has a
sublimit of $75 million for the issuance of letters of credit. Amounts borrowed
under the Tranche A and Tranche B Revolvers bear interest at the Index Rate plus
1.50% per annum or, at the election of the Company, the applicable LIBOR rate
plus 2.75% per annum. Amounts borrowed under the Term Loan bear interest at the
Index Rate plus 5.25% per annum. The Company must also pay an unused commitment
fee equal to 0.35% per annum multiplied by the average unused daily balance of
the Revolving Loan and the Swing Line Loan. The GECC DIP Facility terminates on
the earliest of, among other dates, August 20, 2003 and the effective date of a
plan of reorganization in the Chapter 11 Cases. Proceeds from the GECC DIP
Facility were used to repay in full the Prior Credit Facility (as defined
below), and will be used to pay such transaction costs and expenses related to
the Chapter 11 Cases, to provide working capital and for other general corporate
purposes.

      The GECC DIP Facility replaced the Company's former credit facility under
the Credit Agreement, dated as of March 2, 2001 (the "Prior Credit Facility"),
with GE Capital, as agent, and a syndicate of other banks and financial
institutions. The Prior Credit Facility provided for a secured revolving credit
facility of up to $750 million, with a sublimit of $50 million for letters of
credit, and a secured term facility for $50 million. On September 25, 2001, the
Bankruptcy Court issued a final order authorizing the Company to use the
proceeds of the GECC DIP Facility to repay the Company's outstanding
indebtedness under the Prior Credit Facility.

      The lenders under the GECC DIP Facility have a super-priority claim
against the estates of the Debtors (except with respect to the Company's right,
title and interest in all real property leases in which the lenders under the
Kimco DIP Facility have a first priority lien).

      The Kimco DIP Facility consists of a $55 million term loan. Amounts
borrowed under the Kimco DIP Facility bear interest at the Index Rate plus 6.00%
per annum. The Company must also pay an additional fee on or prior to July 31,
2002 and each anniversary date thereof occurring on or prior to the maturity
date equal to 0.33% multiplied by the aggregate principal amount of loans
outstanding on such date. The Kimco DIP Facility terminates on the earliest of,
among other dates, August 20, 2003 and the effective date of a plan of
reorganization in the Chapter 11 Cases. Proceeds from the Kimco DIP Facility
will be used for the financing of (i) capital expenditures relating to the
Company's real property assets, (ii) its operating expenses and (iii)
intercompany loans to Ames affiliates.

      The lenders under the Kimco DIP Facility have a priority claim against the
estates of the Debtors, which ranks junior to the super-priority claims of the
lenders under the GECC DIP Facility (except with respect to the Company's right,
title and interest in all real property leases in which the lenders under the
Kimco DIP Facility have a first priority lien).

      As of February 2, 2002, borrowings of $287.1 million were outstanding
under the GECC DIP Facility. These borrowings are included in the current
portion of long-term debt in the accompanying consolidated condensed balance
sheet as of February 2, 2002. In addition, $35.0 million and $10.8 million of
standby and trade letters of credit, respectively, were outstanding under the
GECC DIP Facility. The weighted average interest rate on the borrowings under
revolving credit agreements for Fiscal 2001 was 8.87%. The peak borrowing level
during Fiscal 2001, was $573.4 million and occurred in the fiscal month of
May 2001.

      The GECC DIP Facility requires us to maintain a minimum ratio of earnings
before interest, taxes, depreciation and amortization ("EBITDA") to fixed
charges as defined in the DIP Facility. As of February 2, 2002 we were in
compliance with this covenant.

      On April 4, 2002, the Company and its GECC DIP Facility lenders agreed
to certain modifications of the covenants required by the terms of its GECC DIP
Facility.  The GECC DIP Facility amendments are attached as exhibits to this
report on Form 10-K.


Senior Notes and Public Offering

      On April 27, 1999, we completed the sale of $200 million of Ames 10%
Senior Notes. The net proceeds from the sale of the Ames Senior Notes,
approximately $193.4 million, were used to reduce outstanding borrowings under
our then existing bank credit facility. On May 24, 1999, we completed the public
offering of 5.1 million shares of Common Stock at a price of $38.75 per share.
The proceeds of approximately $187.3 million, net of underwriting discounts,
were used to reduce our borrowings under the then existing bank credit facility
and for general corporate purposes.

      We have not paid any cash dividends during the past five fiscal years. The
payment of cash dividends is restricted under the terms of our DIP Facilities.


Committments

      The following represents the scheduled maturities of the Company's long
term contractual obligations as of February 2, 2002:


<TABLE>
<S>                            <C>       <C>       <C>           <C>            <C>                  <C>

                                                   Payments Due By Period (in thousands)
                                                   --------------------------------------

                                Total          1 Year         2 to 3 Years         4 to 5 Years         After 5 Years
                             -----------     -----------    ---------------      ----------------     -----------------

Debt                            $342,128       $342,128               $---                  $---                   $---
Operating Leases                 664,524         59,723            112,866               109,037                382,898
Capital Leases                   123,377         12,083             21,227                20,809                 69,258
Financing Obligations             25,723          8,392             17,331                   ---                    ---
                             -----------     -----------    ---------------      ----------------     -----------------
Total                         $1,155,752       $422,326           $151,424              $129,846               $452,156

</TABLE>

     The above future minimum lease payments  summary  includes  projected lease
payments  for stores  which have been closed by the  Company but the Bankruptcy
Court had not yet approved the associated  lease  rejection claim as of February
2, 2002. These payments total $75.8 million and $46.1 million for operating
leases and capital leases respectively.

     The above  amounts  include  interest  payments  of $54.6  million  and
$5.7 million for capital leases and financing obligations,  respectively.
Additionally, the amounts above do not include  $244.1  million of Ames 10%
Senior Notes and Hills 12 1/2% Senior Notes which are classified as liabilities
subject to compromise.

     The Company does not have any off balance sheet financing or unconsolidated
special purpose entities.


Capital Expenditures

      Capital expenditures for Fiscal 2001 were $25.2 million and primarily
consisted of costs related to the opening of five new stores and maintenance of
existing stores.

      Capital expenditures for Fiscal 2000 were $127.1 million primarily for the
opening of twenty-six stores, the remodeling of twenty-three stores and other
improvements.

      Capital expenditures are expected to be approximately $18.8 million in
Fiscal 2002, primarily for maintenance of our existing stores. We expect to
finance these expenditures through cash flow from operations and borrowings
under our DIP Facilities. Land, buildings and improvements are financed
principally through long-term leases.

Seasonality

      Our business is seasonal in nature, with a large portion of our net sales
occurring in the second half of our fiscal year as a result of the
back-to-school and Christmas shopping seasons. Net sales are highest in the last
fiscal quarter (30% and 34% of our annual net sales in Fiscal 2001 and Fiscal
2000, respectively). The demand for working capital is heaviest in May and from
August through November when sufficient merchandise must be purchased for the
spring, back-to-school, and Christmas seasons, respectively.

Legal

     On December  15, 1998,  a class  action  complaint  was filed in the United
States District Court for the District of Connecticut entitled Edmond Smoot, III
and  Yousef  S.A.  Syed,  Individually  and on  Behalf of All  Others  Similarly
Situated v. Ames Department  Stores,  Inc. (the "Smoot  Action").  The Complaint
alleged that Ames violated the Fair Labor  Standards Act and state laws in those
states in which it does  business  by  failing  to pay  Smoot,  Syed,  and other
similarly  situated  Assistant managers time and one-half their regular rates of
pay for hours worked in excess of 40 hours a week. The  allegations  are similar
to a previous class action lawsuit entitled Colleen Austin, on Behalf of herself
and others Similarly Situated v. Ames Department Stores, Inc. et al, as reported
in the  Company's  Form 10-K for the fiscal  year ended  January 29,  2000.  The
Company  settled  the  Austin  class  action  lawsuit  as well as other  similar
lawsuits  that were filed in 1995 and 1996,  as reported in the  Company's  Form
10-K for the fiscal year ended January 29, 2000.  The class the current  lawsuit
attempts to  represent  is those  Assistant  managers  who did not opt-in to the
settlement of the Austin complaint, those who opted in and continued to work for
Ames,  and those who worked for Ames as an  Assistant  manager  after August 19,
1998, but who are not otherwise covered by the previous  categories.  Ames filed
an answer in the case in which it denied  liability  on the basis that Smoot and
Syed and other similarly  situated Assistant managers were exempt employees and,
thus,  not  entitled to  overtime  pay. On  November  14,  2000,  the Court gave
preliminary  approval to a class action  settlement that had been reached by the
parties. Notice of the settlement and Fairness Hearing for final approval of the
settlement  was mailed to class members.  No objections to the  settlement  were
filed by class members. On April 30, 2001, the parties appeared before the Court
for the  Fairness  Hearings  and on June  22,  2001,  the  Court  issued a Final
Approval of  Settlement  approving  the terms of the  parties'  settlement  (the
"Settlement").  The  Settlement  requires an  evidentiary  hearing on the proper
classification  of  the  Assistant  manager  position.  The  total  cost  of the
Settlement  to the  Company  will  depend  upon the  outcome of the  evidentiary
hearing.  In the event the Company prevails,  the total cost to the Company will
be $1 million dollars,  inclusive of attorney's fees. If the plaintiffs  prevail
at the evidentiary  hearing, the cost to the Company will be $3 million dollars,
exclusive of attorney's fees.

    As a result of the filing of the voluntary Chapter 11 Cases the Smoot Action
is subject to the automatic  stay  provisions as set forth at Section  362(a) of
the  Bankruptcy  Code.  By motion dated  December 4, 2001,  (the  "Motion")  the
plaintiffs sought relief from the automatic stay provisions in order to continue
the  litigation.  The parties have  recently  entered  into an agreement  which,
subject to the approval of the  Bankruptcy  Court,  provides  that the Motion is
withdrawn and the automatic  stay modified only to the extent of permitting  the
parties to resolve the remaining issues pursuant to the terms of the Settlement.
The  parties  further  consent to removal  of the Smoot  Action to the  Southern
District of New York and to referring it thereafter to the Bankruptcy  Court. If
the agreement is approved by the Bankruptcy  Court,  a date for the evidentiary
hearing will be scheduled.  Whatever the outcome of that hearing, the plaintiffs
will have a claim which can only be paid in accordance with a confirmed plan of
reorganization.

      All matters that arose prior to August 20, 2001 are subject to the
automatic stay provisions of the Bankruptcy Code.


Accounting Policies and Use of Estimates

      The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to use
judgment and make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent gains and losses at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The level of uncertainty in estimates and assumptions
increases with the length of time until the underlying transactions are
completed. As such, the most significant uncertainty in the Company's
assumptions and estimates involved in preparing the financial statements include
lease cancellation costs, self-insurance reserves, and legal and tax reserves.
Actual results could ultimately differ from those estimates.

      In certain instances, accounting principles generally accepted in the
United States allow for the selection of alternative accounting methods. The
Company's more significant accounting policies where alternative methods are
available include the accounting for stock options and inventories (LIFO/FIFO).
For more information on the Company's accounting policies, refer to Notes to the
Consolidated Financial Statements.

New Accounting Matters

      During June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 141 "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." In
addition to requiring the use of the purchase method for all business
combinations, SFAS No. 141 requires intangible assets that meet certain criteria
to be recognized as assets apart from goodwill. SFAS No. 142 addresses
accounting and reporting standards for acquired goodwill and other intangible
assets, and generally, requires that goodwill and indefinite life intangible
assets no longer be amortized but be tested for impairment annually. Finite life
intangible assets will continue to be amortized over their useful lives. The
Company adopted SFAS No. 142 at the start of Fiscal 2002. As a result of the
adoption of these standards the Company recorded a cumulative effect adjustment,
in Fiscal 2002, of $5.6 million reflecting the elimination of "excess of
revalued net assets over equity under fresh-start reporting," also referred to
as Negative Goodwill. In addition, the Company estimates that $2.6 million of
goodwill amortization will be eliminated in Fiscal 2002 as a result of the
adoption of this standard. Further determination as to any potential impairment
of goodwill and other intangible assets as calculated under the provisions of
these new standards has not yet been determined by the Company.

      In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs and is effective for fiscal
years beginning after June 15, 2002. Management does not expect the impact of
SFAS No. 143 to be material to the Company's consolidated financial statements.

      During August 2001 the Financial Accounting Standard Board issued SFAS No.
144 "Accounting for the impairment or disposal of long-lived assets." The
statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121 "Accounting for the
impairment of long-lived assets and for long-lived assets to be disposed of" and
the accounting and reporting provisions of Accounting Principles Board No. 30
"Reporting the results of operations-Reporting the effects of disposal of a
segment of business, and extraordinary, unusual and infrequently occurring
events and transactions for the disposal of a segment of a business". SFAS No.
144 excludes goodwill and other intangibles that are not amortized. The
statement is effective for fiscal years beginning after December 15, 2001. The
impact of this statement on the Company's consolidated financial statements is
currently being evaluated.


Forward-looking Statements

      The statements contained or incorporated by reference under the captions
"Business," "Legal Proceedings," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Quantitative and Qualitative
Disclosures about Market Risk" and elsewhere in this Form 10-K that are not
historical facts are "forward-looking statements," as that term is defined in
the Private Securities Litigation Reform Act of 1995. Those statements include
all discussions of strategy as well as statements that contain such
forward-looking expressions as "believes," "estimates," "intends," "may,"
"will," "should," or "anticipates" or the negative thereof. In addition, from
time to time, our representatives or we have made or may make forward-looking
statements orally or in writing. Furthermore, forward-looking statements may be
included in our filings with the Securities and Exchange Commission as well as
in the press releases or oral presentations made by or with the approval of one
of our authorized executive officers.

      We caution you to bear in mind that forward-looking statements, by their
very nature, involve assumptions and expectations and are subject to risks and
uncertainties. Although we believe that the assumptions and expectations
reflected in the forward-looking statements contained herein are reasonable, no
assurance can be given that those assumptions or expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from our expectations include, but are not limited to, the ones
discussed below.

      The filing of the voluntary Chapter 11 petitions referred to above, losses
from operations and negative cash flow from operations raise doubt about the
Company's ability to continue as a going concern. In addition, the Company is
subject to the risks associated with (i) the ability of the Company to operate
pursuant to the terms of the DIP Facilities (defined above), (ii) the ability of
the Company to operate successfully under the Chapter 11 proceedings, (iii) the
approval of plans and activities by the Bankruptcy Court and (iv) the ability of
the Company to create and have approved a reorganization plan in the Chapter 11
Cases.


      Our financial performance is sensitive to changes in overall economic
conditions that impact consumer spending, particularly discretionary spending.
Future economic conditions affecting disposable consumer income such as
employment levels, business conditions, fuel and energy costs, interest rates,
and tax rates could reduce consumer spending or cause consumers to shift their
spending to other products. A general slowdown in the United States' economy or
an uncertain economic outlook would adversely affect consumer spending habits,
which would likely result in lower net sales than expected on a quarterly or
annual basis. A general reduction in the level of discretionary spending or
shifts in consumer discretionary spending to other products could adversely
affect our growth, net sales, and profitability. Our operating results may be
adversely affected by unfavorable local, regional or national economic
conditions, especially those affecting the Northeast, Midwest or Mid-Atlantic
Regions where our stores are currently located.

      Our business is affected by the pattern of seasonality common to most
retailers. Our net sales and net income are generally weakest during the first
two fiscal quarters and strongest during the third and fourth quarters.
Historically, we have generated a significant portion of our net sales and
profits during our fourth fiscal quarter, which includes the Christmas selling
season, and have experienced losses or minimal earnings in the first, second,
and third fiscal quarters.

      We realize a disproportionately large amount of our net sales and net
income during the Christmas selling season. In anticipation of the holidays, we
purchase substantial amounts of seasonal inventory and hire many temporary
employees. If for any reason our net sales during the Christmas selling season
were below seasonal norms, we could have excess inventory, necessitating
mark-downs to minimize this excess, which would reduce our profitability and
adversely affect our operating results.

      We continually change our mix of seasonal merchandise, non-seasonal
merchandise, and consumable products. Our gross profit margins may fluctuate
from quarter to quarter. Our quarterly and annual results of operations,
including comparable store net sales and income, also fluctuate for a variety of
other reasons, including adverse weather conditions, particularly during the
peak Christmas season, and difficulties in obtaining sufficient quantities of
merchandise from our suppliers.

      The retail industry is highly competitive and we expect competition to
increase in the future. We compete with many smaller stores offering a similar
range of products. Although Ames is one of the larger regional discount
retailers, we are still considerably smaller in terms of our total number of
stores, sales and earnings than the three leading national chains: Wal-Mart,
Kmart, and Target Stores. Each of these chains, as well as other regional
operators, currently operates stores within our regional market and competes
with us for customers and potential store locations. We anticipate a further
increase in competition from these national discount store chains.

      Our merchandising focus is primarily directed to consumers who, we
believe, are underserved by the major national chains. Although this approach,
combined with our smaller store size, has enabled us to compete effectively with
these chains and operate profitably in proximity to their stores, we remain
vulnerable to the marketing power and high level of consumer recognition of the
major national discount chains. We expect to face increased competition in the
future which could adversely affect our business, results of operations, and
financial condition.

      The efficient operation of our business is heavily dependent on our
information systems. We depend on others to maintain and periodically upgrade
many of these systems so that they can continue to support our business. The
software programs supporting many of our systems were licensed to us by
independent software developers. The inability of these developers to continue
to maintain and upgrade these information systems and software programs would
disrupt our operations if we were unable to convert to alternate systems in an
efficient and timely manner.

      Our business is dependent on continued good relations with our vendors. In
particular, we believe that we generally are able to obtain attractive pricing
and other terms from vendors because we are perceived as a desirable customer.
Our failure to maintain good relations with our vendors could increase our
exposure to shifts in market demand, which may in turn lead to improper
inventory levels and increased inventory markdown rates.

      Substantially all of our assets are encumbered by the terms of the DIP
Facilities. At February 2, 2002, the amount of GECC DIP debt outstanding was
$287.1 million. Our leveraged position impairs our ability to obtain additional
financing to fund working capital requirements, capital expenditures or other
purposes.

      The amount of our GECC DIP Facility available for cash borrowings and
letters of credit is based on specified percentages of our inventory on hand as
well as in-transit inventory from overseas, certain receivables and certain of
our owned real estate. Our borrowing availability under the GECC DIP Facility
fluctuates relative to this borrowing base. This borrowing base varies in value
as a result of sales, merchandise purchases, and profitability. Lack of
short-term liquidity due to reaching the limits of our borrowing availability
would adversely affect our business, results of operations, and financial
condition.

      We incurred a net pre-tax loss of $383.2 million in our fiscal year ended
February 2, 2002. There can be no assurance that losses will not continue in the
future. If losses do continue to occur, we would likely need to obtain
additional capital to continue our operations.

      All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
these factors and the cautionary statements contained herein.



Item 7A.  Quantitative and Qualitative Disclosure About Market Risk

      We have exposure to interest rate volatility primarily relating to
interest rate changes applicable to revolving loans under our credit facility.
These loans bear interest at rates which vary with changes in (i) the London
Interbank Offered Rate (LIBOR) or (ii) the Index Rate (as defined in the DIP
Facilities).

      We do not speculate on the future direction of interest rates. As of
the end of Fiscal Years 2001 and 2000 our exposure to changing market rates was
as follows:
<TABLE>
<S>                                                                  <C>                       <C>

                                                                      February 2, 2002          February 3, 2001
                                                                     ----------------------    ----------------------

    Variable rate debt ($US)................................            $342.1 million            $361.8 million
    Average interest rate...................................            8.87%                     8.54%
</TABLE>

       A one percent increase in the average interest rate would have resulted
in an additional $4.3 million in interest expense during Fiscal 2001.


Item 8.     Financial Statements and Supplementary Data

      See Index to Consolidated Financial Statements and Financial Statement
Schedule for the Fiscal Years Ended February 2, 2002, February 3, 2001 and
January 29, 2000.


Item 9.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure

      None.

<PAGE>


                                    PART III

Item 10.   Directors and Executives of the Registrant
<TABLE>
<S>                                                                             <C>                    <C>
                                                                                                         Shares of
                                                                                 First                  Common Stock
                    Name, Age, Principal Occupation,                            Became                 Beneficially
                  Business Experience and Directorships                         Director                   Owned
                 ---------------------------------------                       ---------              ---------------

Joseph R. Ettore, age 63 ......................................                    1994                   298,533
    Chief Executive Officer and a director of Ames since he
       joined the Company in June 1994.  He became Chairman of the
       Board in November 1999. Mr. Ettore was also President of Ames
       from June 1994 to February 2000. Mr. Ettore has served as a
       Director of Home Place of America, Inc. and Modell's Sporting
       Goods since October 1999 and July 1997, respectively.  Home Place
       of America, Inc. filed for protection under Chapter 11 of the
       Bankruptcy Code in January 2001. Mr. Ettore has over 35 years
       of experience in the retail industry.

Francis X. Basile, age 69 .....................................                    1992                   52,000
    From 1986 to his retirement in January 1992, he served as Chairman
       and Chief Executive Officer of the CIT Group/Factoring, Inc. He also
      served as a director and Chairman of the National Commercial Finance
      Association and a member of its Executive Committee.

Paul M. Buxbaum, age 47 ..........................................                 1992                   60,500
    Chairman of the Board of Directors of Ames from
      July 1993 to November 1999. Mr. Buxbaum is currently
      Chairman of the Executive Committee. He has been President of
      Buxbaum Group & Associates, Inc., a nationwide retail
      consulting company, since 1984. From 1998 until May 2001
      he also served as the Chief Executive Officer of
      Global Health Sciences, Inc., a developer, manufacturer
      and packager of vitamins, herbs, dietary supplements
      and protein powders.  He was formerly a director
      of Lamonts Apparel, Inc., Herbalife International, Inc. and
      Richman Gordman 1/2 Price Stores.

Alan Cohen, age 65 ............................................                    1992                   88,500
    Chairman of Abacus Advisory & Consulting Corp. LLC and of
      Alco Capital Group, LLC, a group of diversified financial service
      and investment companies, since 1975, and Chief Executive
      Officer of Russ Togs, Inc. since November 1993. He also serves
      as Chairman of the Board of Alco Cadillac-Pontiac Sales Corp.,
      court-approved trustee of County Seat Stores, and formerly served as
      court-appointed trustee of Tower Financial Corporation and as Chief
      Executive Officer of Health-Tex, Inc.

Richard M. Felner, age 66 .....................................                    1994                   57,500
    Since 1991, he has been the head of Richard M. Felner
      Associates, a consulting firm specializing in retail and commercial real
      estate. From 1985 to 1991, he was Vice President of Real Estate and
      Corporate Development, and a director of Worths Stores Corporation, a
      subsidiary of Reitmans Ltd., Canada's largest women's apparel retailer.

Sidney S. Pearlman, age 70 ....................................                    1992                   58,000
    He has been retired since May 1991, after 40 years in the
      retailing industry, including service as President of three department
      store chains and as Senior Vice President/General Merchandise Manager of
      Younkers, Inc. from 1987 to March 1991.

Joseph A. Pollicino, age 62.............................                           2000                   18,000
    Vice Chairman of the CIT Group, Inc. from 1987 to June 2000.
       Prior to being named Vice Chairman, he held the position of President of
       the former CIT Factoring and Finance Group and had responsibility for all
       commercial finance functions. He also served as President, CIT
       Group/Business Credit unit, and, prior to his assignment at CIT, was a
       Vice President with Manufacturers Hanover responsible for apparel and
       textile clients. He is a member of the Board of Directors for Junior
       Achievement of New York and a Trustee of the National Jewish Center for
       Immunology and Respiratory Medicine.
</TABLE>

<TABLE>
<S>                                  <C>       <C>

<PAGE>
Executives of the Registrant

      Name                            Age      Position
      Joseph R. Ettore                63       Chief Executive Officer, Chairman of the Board
      Denis T. Lemire                 55       President, Chief Operating Officer
      Rolando de Aguiar               53       Senior Executive Vice President, Chief Financial and Administrative Officer
      Grant C. Sanborn                50       Executive Vice President, Operations
      Eugene E. Bankers               62       Senior Vice President, Marketing
      Catherine A. Berey              39       Senior Vice President, Human Resources
      David S. Covitz                 60       Senior Vice President & General Merchandise Manager, Hardlines
      David H. Lissy                  58       Senior Vice President, General Counsel and Corporate Secretary
      Alfred B. Petrillo, Jr.         59       Senior Vice President, Store Planning
      Sanford H. Sansavera            53       Senior Vice President & General Merchandise Manager, Softlines
      John Tempesta                   53       Senior Vice President, Logistics
      James A. Varhol                 46       Senior Vice President, Asset Protection
</TABLE>

      Denis T. Lemire joined Ames in August 1994 as Executive Vice President,
Merchandising and was promoted to Executive Vice President and Chief Operating
Officer in March 1999. In February 2000, he was named President and Chief
Operating Officer of Ames. Mr. Lemire has over 30 years of retailing experience.
He served as President and Chief Operating Officer of Stuarts from November 1993
to August 1994 and Senior Vice President, Merchandising of Stuarts from April
1990 to November 1993. From 1989 to 1990, Mr. Lemire was a General Merchandise
Manager at American Eagle Outfitters, Inc., a subsidiary of Retail Ventures,
Inc. From 1987 to 1989, he served as President of the Buying Network. Prior to
that, Mr. Lemire served for twelve years with Marshalls, then a division of
Melville Corp., as Vice President and General Merchandise Manager, Women's
Apparel, from 1983 to 1987 and as Merchandising Manager from 1978 to 1983.

      Rolando de Aguiar joined Ames as Executive Vice President and Chief
Financial Officer in April 1998 and was promoted to Executive Vice President and
Chief Financial and Administrative Officer in March 1999. Mr. de Aguiar was
named Senior Executive Vice President and Chief Financial and Administrative
Officer in March 2000. From March 1997 to March 1998, he was President of Aguiar
Associates, a retailing consulting firm. From October 1994 to January 1997, he
served as Executive Vice President and Chief Administrative Officer of Gruma
S.A. de C.V., a leading packaged food producer in Mexico, and from September
1991 to August 1994, he held senior financial positions at Sears, Roebuck & Co.,
including Vice President and Controller - Merchandising Group for Sears' U.S.
operations and, prior thereto, Vice President, Planning and Development at Sears
in Mexico. Mr. de Aguiar previously served for ten years at Occidental Petroleum
Corporation in various management positions, including Manager of Mergers and
Acquisitions, Chief Financial Officer of the Minerals Division and Director of
Internal Audit for Occidental Petroleum's worldwide operations.

      Grant C. Sanborn became Executive Vice President, Operations in February
2000. Mr. Sanborn joined Ames in April 1971 as an assistant manager and has held
a wide variety of field store operations positions, including Store Manager at
seven locations, District Manager in both Northern Maine and Syracuse, New York,
Assistant Regional Director and Regional Operations Director. In July 1991, Mr.
Sanborn joined Ames' corporate headquarters as Director of Operations, with
responsibility for remodeling, merchandise presentation and store planning,
construction and facilities. In October 1993 he was promoted to Vice President,
Store Operations. In January 1995 he became responsible for Ames' entire field
organization as Senior Vice President, Store Operations.

      Eugene E. Bankers joined Ames as Senior Vice President, Marketing, in
January 1994. Prior to joining Ames, he served for nearly 14 years in several
capacities at ShopKo Stores, Inc., including Vice President, Communications and
Investor Relations from 1991 to 1993, Vice President of Advertising, Public
Relations and Sales Promotion from 1986 to 1990, Vice President Planning and
Real Estate from 1984 to 1986 and Divisional Merchandise Manager from 1981 to
1984.

      Catherine A. Berey joined Ames in September 1999 as Senior Vice President,
Human Resources. She had previously been with Ames from 1993 to February 1999
during which time she served in a variety of administrative positions,
including: Vice President, Human Resources Services, Vice President,
Organizational Development and Director, Recruiting/Human Resources
Administration. From February 1999 to August 1999, she was a human resources
consultant to IKON with responsibility for all Human Resources functions in the
Hartford and Springfield markets. From 1984 to 1992, Ms. Berey served in a
number of Human Resource and Merchandising positions at G. Fox & Co., including:
Director, Training and Development; Manager, Compensation and Benefits; Manager,
Executive Development and Placement; Manager, Merchant Development; Assistant
Buyer, Women's Sportswear and Area Sales Manager, Intimate Apparel.

      David S. Covitz joined Ames in November 1989 as Divisional Merchandise
Manager and subsequently was promoted to the position of Vice President, General
Merchandise Manager, Hardlines. Mr. Covitz was named to his current position as
Senior Vice President and General Merchandise Manager, Hardlines, in June 1998.
Prior to joining Ames, he held positions in the buying division at Filene's and
as Vice President/Divisional Merchandise Manager at Gold Circle Stores.

      David H. Lissy joined Ames in June 1990 and was named Senior Vice
President, General Counsel and Corporate Secretary in December 1992. Prior to
joining Ames, Mr. Lissy served in senior positions in a number of other major
corporations, including United Brands and Gulf & Western, and in the federal
government, where from 1969 to 1977 he held positions including Special
Assistant to the President, Special Assistant to the Secretary of State and
Executive Secretary of the Department of Health Education and Welfare.

      Alfred B.  Petrillo,  Jr.  joined Ames as Senior Vice  President,  Store
Planning in October 1995.  Mr.  Petrillo has over thirty  years of  retail
experience,  most of which he  served  as an  officer.  Mr.  Petrillo  began
his  career in 1962 as an architectural designer and draftsman at the firm of
John Scacchetti, AIA.

      Sanford H. Sansavera joined Ames in May 1993 as Divisional Merchandise
Manager - Jewelry and assumed additional responsibility for Accessories in
August 1994. He was promoted to Senior Vice President, General Merchandise
Manager - Softlines, in June 1998. Prior to joining Ames, Mr. Sansavera spent 21
years with the May Department Stores Company in a variety of positions,
including General Manager - Merchandise, Branch Store Divisional Manager,
Department Manager and Store Manager.

      John Tempesta joined Ames in February 1999 as Senior Vice President,
Logistics, and is responsible for all aspects of Ames' logistics and
distribution network. From 1993 to 1999, Mr. Tempesta was with Caldor
Corporation, most recently as Senior Vice President, Distribution/Logistics.
From 1988 to 1993, Mr. Tempesta was a Senior Vice President, Catalogue
Operations, at Chadwick's of Boston, a division of TJX Companies, Inc. From 1983
to 1988, he was Senior Vice President, Operations, at Filene's Basement. He also
has held management positions at Hit or Miss and Zayre Corporation.

      James A. Varhol joined Ames in August 1995 as Senior Vice President, Asset
Protection, and is responsible for all aspects of corporate, store and
distribution center loss prevention and safety initiatives. Mr. Varhol has over
twenty years of retail experience, including eight years as an officer prior to
joining Ames.


Item 11.  Executive Compensation

      The following table sets forth each item of compensation paid, earned or
awarded over each of the preceding three fiscal years to the Chief Executive
Officer and the four other most highly paid executive officers serving at
February 2, 2002.
<TABLE>
<S>                                <C>         <C>           <C>        <C>          <C>           <C>


                                                                                              Long-Term Compensation
                                                      Annual Compensation                            Awards
                                              -------------------------------------  ------------------------------------------

                                                                                                 (#)Securities
                                                                           Other      Restricted   Underlying         All
                                      Fiscal                              Annual       Stock        Options          Other
     Name & Principal Position         Year      Salary       Bonus (a)  Comp. (g)    Awards (b)    SARs (c)        Comp. (d)
     -------------------------        ------   ----------   ----------   ---------  ------------  -----------     ----------
Joseph R. Ettore                       2001     1,103,274      663,000         (e)           ---     100,000          53,444
     Chairman & Chief                  2000     1,171,924      500,000   1,576,693           ---     100,000          48,604
     Executive Officer                 1999     1,105,769    2,170,000   4,524,725           ---         ---          45,496

Denis T. Lemire                        2001       552,639      125,000         (e)           ---      50,000          19,533
     President & Chief                 2000       538,462      275,000         (e)           ---      80,000          19,476
     Operating Officer                 1999       496,154      475,000         (e)           ---     100,000          6,920

Rolando de Aguiar                      2001       477,508      331,500         (e)        84,000      50,000          13,830
     Senior Executive Vice             2000       487,502      237,500         (e)           ---      60,000          17,186
     President, Chief Financial &      1999       399,231      620,000         (e)           ---      75,000         202,056
     Administrative Officer

Grant C. Sanborn                       2001       376,980      129,790         (e)           ---      20,000           7,750
     Executive Vice President,         2000       345,961       45,000         (e)       150,000      65,000           9,853
     Operations                        1999       256,231      206,000         (e)           ---      10,000           6,072

David Lissy                            2001       267,750      199,969         (e)           ---      20,000           7,804
     Senior Vice President,            2000       284,423       24,100         (e)           ---      20,000           8,402
     General Counsel and               1999       257,210      303,000         (e)           ---      10,000           6,795
     Corporate Secretary
</TABLE>

--------------------
(a)  Includes bonuses earned under the Annual Incentive  Compensation  Plan.
     In addition, Fiscal 2001 amounts include retention  incentives paid
     pursuant to the Company's key employee retention programs as follows:
     $663,000 to Mr. Ettore, $125,000 to Mr. Lemire, $331,500 to Mr. de Aguiar,
     $97,290 to Mr. Sanborn and $167,469 to Mr. Lissy. These payments must be
     repaid in full should the named executives voluntarily leave the Company
     prior to certain dates.

(b)  As of February 2, 2002, a total of 220,000 shares of Restricted Stock that
     had been awarded under the 1998 Incentive Plan remained outstanding and
     unvested. The total aggregate value of these shares was $50,600 based on a
     market price of Ames' common stock of $.23 as of February 2, 2002.

(c)  Stock options were granted to certain members of management pursuant to the
     1998 Incentive Plan and the 1994 Management Stock Option Plans.

(d)  Includes Ames' matching contributions under the Retirement and Savings
     Plan, excess paid life insurance, and for Mr. Ettore, $44,050 of paid
     disability and life insurance coverage in Fiscal Year 2001 and $35,744 of
     paid disability and life insurance coverage in each of the Fiscal Years
     2000 and 1999, respectively. Mr. de Aguiar's amounts include $1,090, $1,200
     and $187,186 for Fiscal Years 2001, 2000 and 1999, respectively, for
     reimbursement of relocation expenses inclusive of gross up for tax
     consequences (for 1999 only), consistent with the Company's moving expense
     reimbursement practices.

(e)  Amount aggregated to the lesser of $50,000 or 10% of the individual
     executive's total salary and bonus.

(g)  In addition, Mr. Ettore's fiscal year 2000 amount includes $774,200 in
     non-cash imputed compensation related to the extension of time for the
     exercise of an option grant issued to him in a prior fiscal year under the
     1994 Management Stock Option Plan, and $780,893 for reimbursement of the
     Federal Alternative Minimum Tax consequences Mr. Ettore incurred as a
     result of the exercise of stock options. Mr. Ettore's fiscal year 1999
     amount includes $4,503,125 from the exercise of 125,000 stock appreciation
     rights.


Option and SAR Grants in Last Fiscal Year

      The table below discloses information regarding grants of stock options
and stock appreciation rights (SARs) to the named executive officers during
fiscal year 2001:
<TABLE>
<S>                    <C>                <C>            <C>         <C>             <C>                     <C>


                                                                                                 Potential
                                           Individual Grants                                  Realizable Value
                       ----------------------------------------------------------               at Assumed
                                                                                                  Annual
                           Number of         % of                                              Rate of Stock
                           Securities        Total        Exercise                                 Price
                           Underlying     Options/SARs    or Base                               Appreciation
                          Options/SARs     Granted to       for                                 Option Term
                            Granted       Employees in     Price       Expiration     ---------------------------------
     Name                     (#)         Fiscal 2001      ($/Sh)         Date             5%                  10%
---------------        ---------------- ---------------  -----------  ------------    -------------       -------------

Joseph R. Ettore               100,000            9.2%        $1.55      4/11/06           $43,000              $95,000

Denis T. Lemire                 50,000            4.6%         1.55      4/11/06            21,500               47,500

Rolando de Aguiar               50,000            4.6%         1.55      4/11/06            21,500               47,500

Grant C. Sanborn                20,000            1.8%         1.55      4/11/06             8,600               19,000

David Lissy                     20,000            1.8%         1.55      4/11/06             8,600               19,000

</TABLE>

      Pursuant to the 1994 Management Stock Option Plan (the "1994 Option
Plan"), Ames may grant options with respect to an aggregate of up to 1,700,000
shares of Common Stock, provided that no individual optionee may receive in
excess of 200,000 shares of Common Stock upon exercise of options granted under
the 1994 Option Plan. During fiscal year 2001, no options shares of Common Stock
were issued under the 1994 Option Plan to members of management. After adjusting
for options forfeited and exercised, as of February 2, 2002, options with
respect to a total of 222,290 shares that had been granted pursuant to the 1994
Option Plan were outstanding, of which 168,250 had vested. The exercise prices
of the options are equal to the fair market value of the Common Stock on the
date the options were granted.

     Except as noted below, one-third of the shares underlying the options under
the  1994  Option  Plan may be  purchased  annually  for  each of  three  years,
beginning  one year from the grant date.  For options  granted to Mr.  Ettore in
June 1994,  one-fifth  of the shares  underlying  the options  may be  exercised
annually for each of five years, beginning one year after the grant date. Except
as noted  below,  all options  granted on May 21,  1996 and all options  granted
after May 1, 1997,  may be exercised one year after the grant date.  For options
granted to Mr. de Aguiar (Senior  Executive  Vice President and Chief  Financial
and  Administrative  Officer) in April 1998,  one-third of the shares underlying
options may be exercised  annually for each of three years,  beginning  one year
after the grant date. The  unexercised  portion of the options granted under the
1994 Option Plan will terminate upon the expiration of five years from the grant
date, except as follows:  the options granted to Mr. Ettore in June 1994 and Mr.
Lemire in August 1996 terminate ten years from grant date.

        The 1998 Incentive Plan, as amended, provides for the grant of Awards
(as defined in the 1998 Incentive Plan) and makes available for Awards an
aggregate amount of 3,800,000 shares of Common Stock. The maximum number of
shares of Common Stock with respect to which Awards may be granted (or measured)
to any individual participant may not exceed 600,000. During fiscal year 2001,
options with respect to a total of 803,850 shares of Common Stock were issued
under the 1998 Incentive Plan to members of management. As of February 2, 2002,
after adjusting for options forfeited and exercised, options with respect to a
total of 2,473,185 shares that had been granted pursuant to the 1998 Incentive
Plan were outstanding, of which 797,811 had vested. The exercise prices are
equal to the fair market value of the Common Stock on the date the stock options
were granted.


Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End SAR/Option Values

      The table below discloses information regarding aggregated exercises of
stock options and SARs by the named executive officers during fiscal year 2001
and stock options and SARs held by the named executive officers as of February
2, 2002. There were no stock options or SARs re-priced during fiscal year 2001.
<TABLE>
<S>                                <C>              <C>            <C>                       <C>

                                                                   # of Shares                ($)Value of
                                                                    Underlying                Unexercised
                                                                   Unexercised                In-the-Money
                                                                   SARs/Options               SARs/Options
                                                                    at 2/2/02                 at 2/2/02
                                     # Shares      ($) Value       Exercisable /              Exercisable /
                Name                Exercised        Realized      Unexercisable              Unexercisable
         -----------------        -------------    -----------    --------------             --------------
         Joseph R. Ettore                   ---            ---    103,333 / 366,667                ---
         Denis T. Lemire                    ---            ---    141,666 / 183,334                ---
         Rolando de Aguiar                  ---            ---    102,500 / 127,500                ---
         Grant C. Sanborn                   ---            ---     27,499 / 75,001                 ---
         David Lissy                        ---            ---     11,667 / 45,833                 ---
</TABLE>


Item 12.   Security Ownership of Certain Beneficial Owners and Management


      Set forth below is certain information regarding the beneficial ownership
of Ames Common Stock as of April 1, 2002 by any person known by Ames to
beneficially own more than 5% of the Common Stock. As used herein, "beneficial
ownership" means the sole or shared power to vote or invest either Common Stock
or warrants of Ames, or the right to acquire Common Stock or warrants within
sixty days.
<TABLE>
<S>                              <C>                                                    <C>


                                                                                                                   Percent
Name and Address                                 Amount and Nature of Beneficial Ownership                        Of Class
----------------                 -------------------------------------------------------------------------       -----------

The Company is not aware of any investor who beneficially owns 5% or more of the common stock.


</TABLE>


                        Security Ownership of Management

      As of April 1, 2002, Ames' directors and officers as a group were
beneficial owners of 1,534,714 shares of its Common Stock.

      Ames is not aware of any arrangements, including any pledge by any person
of securities of Ames, which may at a subsequent date result in a change of
control of Ames.


      Listed below are the number of shares of Common Stock beneficially owned
by the named executive officers (those listed in the Summary Compensation Table)
and all executive officers as a group as of April 1, 2002:
<TABLE>
<S>                                               <C>                     <C>                <C>                    <C>

                                                                                                  Total
                                                                                                Shares of
                                                       Shares of           Exercisable         Common Stock          Percent
                                                     Common Stock            Stock            Beneficially            of
       Name of Beneficial Owner                        Owned (a)           Options (b)            Owned               Class
    ----------------------------                  -------------------    --------------    -------------------     ----------
     Joseph R. Ettore...........................             195,200           103,333                298,533          1.01%
     Denis T. Lemire...........................              101,500           141,666                243,166              *
     Rolando de Aguiar.......................                 69,000           102,500                171,500              *
     Grant C. Sanborn.........................                50,161            27,499                 77,660              *
     David Lissy..............................                44,264            11,667                 55,931              *
     All executive officers
          as a group..............................           649,624           456,834              1,106,458          3.76%
</TABLE>

(a)   The shares listed include 220,000 shares of outstanding Restricted
      Stock awarded under the 1998 Incentive Plan. With the exception of
      10,000 shares that vest on the third anniversary of the date of
      grant, these shares vest 50% each on the fourth and fifth
      anniversaries of the date of grant. Except as noted in the
      following sentence, each named executive has sole voting and
      investment power in the shares listed. Mr. Lemire holds 40,000 of
      his shares jointly with his wife. Mr. Lissy holds 29,264 shares
      jointly with his wife.

(b)   Represents shares of Common Stock that may be acquired within 60 days
      through the exercise of stock options under the 1994 Option Plan and
      1998 Incentive Plan.

         (*)   Percentage is less than 1%


Item 13.  Certain Relationships and Related Transactions

      Mr. Ettore's brother-in-law is principal and partner of Tri Star
Connection, Inc., a supplier to the Company. The Company did business with
Tri Star prior to Mr. Ettore's joining the Company. In Fiscal 2001, in the
normal course of business, the Company incurred obligations to Tri Star
Connection either for the purchase of merchandise or for commissions, in the
amount of approximately $165,000.

        Since 1996, Mr. Buxbaum has owned a 50% equity interest in
Dealco,  Inc., an entity that has assisted Ames in identifying opportunities
for closeout and other off price  purchases.  In fiscal year 2001, Ames paid
approximately $195,000 to Dealco,Inc. for direct purchases.

      Ames sub-leases office space from an entity controlled by Mr. Cohen, for
which in Fiscal 2001, Ames paid approximately $82,000.

      The Company employs Mr. Cohen as Assistant to the Chairman for
Restructuring.  Mr. Cohen was paid  approximately  $116,000 during Fiscal 2001
for his work in this capacity.

      As of April 1, 2002, the Company had the following outstanding loans with
certain officers; each of which is due five years from the date of the loan:
<TABLE>
<S>                                                                    <C>            <C>             <C>


                                                                                      Principal
                                                                       Date of      Balance as of       Interest
          Officer                                                        Loan        April 1, 2002        Rate
          -------                                                     ---------    -----------------    ---------
          Joseph R. Ettore, Chief Executive Officer,
          Chairman of the Board                                          6/21/01            $160,000        4.96%
          Grant Sanborn, Executive Vice President, Operations            3/13/98             100,000        5.51%
          Eugene Bankers, Senior Vice President, Marketing                4/9/99             178,000        5.21%
          Rolando de Aguiar, Senior Executive Vice President,
               Chief Financial and Administrative Officer:
                    Loan 1                                                6/4/99              50,000        5.30%
                    Loan 2                                                9/3/99              40,000        5.89%
          Denis Lemire, President and Chief Operating Officer             9/5/00             100,000        6.13%
</TABLE>

      Interest charges will be due upon maturity of the loans.

      To the knowledge of Ames, there were no other related transactions or
business relationships with directors or executive officers of Ames during
Fiscal 2001, or any currently proposed, that would require disclosure.



<PAGE>


                                     PART IV

Item 14.   Exhibits, Financial Statement Schedule and Reports on Form 8-K


(a)   Documents Filed as Part of this Form 10-K

      1.   Financial Statements


           The Financial Statements listed in the accompanying Index to
           Consolidated Financial Statements and Financial Statement Schedule
           for the Fiscal Years Ended February 2, 2002, February 3, 2001 and
           January 29, 2000 are filed as part of this Form 10-K.

      2.   Financial Statement Schedule

           The Financial Statement Schedule listed in the accompanying Index to
           Consolidated Financial Statements and Financial Statement Schedule
           for the Fiscal Years Ended February 2, 2002, February 3, 2001 and
           January 29, 2000 is filed as part of this Form 10-K.


      3.   Exhibits

           The Exhibits filed as part of this Form 10-K are listed on the
           Exhibit Index immediately preceding such Exhibits, incorporated
           herein by reference.

(b)   There were no reports on Form 8-K filed during the last quarter of the
period covered by this report.

                                   SIGNATURES


      Pursuant to the requirements of Section 13 or 15(d) 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.


                          AMES DEPARTMENT STORES, INC.
                                  (Registrant)



Dated:     May 2, 2002        /s/Joseph R. Ettore
                              -------------------
                              Joseph R. Ettore,
                              Chairman, Chief Executive Officer, and Director



Dated:     May 2, 2002        /s/Rolando de Aguiar
                              --------------------
                              Rolando de Aguiar,
                              Senior Executive Vice President, Chief Financial
                              and Administrative Officer



Dated:     May 2, 2002        /s/Mark von Mayrhauser
                              ----------------------
                              Mark von Mayrhauser,
                              Vice President, Controller

<PAGE>

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


Dated:     May 2, 2002        /s/Francis X. Basile
                              --------------------
                              Francis X. Basile, Director

Dated:     May 2, 2002        /s/Paul M. Buxbaum
                              ------------------
                              Paul M. Buxbaum, Director

Dated:     May 2, 2002        /s/Alan Cohen
                              -------------
                              Alan Cohen, Director

Dated:     May 2, 2002        /s/Richard M. Felner
                              --------------------
                              Richard M. Felner, Director

Dated:     May 2, 2002        /s/Sidney S. Pearlman
                              ---------------------
                              Sidney S. Pearlman, Director

Dated:     May 2, 2002        /s/Joseph A. Pollicino
                              ----------------------
                              Joseph A. Pollicino, Director




<PAGE>


                          AMES DEPARTMENT STORES, INC.
                                AND SUBSIDIARIES

                       FINANCIAL STATEMENTS AND FINANCIAL
                               STATEMENT SCHEDULE
                                   (FORM 10-K)


                                    EXHIBITS

             For the Fiscal Years Ended February 2, 2002, February 3, 2001 and
                                January 29, 2000

                 (With Report of Independent Public Accountants)


<TABLE>
<S>                                                                                                                             <C>




Consolidated Financial Statements:

     Report of Independent Public Accountants...............................................................                   29
     Consolidated Statements of Operations for the fiscal years ended February 2, 2002,
             February 3, 2001 and  January 29, 2000.........................................................                   30
     Consolidated Balance Sheets as of February 2, 2002 and February 3, 2001................................                   31
     Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended
             February 2, 2002, February 3, 2001 and January 29, 2000........................................                   32
     Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2002,
             February 3, 2001 and January 29, 2000..........................................................                   33
     Notes to Consolidated Financial Statements.............................................................                   34

Schedule:
      II.  Valuation and Qualifying Accounts for the fiscal years ended February 2, 2002, February 3, 2001 and January 29, 2000.


Schedules Omitted:
      All other schedules are omitted as they are not applicable or the
information is shown in the consolidated financial statements or notes thereto.


</TABLE>



<PAGE>




                      REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

           To the Stockholders and Board of Directors of

           AMES DEPARTMENT STORES, INC.:



                  We have audited the accompanying consolidated balance sheets
           of Ames Department Stores, Inc. (a Delaware corporation) and
           subsidiaries as of February 2, 2002 and February 3, 2001, and the
           related consolidated statements of operations, changes in
           stockholders' equity and cash flows for the fifty-two weeks ended
           February 2, 2002, the fifty-three weeks ended February 3, 2001, and
           the fifty-two weeks ended January 29, 2000. These consolidated
           financial statements and the schedule referred to below are the
           responsibility of the Company's management. Our responsibility is to
           express an opinion on these consolidated financial statements and
           schedule based on our audits.

                  We conducted our audits in accordance with auditing standards
           generally accepted in the United States. Those standards require that
           we plan and perform the audit to obtain reasonable assurance about
           whether the financial statements are free of material misstatement.
           An audit includes examining, on a test basis, evidence supporting the
           amounts and disclosures in the financial statements. An audit also
           includes assessing the accounting principles used and significant
           estimates made by management, as well as evaluating the overall
           financial statement presentation. We believe that our audits provide
           a reasonable basis for our opinion.

                  In our opinion, the financial statements referred to above
           present fairly, in all material respects, the financial position of
           the Company as of February 2, 2002 and February 3, 2001, and the
           results of their operations and their cash flows for the fifty-two
           weeks ended February 2, 2002, the fifty-three weeks ended February 3,
           2001, and the fifty-two weeks ended January 29, 2000 in conformity
           with accounting principles generally accepted in the United States.

                  The accompanying financial statements have been prepared
           assuming that the Company will continue as a going concern. As
           discussed in Note 2 to the financial statements, the Company filed a
           petition for reorganization under Chapter 11 of the U.S. Bankruptcy
           Code on August 20, 2001. This raises substantial doubt about the
           Company's ability to continue as a going concern. The Company's
           ability to continue as a going concern is dependent upon acceptance
           of a plan of reorganization by the Court and the Company's creditors,
           compliance with all debt covenants under the debtor-in-possession
           financing, securing post-emergence financing and the success of
           future operations. The ultimate outcome of these matters is not
           presently determinable. The consolidated financial statements do not
           include any adjustments relating to these uncertainties or the
           recoverability and classification of recorded asset amounts or the
           amounts and classification of liabilities that might be necessary
           should the Company be unable to continue as a going concern.

                  Our audit was made for the purpose of forming an opinion on
           the basic financial statements taken as a whole. The schedule listed
           in the index to financial statements is presented for the purpose of
           complying with the Securities and Exchange Commission's rules and is
           not part of the basic financial statements. This schedule has been
           subjected to the auditing procedures applied in the audit of the
           basic financial statements and, in our opinion, fairly states in all
           material respects the financial data required to be set forth therein
           in relation to the basic financial statements taken as a whole.

                                                    /s/ Arthur Andersen LLP

           New York, New York
           March 19, 2002
           (Except with respect to the matter discussed
           in Note 3, as to which the date is April 4, 2002)








<PAGE>



                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
<TABLE>
<S>                                                                          <C>                <C>               <C>


                                                                               52 Weeks           53 Weeks          52 Weeks
                                                                                Ended               Ended            Ended
                                                                             February 2,         February 3,      January 29,
                                                                                 2002               2001              2000
                                                                             -------------      --------------    -------------
      Net Sales........................................................        3,253,976           3,953,585        3,836,854
      Leased department and other income...............................           37,851              46,413           41,690
                                                                             -------------      --------------    -------------
      Total revenue....................................................        3,291,827           3,999,998        3,878,544

      Costs and expenses:
      Cost of merchandise sold.........................................        2,438,544           2,932,251        2,715,386
      Selling, general, and administrative expenses....................          937,431           1,058,668        1,068,175
      Depreciation and amortization expense, net.......................           79,449              79,689           65,495
      Interest and debt expense, net...................................           76,151              87,961           60,843
      Store closing charge.............................................          114,732             129,806              ---
      Reorganization expense...........................................           28,674                 ---              ---
                                                                             -------------      --------------    -------------

      Loss before income taxes.........................................         (383,154)           (288,377)         (31,355)
      Income tax (provision) benefit...................................         (429,924)              54,753           49,589
                                                                             -------------      --------------    -------------
      (Loss) Income before Cumulative Effect of Accounting Change......         (813,078)           (233,624)           18,234
      Cumulative Effect of Accounting Change,  net of tax of $614......               ---                 ---          (1,107)
                                                                             -------------      --------------    -------------
      (Loss) income before extraordinary item..........................         (813,078)           (233,624)           17,127
      Extraordinary loss on early extinguishment of debt, net of tax...               ---             (6,964)              ---
                                                                             -------------      --------------    -------------

      Net (loss) income................................................        ($813,078)          ($240,588)          $17,127
                                                                             =============      ==============    =============

      Basic net (loss) income per common share:
      Before Cumulative Effect of Accounting Change and
      Extraordinary item...............................................           (27.65)             ($7.95)            $0.66
      Cumulative Effect of Accounting Change, net of tax...............               ---                 ---           (0.04)
      Extraordinary item, net of tax...................................               ---              (0.24)              ---
                                                                             -------------      --------------    -------------
      Net (loss) income................................................          ($27.65)             ($8.19)            $0.62
                                                                             =============      ==============    =============

      Weighted average common shares...................................            29,405              29,383           27,517
                                                                             =============      ==============    =============

      Diluted net income per common share:
      Before Cumulative Effect of Accounting Change and
      Extraordinary item...............................................           (27.65)             ($7.95)            $0.66
      Cumulative Effect of Accounting Change, net of tax...............               ---                 ---           (0.04)
      Extraordinary item, net of tax...................................               ---              (0.24)              ---
                                                                             -------------      --------------    -------------
      Net (loss) income................................................          ($27.65)  *          ($8.19)  *         $0.62
                                                                             =============      ==============    =============

      Weighted average common and common equivalent shares                         29,405              29,543           27,658
                                                                             =============      ==============    =============

      * Common stock equivalents have not been included because the effect would be anti-dilutive.

   (The accompanying notes are an integral part of these consolidated financial statements.)

</TABLE>


<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                               AMES DEPARTMENT STORES, INC.
                                                CONSOLIDATED BALANCE SHEETS
                                    (In thousands, except shares and per share amounts)
                                                                                       February 2,           February 3,
                                                                                           2002                  2001
                                                                                     -----------------     -----------------
                                      ASSETS
Current Assets:
     Cash and cash equivalents..............................................              $29,105               $49,761
     Receivables:
         Trade..............................................................                6,835                 6,978
         Other..............................................................                5,796                10,061
                                                                                     -----------------     -----------------
             Total receivables..............................................               12,631                17,039
     Merchandise inventories................................................              532,407               744,132
     Prepaid expenses and other current assets..............................               26,511                41,494
     Deferred taxes, net....................................................                   -                17,771
                                                                                     -----------------     -----------------
             Total current assets...........................................              600,654               870,197
                                                                                     -----------------     -----------------

Fixed Assets:
     Land and buildings.....................................................               30,882                32,179
     Property under capital leases..........................................              111,905               180,585
     Fixtures and equipment.................................................              318,253               389,986
     Leasehold improvements.................................................              130,583               159,153
                                                                                     -----------------     -----------------
                                                                                          591,623               761,903
     Less - Accumulated depreciation and amortization.......................             (248,076)             (213,904)
                                                                                     -----------------     -----------------
             Net fixed assets...............................................              343,547               547,999
                                                                                     -----------------     -----------------

Other assets and deferred charges...........................................               52,283                56,490
Deferred taxes, net.........................................................                    -               411,891
Beneficial lease rights, net................................................               31,324                50,675
Goodwill, net...............................................................               55,923                58,475
                                                                                     -----------------
                                                                                                           -----------------
             Total Assets...................................................           $1,083,731            $1,995,727
                                                                                     =================     =================
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable:
         Trade..............................................................              $67,458              $345,915
         Other..............................................................               51,982                78,371
                                                                                     -----------------     -----------------
             Total accounts payable.........................................              119,440               424,286
                                                                                     -----------------     -----------------

     Current portion of long term debt                                                    342,128                     -
     Current portion of capital lease and financing obligations.............                7,962                19,018
     Self-insurance reserves................................................               29,205                29,878
     Accrued compensation...................................................               30,364                39,366
     Accrued expenses.......................................................               39,808                74,839
     Store closing reserves.................................................               62,928               179,365
                                                                                     -----------------      -----------------
             Total current liabilities......................................              631,835               766,752
                                                                                     -----------------     -----------------

Long-term debt..............................................................                    -               606,057
Capital lease and financing obligations.....................................               80,816               165,365
Other long-term liabilities.................................................               32,543                49,256
Excess of revalued net assets over equity under fresh-start reporting.......                5,562                11,715
Commitments and contingencies
Liabilities Subject to Compromise                                                         748,731                   ---
Stockholders' Equity:
     Preferred stock (3,000,000 shares authorized; no shares issued or outstanding
     at February 2, 2002 and February 3, 2001; par value per share $.01)                      -                     ---
     Common stock (40,000,000 shares authorized; 29,488,552 and 29,473,552
     shares outstanding at February 2, 2002 and February 3, 2001, respectively;
     par value per share $.01)                                                                295                   295
     Additional paid-in capital..............................................             533,394               532,654
     Accumulated deficit.....................................................           (948,523)             (135,445)
     Treasury stock (80,495 shares at February 2, 2002 and February 3, 2001,
     respectively, at cost)..................................................               (922)                 (922)
                                                                                     -----------------     -----------------
         Total stockholders' (deficit) equity................................           (415,756)               396,582
                                                                                     -----------------     -----------------
             Total Liabilities and Stockholders' Equity......................          $1,083,731            $1,995,727
                                                                                     =================     =================
                 (The accompanying notes are an integral part of these consolidated financial statements)
</TABLE>


<PAGE>
<TABLE>
<S>                            <C>                <C>               <C>           <C>        <C>                  <C>
                                                    AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                                              CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                                    (In thousands)

                                                                                   Retained
                                  Preferred Stock   Common Stock      Additional   Earnings    Treasury Stock
                                  --------------- ----------------     Paid-In      (Accum.   ----------------      Total
                                Shares   Amount    Shares   Amount     Capital      Deficit)   Shares   Amount     Equity
                               -------- --------- -------- -------- ------------- ----------- -------- ---------  ---------

Balance, January 30, 1999         ---       ---    23,921     $239      $236,667     $88,016     (79)    ($914)    $324,008
Exercise of stock options, net                        170        2         1,073                                      1,075
Issuance of common stock
pursuant to the equity offering                     5,100       51       187,211                                    187,262
Issuance of restricted common
stock, net....................                         30        1                                                        1
Issuance of common stock to
Board of Directors...........                          12                   367                                         367
Recognition of tax attributes                                            105,426                                    105,426
Net income...................                                                         17,127                         17,127
                               -------- --------- -------- -------- ------------- ----------- -------- --------- -----------
Balance, January 29, 2000         ---       ---    29,233     $293      $530,744    $105,143     (79)    ($914)    $635,266
Exercise of warrants.........                         100        1           591                                        592
Exercise of stock options, net                        145        1           550                                        551
Forfeiture of restricted common
stock, net....................                        (5)
Acquisition of treasury shares                                                                    (1)       (8)         (8)
Stock option compensation.....                                               774                                        774
Other.........................                                               (5)                                        (5)
Net loss......................                                                     (240,588)                      (240,588)
                               -------- --------- -------- -------- ------------- ----------- -------- --------- ----------
Balance, February 3, 2001         ---      ---     29,473     $295      $532,654  ($135,445)     (80)    ($922)    $396,582
Restricted Stock Grant, net...                         16                    740                                        740
Net loss......................                                                     (813,078)                      (813,078)
                               -------- --------- -------- -------- ------------- ----------- -------- --------- ----------

Balance, February 2, 2002         ---      ---     29,489     $295      $533,394  ($948,523)     (80)    ($922)  ($415,756)
                               ======== ========= ======== ======== ============= =========== ======== ========= ===========

                                 (The accompanying notes are an integral part of these consolidated financial statements.)

</TABLE>

<PAGE>

<TABLE>
<S>                                                                          <C>                  <C>                <C>


                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                                                                 52 Weeks            53 Weeks            52 Weeks
                                                                                   Ended              Ended               Ended
                                                                                February 2,        February 3,         January 29,
                                                                                   2002                2001                2000
                                                                             ----------------    ---------------     ---------------

     Cash flows from operating activities:
        Net (loss) income................................................        ($813,078)         ($240,588)             $17,127
           Cumulative Effect of Accounting Change........................               ---                ---               1,107
                                                                             ----------------    ---------------     ---------------

        Net (loss) income before cumulative effect adjustment............         (813,078)          (240,588)              18,234
        Expenses not requiring the outlay of cash:
           Income tax provision (benefit)................................           429,662           (54,753)            (49,589)
           Extraordinary loss on early extinguishment of debt, net of tax              ---               6,964                 ---
           Depreciation and amortization of fixed and other assets.......           86,971              87,739              65,495
           Amortization of debt discounts and deferred financing costs...            7,518               4,788               4,880
           Inventory impairment charge, net..............................            4,565                 ---                 ---
           Write off of deferrred financing costs                                   21,938                 ---                 ---
           Other, net....................................................              ---                 344             (1,841)
                                                                             ----------------    ---------------     ---------------

     Cash (used for) provided by operations before changes in working
     capital and store closing activities...............................          (262,424)          (195,506)             37,179
     Changes in working capital:
         Decrease in receivables........................................             4,408               8,263               4,942
         Decrease (increase) in merchandise inventories.................           206,049              87,255           (181,546)
         Decrease (Increase) in prepaid expenses and other current assets           12,471             (4,722)            (20,697)
         Increase in accounts payable...................................            28,463               2,706              20,823
         Decrease in accrued expenses and other current liabilities.....          (15,503)            (26,886)            (91,467)
     Changes due to store closing activities:
         Payments of store closing costs................................          (17,098)             (5,909)             (9,470)
         Store closing charge...........................................           114,732             129,806                 ---
                                                                             ----------------    ---------------     ---------------

     Net cash provided by (used for) operating activities                           71,098             (4,993)           (240,236)
                                                                             ----------------    ---------------     ---------------

     Cash flows from investing activities:
         Purchases of fixed assets......................................           (25,245)          (127,075)           (209,606)
         Purchases of leases............................................                ---            (7,054)            (38,835)
                                                                             ----------------    ---------------     ---------------

     Net cash used for investing activities.............................           (25,245)          (134,129)           (248,441)
                                                                             ----------------    ---------------     ---------------

     Cash flows from financing activities:
         (Payments) borrowings under the revolver credit facilities, net           (74,666)            187,251             129,609
         Borrowings under the Kimco DIP Facility........................             55,000                ---                 ---
         Payments on debt and capital lease obligations.................           (12,785)           (22,668)            (22,191)
         Repurchase of Hills senior notes...............................                ---            (2,852)             (4,636)
         Proceeds from the issuance of senior notes.....................                ---                ---             200,000
         Proceeds from the issuance of common stock, net................                ---                ---             187,262
         Payments of deferred financing costs...........................           (34,058)            (4,595)             (7,939)
         Proceeds from the exercise of options and warrants.............                ---              1,143               1,440
         Purchase of treasury stock.....................................                ---                (8)                 ---
                                                                             ----------------    ---------------     ---------------

     Net cash (used for) provided by financing activities...............           (66,509)            158,271             483,545
                                                                             ----------------    ---------------     ---------------

     (Decrease) Increase in cash and cash equivalents...................           (20,656)             19,149             (5,132)
     Cash and cash equivalents, beginning of period.....................             49,761             30,612              35,744
                                                                             ----------------    ---------------     ---------------

     Cash and cash equivalents, end of period...........................            $29,105            $49,761             $30,612
                                                                             ================    ===============     ===============

      (The accompanying notes are an integral part of these consolidated financial statements.)

</TABLE>

<PAGE>


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


  1.  Summary of Significant Accounting Policies:

(a)   Nature of operations:
      Ames Department Stores, Inc. (a Delaware corporation) and its subsidiaries
(collectively, "Ames" or the "Company") are retail merchandisers operating under
one business segment. As of March 31, 2002, Ames operated 333 discount
department stores in fourteen states in the Northeast, Midwest, and Mid-Atlantic
regions, as well as the District of Columbia. As of August 20, 2001 the Company
began operating its business as a Debtor-In-Possession under Chapter 11 of the
U.S. Bankruptcy code (see Note 2.)


 (b)  Basis of presentation and principles of consolidation:
      The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to use
judgment and make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent gains and losses at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The level of uncertainty in estimates and assumptions
increases with the length of time until the underlying transactions are
completed. As such, the most significant uncertainty in the Company's
assumptions and estimates involved in preparing the financial statements include
lease cancellation costs, self-insurance reserves, and legal and tax reserves.
Actual results could ultimately differ from those estimates.

      The consolidated financial statements include the accounts of Ames and its
subsidiaries, all of which are wholly-owned. All intercompany accounts and
transactions have been eliminated.

      Certain prior year items have been reclassified to conform to the current
year presentation.


(c)   Fiscal year:
      The Company's fiscal year ends on the Saturday nearest to January 31st.
The fiscal year ended February 2, 2002 ("Fiscal 2001" or "2001") included
fifty-two weeks. The fiscal year ended February 3, 2001 ("Fiscal 2000" or
"2000") included fifty-three weeks. The fiscal year ended January 29, 2000
("Fiscal 1999" or "1999") included fifty-two weeks.  "Fiscal 2002" will end
on February 1, 2003.


(d)   Cash and cash equivalents:
      Ames considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash and cash equivalents. As of
February 2, 2002 and February 3, 2001, there were no such short-term
investments.


(e)   Inventory valuation:
      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. The Company records reserves for inventory shrinkage
and markdowns on a regular basis, such reserves are reflected as a reduction in
inventory value in the Consolidated Balance Sheet.


(f)   Fixed assets:
      Land and buildings, fixtures and equipment, and leasehold improvements are
recorded at cost. Major replacements and betterments are capitalized.
Maintenance and repairs are charged to earnings as incurred. The cost of assets
sold or retired and the related amounts of accumulated depreciation are
eliminated from the accounts in the year of disposal, with the resulting gain or
loss included in earnings.


(g)   Intangible assets:
      Beneficial lease rights represent the excess of fair market value over
contract value of certain of the leases acquired in the acquisition of Hills.
Goodwill represents the excess of cost over the fair value of net tangible
assets acquired at the date of acquisition. As of February 2, 2002, accumulated
amortization of goodwill and accumulated amortization of beneficial lease rights
were $14.2 million and $10.3 million, respectively (See New Accounting
Pronouncements).


      The recoverability of the carrying values of intangible assets is
evaluated periodically based on a review of forecasted operating cash flows and
the profitability of the related business. There were no material adjustments to
the carrying values of intangible assets resulting from these evaluations in
Fiscal 2000 and 1999. During Fiscal 2001, beneficial lease rights totaling $17.3
million were written off due to the closing of one hundred and nineteen stores.

      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 $7.6 million. These costs were written off during Fiscal 2001.



(h)   Depreciation and amortization:
      Buildings and fixtures and equipment are recorded at cost and are
depreciated on a straight-line basis over their estimated useful lives.
Buildings are depreciated over 31.5 years, furniture and fixtures over ten
years, equipment over seven years, motor vehicles over five years, and computer
software and hardware over three to five years. Property under capital leases
and leasehold improvements are depreciated over their estimated useful lives.
The Company currently has buildings with an aggregate net book value of $48.3
million and $114.4 million and point-of-sale equipment with a net book value of
$18.1 million and $25.8 million under capital leases for Fiscal 2001 and 2000,
respectively.

      Beneficial lease rights are being amortized over the terms of the related
leases (which average approximately twenty-five years). Goodwill is being
amortized over a twenty-five year period. (See New Accounting Pronouncements).

      The excess of revalued net assets over equity under fresh-start reporting
is being amortized over a ten-year period. The amount recorded as a credit to
depreciation and amortization was $6.2 million in each of Fiscal 2001, 2000, and
1999 (See New Accounting Pronouncements).

      The unfavorable lease liability is being amortized on a straight-line
basis over the applicable lease terms (see Note 6).

      Depreciation and amortization includes adjustments recorded pursuant to
the application of Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The Company did not record an impairment loss during Fiscal
2001 and 1999, but recorded an impairment charge of $5.0 million for Fiscal
2000.


 (i)  Deferred charges:
      Debt transaction costs and related issue expenses are deferred and
amortized over the term of the associated debt. Lease acquisition and related
costs are deferred and amortized over the term of the lease. The Company wrote
off $21.9 million of deferred financing costs during Fiscal 2001.


(j)   Income taxes:
      Ames files a consolidated federal income tax return. Recorded deferred
income taxes are provided for at currently effected statutory rates on the
differences in the basis of assets and liabilities for tax and financial
reporting purposes. If recorded, deferred income taxes are classified in the
balance sheet as current or non-current based upon the expected future period in
which such deferred income taxes are anticipated to reverse. The Company has
recorded a full valuation allowance on net deferred tax assets, during Fiscal
2001, as realization of such assets in future years is uncertain.


(k)  Self-insurance reserves:
     The Company is self-insured for workers  compensation,  general  liability,
property and  casualty,  and accident and health  insurance  claims,  subject to
certain  limitations.  The Company has  insurance  coverage  for losses that may
occur above certain  levels.  As of February 2, 2002 and February 3, 2001,  Ames
had   established   self-insurance   reserves   of  $42.3  and  $60.5   million,
respectively.  Additionally,  the Company  has a $14.0  million  self  insurance
reserve currently classified as liabilities subject to compromise as of February
2, 2002. The long-term  portion of these reserves is classified as part of other
long-term  liabilities in the  Consolidated  Balance Sheets.  These reserves are
subject to changes in  estimates  as claims are  settled or  continue  to remain
outstanding.


(l)   Leased department and other income:
      Ames has an agreement with an independent contractor that allows the
independent contractor to operate shoe departments within the Ames stores. Ames
receives a percentage of the sales under the agreement.



(m)   Revenue recognition:
      The Company recognizes revenue when its customer takes possession of
merchandise. An appropriate reserve for estimated sales returns is recorded and
is reflected in accrued expenses in the accompanying Consolidated Balance
Sheets.

      The Company adopted Staff Accounting Bulletin ("SAB") No. 101 during the
fourth quarter of Fiscal 1999, effective as of the beginning of Fiscal 1999.
Prior to the adoption of SAB No. 101, the Company recorded layaway sales when
customers placed merchandise on layaway. SAB No. 101 mandated that layaway sales
be recorded when the customer takes possession of the merchandise. The impact of
adopting this SAB resulted in a cumulative effect adjustment to 1999 earnings of
approximately $1.1 million, net of $0.6 million tax benefit.

(n)   Advertising expense:
     The Company  participates in cooperative  advertising programs supported by
its vendors. Advertising costs are expensed as incurred and are presented net of
any funds received from vendors for these programs.  The Company expensed $128.3
million,  $136.6  million  and $123.9  million  for Fiscal  2001,  2000 and 1999
respectively.  These amounts are included as a component of selling  general and
administrative expenses.

(o)   New accounting pronouncements:
      During June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 141 "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." In
addition to requiring the use of the purchase method for all business
combinations, SFAS No. 141 requires intangible assets that meet certain criteria
to be recognized as assets apart from goodwill. SFAS No. 142 addresses
accounting and reporting standards for acquired goodwill and other intangible
assets, and generally, requires that goodwill and indefinite life intangible
assets no longer be amortized but be tested for impairment annually. Finite life
intangible assets will continue to be amortized over their useful lives. The
Company adopted SFAS No. 142 at the start of Fiscal 2002. As a result of the
adoption of this standard the Company recorded a cumulative effect adjustment,
in Fiscal 2002, of $5.6 million reflecting the elimination or "excess of
revalued net assets over equity under fresh-start reporting," also referred to
as Negative Goodwill. In addition, the Company estimates that $2.6 million of
goodwill amortization will be eliminated in Fiscal 2002 as a result of the
adoption of this standard. Further determination as to any potential impairment
of Goodwill and other intangible assets as calculated under the provisions of
these new standards has not yet been determined by the Company.

      In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs and is effective for fiscal
years beginning after June 15, 2002. Management does not expect the impact of
SFAS No. 143 to be material to the Company's consolidated financial statements.

      During August, 2001 the Financial Accounting Standard Board issued SFAS
No. 144 "Accounting for the impairment or disposal of long-lived assets." The
statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121 "Accounting for the
impairment of long-lived assets and for long-lived assets to be disposed of" and
the accounting and reporting provisions of Accounting Principles Board No. 30
"Reporting the results of operations-Reporting the effects of disposal of a
segment of business, and extraordinary, unusual and infrequently occurring
events and transactions for the disposal of a segment of a business". SFAS No.
144 excludes goodwill and other intangibles that are not amortized. The
statement is effective for fiscal years beginning after December 15, 2001. The
impact of this statement on the Company's consolidated financial statements is
currently being evaluated.


2.    Petition for Relief under Chapter 11

      On August 20, 2001, the Company and each of its four subsidiaries
(collectively, the "Debtors") filed voluntary petitions under Chapter 11 of the
U.S. Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"). The
Chapter 11 cases Nos. 01-42217 (REG) through 01-42221 (REG) (the "Chapter 11
Cases") have been consolidated for the purpose of joint administration. As of
August 20, 2001, the Debtors began operating their business as
debtors-in-possession under Chapter 11 of the Bankruptcy Code and are subject to
the jurisdiction of the Bankruptcy Court.

      As a result of these filings, actions to collect pre-petition indebtedness
are stayed and other contractual obligations against the Debtors may not be
enforceable. In addition, under the Bankruptcy Code, the Debtors may assume or
reject executory contracts, including real estate leases, employment contracts,
personal property leases, service contracts and other unexpired executory
pre-petition contracts, subject to Bankruptcy Court approval. Parties affected
by these rejections may file claims with the Bankruptcy Court in accordance with
the Bankruptcy Code. The Debtors cannot presently determine the ultimate
liability that may result from the filing of claims for all contracts that may
be rejected, estimates have been made however, for certain contracts to be
rejected and are included in liabilities subject to compromise category.
Substantially all pre-petition liabilities are subject to settlement under a
plan of reorganization to be voted on by the creditors and equity holders and
approved by the Bankruptcy Court. Although the Debtors expect to file a
reorganization plan or plans that provide for emergence from bankruptcy sometime
during Fiscal 2002, there can be no assurance that a reorganization plan or
plans will be proposed by the Debtors or confirmed by the Bankruptcy Court or
that any such plan will be consummated.


      As provided by the Bankruptcy Code, the Debtors have the exclusive right
to submit a plan of reorganization for 120 days from the date of the filing of
the voluntary petitions. On December 5, 2001, the Company filed a motion with
the Bankruptcy Court to extend the period of exclusivity and on December 18,
2001, the court granted an extension of the exclusivity period to May 31, 2002.
If the period of exclusivity is not further extended and the Debtors fail to
file a plan of reorganization during such period, or if such plan is not
accepted by the required number of creditors and equity holders within the
required period, any party in interest may subsequently file its own plan of
reorganization for the Debtors. A plan of reorganization must be confirmed by
the Bankruptcy Court, upon certain findings being made by the Bankruptcy Court
which are required by the Bankruptcy Code. The Bankruptcy Court may confirm a
plan of reorganization notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity holders if certain requirements of the
Bankruptcy Code are met. As part of its restructuring, the Company anticipates
that all existing equity will be cancelled. The Chapter 11 filing, the
uncertainty regarding the eventual outcome of the reorganization case and the
effect of other unknown adverse factors could threaten the Company's existence
as a going concern.



      At the first day hearing held on August 20, 2001 before Judge Robert E.
Gerber, the Bankruptcy Court entered its first day orders granting authority to
the Debtors to, among other things, pay pre-petition and post-petition employee
wages, salaries, benefits and other employee obligations, pay certain
administrative fees and insurance related obligations and honor customer service
programs, including warranties, returns, layaways and gift certificates.



      Schedules have been filed with the Bankruptcy Court setting forth the
assets and liabilities of the Debtors as of the filing date as shown by the
Company's accounting records. The Bankruptcy Court established a March 25, 2002
bar date for claims in the Company's Chapter 11 Cases. Differences between
amounts shown by the Company and claims filed by creditors will be investigated
and, if necessary, unresolved disputes will be determined by the Bankruptcy
Court. The ultimate settlement terms for such liabilities are subject to a plan
of reorganization, and accordingly, are not presently determinable.


 3.  Debt:

      The Company's outstanding debt as of February 2, 2002 and
February 3, 2001 is listed and described below:
<TABLE>
<S>                                                                                  <C>                    <C>

                                                                                        February 2,           February 3,
                                                                                            2002                 2001
                                                                                      -----------------     ---------------
      Secured Debt:
         Borrowings under the Company's Revolving Credit Agreements                           $287,128            $361,794
         Borrowings under the KIMCO DIP Agreement                                               55,000                 ---
      Unsecured Debt:
         12.5% Senior Notes, due July 2003, discount rate of 11.79%.............                43,605              43,605
         10% Senior Notes, due April 2006.......................................               200,000             200,000
                                                                                      -----------------     ---------------

     Total Face Value of Debt...................................................               585,733             605,399
         Add: Premium...........................................................                   542                 658
                                                                                      -----------------     ---------------
      Total Debt................................................................              $586,275            $606,057
                                                                                      =================     ===============

      The unsecured debt is classified as liabilities subject to compromise as of February 2, 2002.
</TABLE>


Debtor-In-Possession Facilities

      On August 20, 2001, the Company entered into a $700 million
Debtor-In-Possession Credit Agreement, dated as of August 20, 2001 (the "GECC
DIP Facility"), with General Electric Capital Corporation ("GE Capital"). The
Company also entered into a $55 Million Credit Agreement, dated as of August 20,
2001 ( the "Kimco DIP Facility and together with the GECC DIP Facility, the "DIP
Facilities"), with Kimco Funding, LLC ("Kimco"). The GECC DIP Facility consists
of a $575 million Tranche A Revolver (including a Swing Line Commitment of $30
million as a subfacility thereof), a $50 million fully drawn Tranche B Revolver
and a $75 million Term Loan. The GECC DIP Facility, as amended, has a sublimit
of $75 million for the issuance of letters of credit. Amounts borrowed under the
Tranche A and Tranche B Revolvers bear interest at the Index Rate plus 1.50% per
annum or, at the election of the Company, the applicable LIBOR Rate plus 2.75%
per annum. Amounts borrowed under the Term Loan bear interest at the Index Rate
plus 5.25% per annum. The Company must also pay an unused commitment fee equal
to 0.35% per annum multiplied by the average unused daily balance of the
Revolving Loan and the Swing Line Loan. The GECC DIP Facility terminates on the
earliest of, among other dates, August 20, 2003 and the effective date of a plan
of reorganization in the Chapter 11 Cases. Proceeds from the GECC DIP Facility
were used to repay in full the Prior Credit Facility (as defined below), and
will be used to pay transaction costs and expenses related to the Chapter 11
Cases, to provide working capital and for other general corporate purposes.

      The GECC DIP Facility replaced the Company's former credit facility under
the Credit Agreement (the "Prior Credit Facility") with GE Capital, as agent,
and a syndicate of other banks and financial institutions. The Prior Credit
Facility provided for a secured revolving credit facility of up to $750 million,
with a sub-limit of $50 million for letters of credit, and a secured term
facility for $50 million. On August 20, 2001, as part of its Interim Order, the
Bankruptcy Court authorized the Company to use the proceeds of the GECC DIP
Facility to repay the Company's outstanding indebtedness under the Prior Credit
Facility. On September 25, 2001, the Bankruptcy Court issued a final order
authorizing the Company to use the proceeds of the GECC DIP Facility to repay
the Company's outstanding indebtedness under the Prior Credit Facility.

      The lenders under the GECC DIP Facility have a super-priority claim
against the estates of the Debtors (except with respect to the Company's right,
title and interest in all real property leases in which the lenders under the
Kimco DIP Facility, as defined below, have a first priority lien).

      The Kimco DIP Facility consists of a $55 million term loan. Amounts
borrowed under the Kimco DIP Facility bear interest at the Index Rate plus 6.00%
per annum. The Company must also pay an additional fee on or prior to July 31,
2002 and each anniversary date thereof occurring on or prior to the maturity
date equal to 0.33% multiplied by the aggregate principal amount of loans
outstanding on such date. The Kimco DIP Facility terminates on the earliest of,
among other dates, August 20, 2003 and the effective date of a plan of
reorganization in the Chapter 11 Cases.

      The lenders under the Kimco DIP Facility have a priority claim against the
estates of the Debtors, which ranks junior to the super-priority claims of the
lenders under the GECC DIP Facility (except with respect to the Company's right,
title and interest in all real property leases in which the lenders under the
Kimco DIP Facility have a first priority lien).

      As of February 2, 2002, borrowings of $287.1 million were outstanding
under the GECC DIP Facility. These borrowings are included in the current
portion of long-term debt in the accompanying consolidated balance sheet as of
February 2, 2002. In addition, $35.0 and $10.8 million of standby and trade
letters of credit, respectively, were outstanding under the GECC DIP Facility.
The weighted average interest rate on the borrowings under the Prior Credit
Facility and the GECC DIP Facility since its inception through February 2, 2002
was 8.87%. The peak borrowing level under the Prior Credit Facility and the GECC
DIP Facility through February 2, 2002 was $573.4 million and occurred in the
fiscal month of May, 2001.

      On April 4,  2002, the Company and its GECC DIP Facility lenders agreed
to certain modifications of the covenants required by the terms of its GECC DIP
Facility.  The GECC DIP Facility amendments are attached as exhibits to this
report on Form 10-K.


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 Stores
Company ("Hills"). The Company had Hills Senior Notes with a recorded value of
$44.1 million outstanding as of August 20, 2001. The Hills Senior Notes pay
interest in January and June and mature July 2003. No principal or interest
payments will be made without Bankruptcy Court approval until a reorganization
plan defining the repayment terms has been approved.


Senior Notes due 2006

      The Company had $200.0 million of its 10% seven-year senior notes (the
"Ames Senior Notes") outstanding as of August 20, 2001. The Ames Senior Notes
pay interest semi-annually in April and October and mature April 2006. The
Company did not pay interest on the Ames Senior Notes in October, 2001, and no
principal or interest payments will be made without Bankruptcy Court approval
until a reorganization plan defining the repayment terms has been approved.
      As of February 2, 2002, the payments due on debt for the next five years
and thereafter were as follows:
<TABLE>
<S>                                                          <C>

      Fiscal Years                                          Amount
      Ending January                                    (000's omitted)
      --------------                                    ---------------
      2003......................................          $  342,128
      2004......................................              43,605
      2005......................................                 ---
      2006......................................                 ---
      2007......................................             200,000
      Thereafter................................                 ---
</TABLE>
<PAGE>
5.    Liabilities Subject to Compromise
<TABLE>
<S>                                                                          <C>

      Liabilities subject to compromise includes estimates subject to reconciliation as of February 2, 2002
      and is composed of the following:

                           Description                                            (in thousands)
                 ------------------------------------------------------     -------------------------
                 Accounts payable trade                                                     $258,730
                 Accounts payable other                                                       74,549
                 Lease rejection and other store closing costs                               108,069
                 Capital lease obligations                                                    22,055
                 Senior notes                                                                244,147
                 Accrued taxes, general liability and other                                   41,181
                 pre-petition obligations
                                                                            -------------------------
                 Liabilities subject to compromise                                          $748,731
                                                                            =========================
</TABLE>


6.    Lease Commitments, Beneficial Leases and Unfavorable Lease Liability:

      Ames is committed under long-term leases for various retail stores,
warehouses, and equipment expiring at various dates through 2026 with varying
renewal options and escalating rent clauses. Some leases are classified as
capital leases under SFAS No. 13 "Accounting for Leases." Ames generally pays
for real estate taxes, insurance, and specified maintenance costs under real
property leases. Most leases also provide for contingent rentals based on
percentage of sales in excess of specified amounts.
<TABLE>
<S>                                                                           <C>             <C>                <C>

      Future minimum lease payments for leases as of February 2, 2002 were as
follows:

                                                                                               Lease Payments
                                                                               -------------------------------------------------
                                                                                Capital         Financing          Operating
                                                                                Leases         Obligations          Leases
       Fiscal Year Ending January                                              --------       -------------        ---------
                                                                                              (000's omitted)
       2003.................................................................... $12,083             $8,392           $59,723
       2004....................................................................  10,645              5,081            57,280
       2005....................................................................  10,582             12,250            55,586
       2006....................................................................  10,442                ---            55,168
       2007....................................................................  10,367                ---            53,869
       Thereafter..............................................................  69,258                ---           382,898
                                                                               ---------      -------------      ------------

       Total minimum lease payments............................................ 123,377             25,723          $664,524
                                                                                                                 ============

       Less: amount representing estimated executory costs.....................    ---                ---
                                                                               ------------    -------------

     Net minimum lease payments................................................  123,377             25,723
       Less: amount representing interest......................................   54,577              5,745
                                                                               ------------    -------------

       Present value of net minimum lease payments.............................   68,800             19,978
       Less: currently payable.................................................    3,827              4,135
                                                                               ------------    -------------

       Long-term lease obligations.............................................  $64,973            $15,843
                                                                               ============    =============


</TABLE>


      The above future minimum lease payments summary includes projected lease
payments for stores which have been closed by the Company but the bankruptcy
court has not yet approved the associated lease rejection claim as of February
2, 2002.  These payments total $75.8 million and $46.1 million for operating
and capital leases, respectively.

      At February 2, 2002, the financing obligations represent sale/leaseback
arrangements. The leases, which have terms up to thirty two months, include
options to purchase some or all of the assets either at the end of the initial
lease term or renewal periods at an amount not greater than the then current
fair market value of the properties.

      Capital lease payments do not include lease payments of $21.0 million due
over the next three years for leases of POS equipment. These payments are
comprised of $2.0 million in interest costs, $0.9 million for executory costs
and $18.1 million in obligations. The obligation for these payments is included
in the liabilities subject to compromise category.


      Total minimum lease payments have not been reduced by minimum sublease
rentals to be received in the aggregate under non-cancellable subleases of
operating leases of approximately $6.2 million as of February 2, 2002.
Amortization of capital lease assets was approximately $15.2 million, $19.5 and
$19.8 million for Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively.
Accumulated amortization of capital lease assets at February 2, 2002 was $44.7
million. Rent expense (income) was as follows:
<TABLE>
<S>                                                                    <C>               <C>                <C>

                                                                         Fiscal            Fiscal             Fiscal
                                                                          2001              2000               1999
      (000's omitted)                                                --------------    -------------      -------------

      Minimum rent on operating leases...........................         $78,203          $81,661            $78,946
      Contingent rental expense..................................           5,569            9,084              8,812
      Sublease rental income.....................................          (1,649)          (1,950)            (1,423)
</TABLE>

      An unfavorable lease liability was recorded in December 1992 under fresh
start reporting and represents the estimated liability related to lease
commitments that exceeded market rents for similar locations. As of February 2,
2002 and February 3, 2001, the unfavorable lease liability was $8.5 million and
$10.0 million, respectively, and is classified as part of other long-term
liabilities in the Consolidated Balance Sheets. This liability is being
amortized as a reduction to depreciation and amortization expense in the
Consolidating Statements of Operations over the remaining lease terms. The
amortization, recorded as a reduction to depreciation and amortization expense,
was $1.2 in Fiscal 2001, $1.3 million in Fiscal 2000 and $1.4 million in Fiscal
1999.


7.    Stockholders' Equity:

Common Stock
      On May 24, 1999, the Company completed the public offering of 5.1 million
shares of Common Stock at a price of $38.75 per share. The proceeds, net of
underwriting discounts, of approximately $187.3 million, were used to reduce
borrowings under the existing revolving credit agreement and for general
corporate purposes.

      The Board of Directors of the Company may authorize the issuance of one or
more series of Preferred Stock and specify for each such series the voting
powers (but not greater than one vote per share), designations, preferences, and
relative, participating, optional, redemption, conversion, exchange, or other
special rights, qualifications, limitations, or restrictions of such series, and
the number of shares in each series.

      Holders of shares of Common Stock are entitled to one vote per share on
all matters to be voted upon by stockholders and are entitled to receive
dividends when, as, and if declared by the Board of Directors. Dividends cannot
be declared under the terms of the Credit Agreement.

      As part of its reorganization, the Company anticipates that existing
equity will be cancelled.


Treasury Stock
      In August 1998, the Company's Board of Directors approved a stock
repurchase program and authorized management to purchase up to 1.5 million
shares of Common Stock. During Fiscal 1998, the Company acquired 79,495 shares
of its Common Stock. The Company did not repurchase any of its Common Stock
during Fiscal 1999. During Fiscal 2000, the Company acquired 1,000 shares of its
Common Stock, increasing the total Common Stock held to 80,495 shares. No
purchases or sales were made in Fiscal 2001.

 Warrants
      An aggregate of 200,000 Series B Warrants were issued on December 30,
1992. Each such warrant entitled the holder to purchase one share of Common
Stock at any time from June 30, 1993 through December 30, 2000. The exercise
price was $5.92 per share. During Fiscal 1998, 100,000 Series B Warrants were
exercised. No Series B Warrants were exercised during Fiscal 1999. During Fiscal
2000, the remaining, outstanding 100,000 Series B Warrants were exercised.

      During Fiscal 2001, there was no warrant activity.


Stock Purchase Rights Agreement

      On November 30, 1994, the Company adopted a Stock Purchase Rights
Agreement (the "Rights Agreement"). Unless previously redeemed by the Company,
the rights will expire on November 29, 2004.

      On September 24, 1999, the Company amended the Rights Agreement (the
"Amendment"), which was approved by the Company's Board of Directors. Among
other things, the Amendment amends the exercise price of a right issued pursuant
to the Rights Agreement to $180.00, subject to adjustment, and makes certain
other technical amendments to the Rights Agreement, most notably the elimination
of certain provisions commonly known as "continuing director" provisions.

<PAGE>
8.    Stock Options:

      The Company currently has in place four stock option plans that, in
general, permit the Company to grant to employees and non-employee directors
options to purchase the Company's Common Stock at an exercise price not less
than 100% of the fair market value of the Common Stock on the date of grant.
These options, depending upon the plan under which they were granted, are
exercisable from six months to five years after date of grant and generally
terminate ten years after date of grant.


      The following table sets forth the stock option activity for all stock
option plans for Fiscal 2001, Fiscal 2000 and Fiscal 1999 (shares in thousands):
<TABLE>
<S>                                      <C>               <C>             <C>         <C>            <C>           <C>


                                                        2001                          2000                      1999
                                         --------------------------------- -------------------------- ---------------------------

                                                               Weighted                    Weighted                    Weighted
                                               Number           Average       Number       Average       Number of     Average
                                                 of            Exercise         of         Exercise        Shares      Exercise
                                               Shares            Price        Shares        Price                       Price
                                              --------         --------      -------      ---------      ---------    ---------
        Outstanding at
        beginning of year............            2,540            17.11        1,618        $22.88         1,128        $12.00
        Granted......................            1,103             1.60        1,202          7.84           744         35.51
        Exercised...................               ---              ---        (145)          3.78         (173)          6.48
        Forfeited....................            (339)            13.44        (135)         18.20          (81)         21.46
                                                   ---                         -----                        ----

        Outstanding at end of year               3,304            12.31        2,540         17.11         1,618         22.88
                                                 =====                         =====                       =====
        Options exercisable at
            year-end                             1,286            17.89          780         19.83           559         10.93
                                                                                 ===                         ===
        Weighted average fair                    $1.32                         $5.95                      $24.90
            value of options granted             =====                         =====                      ======

</TABLE>

      The fair value of options granted per the above table was estimated on the
date of grant using the Black-Scholes pricing model with the following
assumptions: no dividend yield, expected option volatilities ranging from 68% to
124%, a risk-free interest rate equal to U.S. Treasury securities with a
maturity equal to the expected life of the option (weighted average interest
rate of 5.7%, 6.0% and 5.3% for 2001, 2000 and 1999, respectively), and an
expected life from date of grant until option expiration date (weighted average
expected life of 5.3, 5.2, and 5.3 years for 2001, 2000 and 1999, respectively).

      The following table summarizes information about stock options outstanding
as of February 2, 2002 (options in thousands):
<TABLE>
<S>                          <C>                <C>               <C>               <C>              <C>


                                              Options Outstanding                        Options Exercisable
                            ---------------------------------------------------   -----------------------------------
                                                 Weighted
                                Number            Average            Weighted          Weighted           Weighted
          Range of            Of Options         Remaining           Average            Number            Average
           Exercise           Outstanding       Contractual          Exercise         Exercisable         Exercise
            Price              at 2/2/02           Life               Price            at 2/2/02           Price
         -----------         -------------     -------------       ------------      ------------       -----------

         $1.50-3.00                  1,099               4.4              1.65               105              2.17
         $3.13-4.59                    110               2.5              3.59               107              3.56
         $6.06-7.06                    183               3.4              6.99                66              6.97
         $7.45-8.44                    797               3.7              7.47               297              7.50
         $14.38-24.75                  543               3.9             19.53               318             17.37

         $29.00-48.50                  572               2.6             36.05               393             36.05
                                       ---                                                   ---

                                     3,304               3.7             12.31             1,286             17.89
                                     =====                                                ======

</TABLE>
<PAGE>

      The Company accounts for its stock option plans under Accounting
Principles Board ("APB") Opinion No. 25. Had compensation cost for the Company's
2001, 2000 and 1999 stock option grants been determined in accordance with SFAS
No. 123, the Company's net income and net income per common share for Fiscal
2001, Fiscal 2000, and Fiscal 1999 would have approximated the pro forma amounts
below:
<TABLE>
<S>                                    <C>                              <C>                          <C>


                                               Fiscal 2001                    Fiscal 2000                  Fiscal 1999
                                       ------------------------------- ---------------------------- -----------------------------
                                            As                             As                            As
                                         Reported       Pro forma       Reported      Pro forma       Reported     Pro forma
                                     --------------- --------------- ------------- -------------- -------------- --------------

      Net income...................      (813,078)       (820,666)     (240,588)      (246,344)      (17,127)          10,747
      Net income per common share:
      - basic......................        (27.65)         (27.91)        (8.19)         (8.38)           .62             .39
      - diluted....................          (a)             (a)           (a)            (a)             .62             .39

(a) Common stock equivalents have not been included because the effect would be
anti-dilutive.
</TABLE>

      SFAS No. 123 does not apply to stock options granted prior to 1995.


9.    Income Taxes:
      The Company adopted SFAS No. 109 "Accounting for Income Taxes" in
conjunction with the adoption of fresh-start reporting in December 1992. SFAS
No. 109 requires an asset and liability based approach in accounting for income
taxes. Deferred income tax assets and liabilities are recorded to reflect the
tax consequences on future years of temporary differences of revenue and expense
items for financial statement and income tax purposes. Valuation allowances are
provided against assets which are not likely to be realized.

     For Fiscal  2001,  the Company  recorded an income tax  provision of $430.0
million,  which includes state income taxes of approximately  $0.3 million, of
which $0.2 million will be paid in cash, and $429.7 million to fully reserve for
all previously recorded deferred tax assets.  During this Fiscal year, the
Company increased its valuation allowance by $591 million, as discussed below.

      The (benefit) provision for income taxes is comprised of the following:
<TABLE>
<S>                                                                    <C>              <C>               <C>

                                                                          Fiscal           Fiscal            Fiscal
                                                                           2001             2000              1999
      (In millions)                                                        ----             ----              ----

      Federal income tax.............................................     $ ---           $  ---               $ ---
      State income tax...............................................       0.3              1.1                1.2

      Deferred tax (benefit) provision...............................     429.7            (55.9)             (12.7)
      Valuation allowance reduction..................................       ---              ---              (38.1)
                                                                      -------------    -------------     -------------

           Total income tax (benefit) provision......................    $430.0          $ (54.8)            $ (49.6)
                                                                      =============    =============     =============

</TABLE>

<TABLE>
<S>                                                                              <C>                       <C>

      Significant components of the Company's deferred tax assets (liabilities)
are as follows:
                                                                                    February 2,             February 3,
                                                                                       2002                    2001
      (In millions)                                                                    ----                    ----

      Fixed assets..............................................................        $13                    $(2)
      Self insurance reserves...................................................         16                      15
      Store closing reserves....................................................         68                      75
      Leases....................................................................          2                       0
      Inventory reserves........................................................          8                       2
      Vacation pay reserve and other...........................................          38                      45
      Net operating loss carryovers.............................................        551                     400
                                                                                   ----------------        ----------------

      Total deferred tax assets (liabilities)...................................        696                     535
      Valuation allowances......................................................       (696)                   (105)
                                                                                   ----------------        ----------------

      Net deferred tax assets...................................................      $ ---                   $ 430
                                                                                   ================        ================

</TABLE>

      The Company's provision for income taxes resulted in effective rates that
varied from the statutory federal income tax rate as follows:
<TABLE>
<S>                                                                  <C>                    <C>               <C>


                                                                      Fiscal 2001           Fiscal 2000        Fiscal 1999
                                                                      -----------           -----------        -----------
      Statutory federal income tax (benefit) rate..................       (35.0%)               (35.0%)            (35.0%)
      State and local taxes, net of federal benefit................        (5.0%)                (5.0%)             (3.7%)
      Goodwill amortization........................................        (0.3%)                (0.4%)               2.3%
      Other........................................................        (1.8%)                  0.7%               0.4%
                                                                  --------------------    ---------------   --------------

      Effective tax rate before valuation allowance reduction.....        (42.1%)               (39.7%)            (36.0%)
      Valuation allowance (reduction) increase....................         154.3%                 21.2%           (122.1%)
                                                                  --------------------    ---------------   --------------

      Total effective tax (benefit) rate..........................         112.2%               (18.5%)           (158.1%)

                                                                  ====================    ===============    ==============
</TABLE>

      In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some or all of the deferred
taxes will not be realized. The Company has increased its valuation allowance on
its deferred tax assets by $591 million during Fiscal 2001. The Company has
recorded a full valuation allowance on net deferred tax assets as realization of
such assets in future years is uncertain.

      The Company has net operating loss carryovers of approximately $1.3
billion, which are currently available without any annual limitation. These
losses will expire between 2007 and 2022. Net operating losses and other tax
credits may be subject to an annual limitation if the Company experiences a
change in control as defined by Internal Revenue Code Section 382. Additionally,
the Company has filed a $20 million refund claim under Section 172(f) of the
Internal Revenue Code. The Company has received an adverse Technical Advice
Memorandum ("TAM") from the Internal Revenue Service (IRS). 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 in discussions with the IRS concerning
possible settlement of its claim.

      In addition, Ames has targeted jobs tax credit carryovers of approximately
$7 million, which will expire beginning in 2004, and alternative minimum tax
credit carryovers of approximately $4 million, which have no expiration period.

      As a result of the acquisition of the common stock of the Hills Stores
Company , Ames succeeded to the tax attributes of Hills, including net operating
losses of $241 million and general business credits of $11 million. These tax
attributes expire between 2001 and 2018. Ames also has succeeded to minimum tax
credit carryforwards of $3 million, which do not expire. These tax attributes
are significantly limited under Internal Revenue Code Sections 382 and 383,
respectively, as a result of the change in control caused by the Hills
Acquisition. The resulting deferred tax asset has been reduced accordingly.
These tax attributes may be further limited if the Company experiences a change
in control as defined by Internal Revenue Code Section 382.

      Ames has substantial potential state net operating loss carryovers. The
utilizable amounts of such state operating losses have not been quantified
because of the uncertainty related to the mix of future profits in specific
states.

       Hills filed a claim for a refund of federal taxes for the subsequent
years. The refund, which is pending from the IRS, is approximately $7.0 million
before interest. If the Company receives this refund, there will be a
corresponding adjustment to goodwill recorded in connection with the Hills
acquisition.


10.   Benefit and Compensation Plans:

Retirement and Savings Plans
      Ames has defined contribution retirement and savings plans that are
qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986,
as amended, for employees who are classified as full-time and have at least
sixty days of service, or who are part-time and have one year of service, and
have completed at least one thousand hours of service in a twelve month period.
For each participant's contribution (up to a maximum of 5% of such participant's
total compensation), the Company contributes to the Retirement and Savings Plan
an amount equal to 50% of the first 5% contributed. Ames funds all
administrative costs incurred by the plans. Ames's expense associated with this
plan amounted to approximately $4.7 million, $5.2 million, and $6.0 million, in
2001, 2000, and 1999, respectively.


Annual Incentive Compensation Plan

      The Company has an Annual Incentive Compensation Plan (the "Annual Bonus
Plan") that is subject to annual review by the Board of Directors. The Annual
Bonus Plan provides annual cash bonuses based on the achievement of the
Company's financial goals for the year (and customer service goals for store and
field management). There are approximately 1,700 members of management eligible
under the plan. Bonus expense recorded under the plan was $3.0 million, $8.8
million and $9.4 million for Fiscal 2001, Fiscal 2000 and 1999, respectively.


Restricted Stock Awards

1995 Long Term Incentive Plan

      Pursuant to the Company's 1995 Long Term Incentive Plan (the "1995
Incentive Plan"), the Company may make awards of an aggregate amount of up to
500,000 shares of Common Stock and cash payment in an amount up to 50% of the
fair market value (as defined in the 1995 Incentive Plan) of the Common Stock
awarded, determined as of and paid on the vesting date.

      As of February 2, 2002, awards aggregating to 355,000 shares of Common
Stock had been made to certain executives of the Company, all of which had
vested.


1998 Incentive Plan

      Pursuant to the Company's 1998 Management Stock Incentive Plan (the "1998
Incentive Plan"), awards aggregating 45,000, 10,000 and 30,000 shares of Common
Stock were made to certain executives during Fiscal 1999, 2000 and 2001,
respectively. As of February 2, 2002, awards with respect to 220,000 shares of
Common Stock, net of forfeitures, remained issued. Fifty percent (50%) of the
awards with respect to 210,000 shares of Common Stock vest on the fourth
anniversary from the date of grant and 50% on the fifth anniversary. The
remaining awards with respect to 10,000 shares of Common Stock vest three years
from the date of grant.

      A portion of the estimated market value of the awards, including the cash,
has been accrued as compensation expense as of February 3, 2001. The Company
recorded as compensation expense for the 1995 Incentive Plan and the 1998
Incentive Plan $0.3 million, $1.2 million and $1.3 million during Fiscal 2001,
2000 and 1999, respectively.


Loans to Officers

      The Company has provided loans to certain officers of the Company. These
loans bear interest at rates ranging from 4.96% to 6.13 % and are due five years
from the date of origination.


Hills Post Retirement Benefits

      In connection with the acquisition of Hills, Ames assumed the obligations
for a post retirement medical plan. The plan was subsequently curtailed and the
cost associated with the remaining closed group of retirees is not significant.

11.       Commitments and Contingencies:

      On August 20, 2001, the Debtors filed their voluntary petitions for
reorganiztion under Chapter 11 of the Bankruptcy Code with the United States
Bankruptcy Court for the Southern District of New York, Case Nos. 01-42214
though 01-42221 (REG). All civil litigation commenced against the Debtors prior
to that date has been stayed pursuant to the Bankruptcy Code. The Company may
agree from time to time to proceed with the resolution of the certain litigation
or the Court may allow certain litigation to proceed. Any judgments against the
Company, however, will result in claims that ultimately may be paid only
pursuant to a confirmed plan of reorganization.

Other Matters

      Ames is party to various claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of its business. All matters
which arose prior to August 20, 2001 are subject to the automatic stay.

<PAGE>
12.     Supplemental Cash Flow Information:
<TABLE>
<S>                                                                     <C>              <C>               <C>    <C>    <C>    <C>

                                                                           Fiscal           Fiscal           Fiscal
                                                                            2001             2000             1999
      (000's omitted)                                                  -------------    -------------     ------------

      Cash paid for interest and income taxes were as follows:
         Interest......................................................     $67,839          $81,726          $51,485
         Income taxes..................................................         162           $1,834           $3,646
      Ames entered into other non-cash investing and financing activities
      as follows:
         New capital lease obligations..............................         $4,514           $4,478          $14,942
         Issuance of Common Stock under the 1998 Incentive Plan, net......      ---              ---               $1
</TABLE>

       Inventory increased $28.3 million in Fiscal 1999 when a purchase
accounting valuation adjustment related to the Hills acquisition was deemed to
be no longer necessary and was eliminated, resulting in a corresponding
reduction of goodwill. This increase in inventory is properly not reflected as a
use of cash in the Consolidated Statement of Cash Flows.

13.   Fair Values of Financial Instruments:

      The Company's financial instruments as of February 2, 2002 and February 3,
2001 were cash, cash equivalents, and debt. For cash and cash equivalents, the
carrying amounts reported in the Consolidated Balance Sheets approximated fair
values. For obligations, the fair values were estimated using a discounted cash
flow analysis (based upon the Company's incremental borrowing rates for similar
types of borrowing arrangements).

      The carrying amounts and fair values of the Company's financial
instruments at February 2, 2002 and February 3, 2001 were as follows:
<TABLE>
<S>                                                    <C>                               <C>

                                                               Fiscal 2001                      Fiscal 2000
                                                       ------------------------------    -----------------------------
                                                        Carrying           Fair           Carrying          Fair
                                                         Amount            Value           Amount           Value
                                                       --------------    ------------    -------------    ------------
      (000's omitted)

      Cash and cash equivalents......................      $29,105         $29,105          $49,761         $49,761
      Debt:
         Secured debt...............................       342,128         342,128          361,794         361,794
         Unsecured debt..............................      244,147           2,441          244,263          96,377


</TABLE>

14.   Store Closing Charges:
Fiscal 2001

      On August 16, 2001 the Company announced that it would close 47 store
locations. The stores began liquidation sales immediately and closed in October
2001. In connection with these closings, the Company recorded a $75.9 million
charge in the third quarter. The Company also recorded a $13.3 million charge to
cost of merchandise sold for the impairment of inventory value in these stores.

      As a result of the Chapter 11 filing, the Company rejected many of the
real estate leases for the stores closed prior to August 20, 2001. The Company's
estimate for the rejection claim associated with these leases was well below the
amounts previously reserved for these lease obligations. Accordingly, the
Company recorded a reduction of $100 million to its closed store reserve during
the quarter ended November 3, 2001.

      On November 14, 2001 the Company announced that it would close 16 store
locations. The stores began liquidation sales immediately and closed in January,
2002. On November 27, 2001 the Company announced that it would close its
distribution center in Columbus, Ohio. The distribution center closed in
February of 2002. The Company recorded a charge in November of 2001 of $53
million related to these closings. The Company also recorded a $6.2 million
charge to cost of merchandise sold for the impairment of inventory value in
these stores.

      On December 5, 2001 the Company announced that it would close 54 store
locations. The stores began liquidation sales in December, 2001 and closed in
March, 2002. The company recorded a charge in December, 2001 of $85.8 million
related to these closings. A charge of $14.2 million for inventory impairment in
the 54 closing stores is included in the cost of merchandise sold.

Fiscal 2000

      In the fourth quarter of Fiscal 2000, the Company recorded charges of
$139.3 million in connection with the closing of thirty-two stores, including a
$9.5 million inventory impairment charge classified as part of cost of
merchandise sold. The Company closed the stores during the first quarter of
2001, which resulted in a workforce reduction of approximately 2,000 employees.


      The following items represent the major components of the total charges
recorded in Fiscal 2001 and Fiscal 2000 in connection with store closings. The
Company did not record any charges in connection with the closing of stores in
Fiscal 1999.
<TABLE>
<S>                                                                       <C>                <C>

                                                                          Fiscal 2001        Fiscal 2000
                                                                          -----------        -----------
     (000's omitted)

      Lease rejection costs/Lease costs...................                    $ 70,728           $ 88,815
      Net fixed asset write-down..........................                     131,731             29,307
      Other occupancy costs...............................                       4,327              9,101
      Severance costs.....................................                       7,946              2,583
         Reduction in Store Closing Reserve                                   (100,000)               ---
                                                                        ----------------    ---------------
      Subtotal Store closing charge.......................                     114,732            129,806
      Inventory write-down................................                      33,666              9,453
                                                                        ----------------    ---------------

      Total charges.......................................                    $148,398           $139,259
                                                                        ================    ===============
</TABLE>

      The lease and other occupancy costs provided for in the store closing
charge include all projected occupancy costs from date of closing until
estimated lease disposition date.

      The Company paid approximately $6.8 million, $5.9 million and $9.5 million
in Fiscal 2001, 2000 and 1999, respectively, primarily for lease costs related
to previously closed stores.


15.   Leased Department and Other Income:
      The following is a summary of the major components of "Leased department
and other income":

<TABLE>
<S>                                                                     <C>              <C>               <C>

                                                                          Fiscal            Fiscal            Fiscal
      (In thousands)                                                       2001              2000             1999
                                                                      --------------    --------------    -------------

      Leased department income.....................................         $26,903           $27,490          $25,378
      Concession and vending income...............................            1,955             2,046            1,991
      Layaway service fees..........................................          4,844             4,193            3,736
      Gain on sale of assets, net....................................           359             3,953            2,479
      Various other..................................................         3,790             8,731            8,106
                                                                        --------------    --------------    -------------

                                                                            $37,851           $46,413          $41,690
                                                                        ==============    ==============    =============
</TABLE>

16.   Quarterly Financial Data (Unaudited):
<TABLE>
<S>                                                 <C>               <C>              <C>               <C>

      Summarized, unaudited, quarterly financial data for the last two fiscal
years are shown below.

                                                     First          Second         Third             Fourth
(In thousands, except per share data)              --------        --------       --------          --------

Fiscal 2001:
    Net sales...................................   $793,687       $806,014       $676,892           $977,383
    Gross margin................................    227,731        224,550        141,393            221,758
    Net loss....................................    (27,732)      (276,427)      (336,176)          (172,743)(b)
    Net loss per share - basic..................       (.94)         (9.40)        (11.43)             (5.87)
                         diluted................         (a)            (a)            (a)                (a)

Fiscal 2000:
    Net sales...................................  $ 830,657      $ 872,034      $ 920,321         $1,330,573
    Gross margin................................    227,733        241,153        230,559            321,889
    Loss before cumulative effect adjustment and
    and extraordinary item......................   (29,085)        (22,111)       (37,236)          (145,192)
    Loss per share before cumulative
    effect adjustment and extraordinary item....       (.99)          (.75)         (1.27)             (4.94)
    Net loss....................................    (29,085)       (22,111)       (37,236)          (152,156)
    Net (loss per share - basic.................       (.99)         (0.75)         (1.27)             (5.18)
                          diluted...............         (a)            (a)            (a)                (a)
</TABLE>
---------------------------------
    (a) Common stock equivalents have not been included because the effect would
    be anti-dilutive.

    (b) Includes store closing charges of $138.8 million and
    $20.4 million charged to cost of merchandise sold for the impairment of
    inventory reserves.




<TABLE>
<S>                     <C>                <C>                      <C>                       <C>                    <C>

                                                                                                                      SCHEDULE II

                                       AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                                            VALUATION AND QUALIFYING ACCOUNTS
                                                     (In Thousands)


                           Balance at         Charged to                                                              Balance at
                           Beginning           Cost and                                                                 End of
Description                of Period            Expense              Reclassifications          Deductions              Period
-----------             ---------------    ----------------       -----------------------     --------------        --------------

Fiscal 2001:

Store Closing Reserve         $179,365            $114,732 (a)         $(108,438) (d)            $(122,731)              $62,928

Deferred Tax Asset
Valuation Allowance           $105,252            $591,513 (g)                                                          $696,765

Fiscal 2000:

Store Closing Reserve          $55,468            $129,806                    ---                  ($5,909)             $179,365

Deferred Tax Asset
Valuation Allowance            $41,482                                    $63,770 (f)                                   $105,252

Fiscal 1999:

Store Closing Reserve          $59,768                 ---                 $5,170 (b)              ($9,470)              $55,468 (c)

Deferred Tax Asset
Valuation Allowance           $301,547                                                           ($260,065) (e)          $41,482
-------------------------
</TABLE>

(a)        Net of a reduction of $100 million for many of the real estate leases
           for the stores closed prior to Chapter 11 filing. The Company's
           estimate for the rejection claim associated with these leases was
           well below the amounts previously reserved for these lease
           obligations. Accordingly, the Company recorded the reduction to its
           closed store reserve and the expense charge to the income statement.
(b)        Represents an adjustment to the fair market value of assumed Hills
           store closing liabilities recorded in connection with the
           finalization of the Hills acquisition accounting and reclassification
           of other liabilities associated with closed stores.
(c)        The majority of this reserve relates to ongoing property lease
           commitments for stores closed through Fiscal 1999.
(d)        Represents a transfer of $108.4 million to the liabilities subject to
           compromise category, representing the estimated lease rejection cost
           associated with closed stores.
(e)        The Company reduced its valuation allowance on its deferred tax
           assets during Fiscal 1999, which reflects the Company's expectation
           of utilization of net operating loss carryforwards and other
           deferred tax assets in the foreseeable future after considering
           adjustments for potential contingencies.
(f)        The Company has increased its valuation allowance on its deferred tax
           assets during Fiscal 2000.  The valuation allowance reduced the
           deferred tax asset to an amount, which the Company believes, more
           likely than not, that it will realize based on the Company's
           estimated future earnings.
(g)        The Company has increased its valuation allowance on its deferred
           tax assets during Fiscal 2001.  The Company has recorded a full
           valuation allowance on its deferred tax assets as realization of
           such assets in future years is uncertain.

<PAGE>

<TABLE>
<S>             <C>                                                                                 <C>


                                                E X H I B I T I N D E X
                                                                                                      Cross-reference
Exhibit                                                                                                Or page number
Number                                               Exhibit                                            In Form 10-K
---------------    ------------------------------------------------------------------------------    ---------------------

2.1             Third Amended and Restated Plan of Reorganization of the Ames
                Department Stores, Inc. and other members of the Ames Group,
                Citibank, N.A. as Agent, the Parent Creditor's Committee, the
                Subsidiaries Creditor's Committee, the Bond holders' Committee
                and the Employees' Committee dated October 23, 1992
                (incorporated herein by reference to Exhibit 2 of the
                Registrant's Report on Form 8-K filed with the Commission on
                December 31, 1992).

2.2             Statement of Ames Group with respect to conditions to
                Consummation of Third Amended and Restated Joint Plan of
                Reorganization of Ames Department Stores, Inc. other members of
                Ames Group, Citibank, N.A., the Parent Creditor's Committee,
                Subsidiaries Creditors' Committee, Bondholders' Committee and
                Employees' Committee dated December 28, 1992 (incorporated
                herein by reference to Exhibit 2B of the Registrant's Report on
                Form 8-K filed with the Commission on December 31, 1992).

2.3             Ames Department Stores, Inc. Information Supplementing
                Disclosure Statement dated December 29, 1992 (incorporated
                herein by reference to Exhibit 2C of the Registrant's Report
                on Form 8-K filed with the Commission on December 31, 1992).

2.4             Agreement and Plan of Merger,  dated as of November 12, 1998,
                among Ames Department Stores, Inc., HSC Acquisition Corporation
                and Hills Stores Company (incorporated herein by reference to
                Exhibit 99(c)(1) of the Registrant's Schedule 14D-1 filed with
                the Commission on November 12, 1998).

3.1             Amended and Restated  Certificate of Incorporation of Ames
                Department  Stores,  Inc.(incorporated  herein by reference to
                the  Registrant's  definitive proxy filed with the Commission
                on April 8, 1996).

3.2             Form of  By-laws of Ames  Department  Stores,  Inc.  as amended
                February  23,  1995 (incorporated  herein  by  reference  to
                Exhibit  3(b) of the  Registrant's  Annual Report on Form 10-K
                for the fiscal year ended January 28, 1995).

4.1             Specimen Certificate for shares of Common Stock, $.01 par
                value, of Ames Department Stores, Inc.

4.2             Series B Warrant  Certificate  for Purchase of New Common Stock
                of Ames  Department Stores,  Inc.  (incorporated  herein  by
                reference  to Form  8-A  filed  with  the Commission on
                December 11, 1992).


</TABLE>




<PAGE>



                                                E X H I B I T I N D E X

<TABLE>
<S>            <C>                                                                                    <C>
                                                                                                      Cross-reference
Exhibit                                                                                               Or page number
Number                                              Exhibit                                            In Form 10-K
---------------    -----------------------------------------------------------------------------    ----------------------

4.3             Rights  Agreement,  dated as of November 30, 1994,  between
                Ames Department  Stores,Inc. and Chemical Bank, as Rights Agent
                (incorporated herein by reference to Exhibit 4 of the
                Registrant's Quarterly Report on Form 10-Q for the quarterly
                period ended October 29, 1994).

4.4             Amendment No. 1, dated as of September 24, 1999,  to the Rights
                Agreement dated as of November 30, 1994, by and between Ames
                Department Stores, Inc. and ChaseMellon Shareholder Services,
                L.L.C. as successor to Chemical Bank as Rights Agent
                (incorporated herein by reference to Exhibit 4 of the
                Registrant's Quarterly Report on Form 10-Q for the quarterly
                period ended October 30, 1999).

10.1            Retirement and Savings Plan as restated  December 27, 1984, and
                Amendment No. 1(incorporated herein by reference to
                Exhibit 10(n) of the Registrant's  Annual Report on Form 10-K
                for the fiscal year ended January 26, 1985).

10.2            Settlement  Agreement,  dated March 31, 1994, between Ames
                Department Stores, Inc. and Subsidiaries  and Wertheim Schroder
                & Co. Incorporated and James A. Harmon (incorporated  herein by
                reference to Exhibit 10 of the Registrant's  Report on Form
                8-K filed with the Commission on April 8, 1994).

10.3            1994 Management Stock Option Plan (incorporated herein by
                reference to the Registrant's definitive Proxy statement filed
                with the Commission on May 5, 1994).

10.4            1994 Non-Employee Directors Stock Option Plan (incorporated  by
                reference to the Registrant's  definitive Proxy statement filed
                with the Commission on April 10,1995).

10.5            1995 Long Term Incentive Plan (incorporated by reference to the
                Registrant's definitive Proxy statement filed with the
                Commission on April 10, 1995).

10.6            Employment  Agreement,  dated June 1, 1998, between Ames
                Department Stores, Inc. and Joseph  R.  Ettore,  (incorporated
                herein by reference to  Exhibit 10(j) of the Registrant's
                Report on Form 8-K filed with the Commission on June 30, 1998).

10.7            Second Amended and Restated Credit Agreement, dated
                December 31, 1998, among certain financial institutions, as
                Lenders, BankAmerica Business Credit, as the Administrative
                Agent, and Ames FS, Inc., Ames Merchandising Corporation, and
                Hills Department Store Company,(incorporated herein by
                reference to Exhibit 10(k) of the Registrant's Report on
                Form 8-K filed with the Commission on January 15,1999).




</TABLE>


<PAGE>



                                                E X H I B I T  I N D E X
<TABLE>
<S>             <C>                                                                                  <C>


                                                                                                      Cross-reference
Exhibit                                                                                               Or page number
Number                                              Exhibit                                            In Form 10-K
---------------    -----------------------------------------------------------------------------    ----------------------

10.8            Post Merger Transition and Agency Agreement, dated as of
                December 31, 1998, among the Gordon Brothers Retail Partners,
                LLC and The Nassi Group, LLC, Hills Stores Company, Hills
                Department Stores Company and Ames Merchandising Corporation
                (incorporated herein by reference to Exhibit 10(l) of the
                Registrant's Report on Form 8-K filed with the Commission on
                January 15, 1999).

10.9            1998 Stock Incentive Plan (incorporated herein by reference to
                the Registrant's definitive proxy statement filed with the
                Commission on April 8, 1998).

10.10           Employment Agreement, dated March 23, 1999, between Ames
                Department Stores, Inc. and Denis Lemire (incorporated herein by
                reference to Exhibit 10 of the Registrant's Report on Form 8-K
                filed with the Commission on April 2, 1999).

10.11           Employment Agreement, dated March 23, 1999, between Ames
                Department Stores, Inc. and Rolando de Aguiar (incorporated
                herein by reference to Exhibit 10 of the Registrant's Report on
                Form 8-K filed with the Commission on April 2, 1999).

10.12           Senior Secured Financing Agreement dated March 2, 2001, between
                Ames Department Stores, Inc. and GE Capital (incorporated herein
                by reference to Exhibit 10 on Form 8-K filed with the Commission
                on March 12, 2001).

10.13           Debtor-In-Possession Credit Agreement, dated as of August 20,
                2001, among Ames Merchandising Corporation, as borrower, the
                other credit parties signatory thereto, as lenders and General
                Electric Capital Corporation, as agent and lender (incorporated
                herein by reference to Exhibit 10.13 of the Registrants report
                on Form 10-Q filed with the Commission on September 24, 2001.)

10.14           Credit Agreement, dated as of August 20, 2001, among Ames Realty
                II, Inc., a Debtor-In-Possession under Chapter 11 of the
                Bankruptcy Code, as borrower, the other credit parties signatory
                thereto, each a debtor and a Debtor-In-Possession under Chapter
                11 of the Bankruptcy Code, as credit parties, the lenders
                signatory thereto from time to time, as lenders and Kimco
                Funding, LLC, as agent and lender (incorporated herein by
                reference to Exhibit 10.14 of the Registrants report on Form
                10-Q filed with the Commission on September 24, 2001.)

10.15           First Amendment, dated September 21, 2001, to the Debtor In                       page 52
                Possession credit agreement dated as of August 20, 2001 among
                Ames Merchandising Corporation as Borrower, the other credit
                parties signatory thereto, as lenders and General Electric
                Capital Corporation as Agent and Lender

10.16           Second Amendment, dated September 27, 2001, to the Debtor In                      page 57
                Possession credit agreement dated as of August 20, 2001 among
                Ames Merchandising Corporation as Borrower, the other credit
                parties signatory thereto, as lenders and General Electric
                Capital Corporation as Agent and Lender

10.17           Third Amendment, dated October 31, 2001, to the Debtor In                         page 66
                Possession credit agreement dated as of August 20, 2001 among
                Ames Merchandising Corporation as Borrower, the other credit
                parties signatory thereto, as lenders and General Electric
                Capital Corporation as Agent and Lender

10.18           Fourth Amendment, dated February 1, 2002, to the Debtor In                        page 83
                Possession credit agreement dated as of August 20, 2001 among
                Ames Merchandising Corporation as Borrower, the other credit
                parties signatory thereto, as lenders and General Electric
                Capital Corporation as Agent and Lender

10.19           Fifth Amendment, dated April 4, 2002, to the Debtor In                            page 97
                Possession credit agreement dated as of August 20, 2001 among
                Ames Merchandising Corporation as Borrower, the other credit
                parties signatory thereto, as lenders and General Electric
                Capital Corporation as Agent and Lender

10.20           Agency Agreement dated as of August 15, 2001, between The Nassi                   page 118
                Group, LLC, and Ames Merchandising Corporation.

10.21           Agency Agreement dated as of November 12, 2001, between The                       page 124
                Nassi Group, LLC, and Ames Merchandising Corporation.

10.22           Agency Agreement dated as of December 4, 2001, between The Nassi                  page 128
                Group, LLC, and Ames Merchandising Corporation.

11              Schedule of computation of basic and diluted net earnings per                     page 132
                share.

12              Ratio of Earnings to Fixed Charges                                                page 133

21              Subsidiaries of the Registrant                                                    page 134

99.1            Letter to the Commission pursuant to Temporary Note 3T                            page 135


</TABLE>







<PAGE>
                                                                EXHIBIT 10.15

               AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT

     This Amendment to Debtor-In-Possession Credit Agreement, dated as of
September 21, 2001 (this "Amendment"), is entered into by and among Ames
Merchandising Corporation, a Delaware corporation, as debtor and
debtor-in-possession, Ames Department Stores, Inc., a Delaware corporation, as
debtor and debtor-in-possession, Ames Realty II, Inc., a Delaware corporation,
as debtor and debtor-in-possession, Ames Transportation Systems, Inc., a
Delaware corporation, as debtor and debtor-in-possession, Amesplace.com, Inc., a
Delaware corporation, as debtor and debtor-in-possession, General Electric
Capital Corporation, as a Lender and as Agent for Lenders, and the other
Lenders.

                                    RECITALS

        A. Borrower, the other Credit Parties, Agent and Lenders are parties to
that certain Debtor-In-Possession Credit Agreement, dated as of August 20, 2001
(as from time to time amended, restated, supplemented or otherwise modified and
in effect, the "Credit Agreement"), pursuant to which Lenders have made and will
hereafter make loans, advances and other extensions of credit to Borrower.

        B. Borrower, the other Credit Parties, Agent and Lenders wish to amend
the Credit Agreement as and to the extent set forth herein and pursuant to the
terms and conditions set forth in this Amendment.

        C. This Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment. Capitalized terms used herein
without definition are so used as defined in the Credit Agreement and Annex A
thereto.

              NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1.      Amendments.  The Credit Agreement is hereby amended as follows:
        ----------

        1.1. Section 1.5(e) of the Credit Agreement is amended by deleting
existing clause (i) from the penultimate sentence thereof and replacing it with
the following: "(i) 20 days after the Final Order Date or".

        1.2. Section 2.3 of the Credit Agreement is amended by deleting such
section and the heading preceding it and replacing them with the following:"

        "2.3 Further Condition to Loans Made after September 26, 2001. No Lender
shall be obligated to fund any Advance, convert or continue any Loan as a LIBOR
Loan or incur any Letter of Credit Obligation after September 26, 2001, unless
(i) the Final Order shall have been entered by the Bankruptcy Court upon an
application or motion of Borrower reasonably satisfactory in form and substance
to Agent and on such prior notice to such parties as may in each case be
reasonably satisfactory to Agent, (ii) the Final Order shall be in full force
and effect and (iii) the Final Order shall not have been reversed, stayed,
modified or amended."

        1.3. Section 5.13(a) of the Credit Agreement is amended by deleting the
words "prior to the entry of the Final Order" and replacing them with the words
"on or prior to October 1, 2001".

        1.4. Annex A (Definitions) to the Credit Agreement is amended by
deleting from clause (e) of the definition of "Commitment Termination Date" the
words "the date that is 30 days after the Petition Date" and replacing them with
the words "September 26, 2001."

2. Reference to and Effect Upon the Credit Agreement, the Interim Order and
   other Loan Documents.
   -----------------------------------------------------------------------------

        2.1. Agent and Lenders hereby agree that the 30-day deadline for the
entry of the Final Order set forth in decretal paragraph "21" of the Interim
Order (as entered by the Bankruptcy Court on August 20, 2001) shall be extended
until 5:00 p.m. (New York time) on September 26, 2001 and the non-entry of the
Final Order on or before 30 days after the Petition Date shall not constitute an
Event of Default. Borrower, the other Credit Parties, Agent and Lenders hereby
agree that the failure of the Bankruptcy Court to enter a Final Order in form
and substance satisfactory to Agent on or before 5:00 p.m. (New York time) on
September 26, 2001 shall constitute an Event of Default.

        2.2. The Credit Agreement, the Notes and each other Loan Document shall
remain in full force and effect and each is hereby ratified and confirmed by
Borrower and the other Credit Parties. Without limiting the foregoing, the Liens
granted pursuant to the Collateral Documents and the Interim Order shall
continue in full force and effect and the guaranties of Parent and the Credit
Parties other than Borrower shall continue in full force and effect.

        2.3. The execution, delivery and effect of this Amendment shall be
limited precisely as written and shall not be deemed to (a) be a consent to any
waiver of any term or condition, or to any amendment or modification of any term
or condition (except for the specific amendments provided in Section 1 above),
of the Credit Agreement or any other Loan Document or (b) prejudice any right,
power or remedy which the Agent or any Lender now has or may have in the future
under or in connection with the Credit Agreement, the Notes or any other Loan
Document.

        2.4. Each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or any other word or words of similar import
shall mean and be a reference to the Credit Agreement as amended hereby, and
each reference in any other Loan Document to the Credit Agreement or any word or
words of similar import shall be and mean a reference to the Credit Agreement as
amended hereby.

     3.  Counterparts.   This  Amendment  may  be  executed  in  any  number  of
counterparts,  each of which when so executed  shall be deemed an
original but all such counterparts shall constitute one and the same instrument.
A counterpart signature page delivered by fax transmission shall be as effective
as delivery of an originally executed counterpart.

4. Costs and Expenses. As provided in Section 11.3 of the Credit Agreement,
Borrower shall pay the fees, costs and expenses incurred by Agent in connection
with the preparation, execution and delivery of this Amendment (including,
without limitation, reasonable attorneys' fees).

     5.  GOVERNING  LAW. THIS  AMENDMENT  SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN  ACCORDANCE  WITH THE INTERNAL  LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF NEW YORK.

     6. Headings.  Section  headings in this  Amendment are included  herein for
convenience of reference  only and shall not constitute a part of this
Amendment for any other purpose.

                                                    [SIGNATURE PAGES FOLLOW]


<PAGE>



               IN WITNESS WHEREOF, this Amendment has been duly executed as of
the date first written above.

                                                 AMES MERCHANDISING CORPORATION




              The following Persons are signatories to this Amendment in their
capacity as Credit Parties and not as the Borrower.

                                                    AMES DEPARTMENT STORES, INC.





                                                            AMES REALTY II, INC.




                                               AMES TRANSPORTATION SYSTEMS, INC.





                                                             AMESPLACE.COM, INC.




<PAGE>


                                                       GENERAL ELECTRIC CAPITAL
                                               CORPORATION, as Agent and Lender

                                                  FOOTHILL CAPITAL CORPORATION,
                                                                    as Lender


                                      FOOTHILL INCOME TRUST II, L.P., as Lender






<PAGE>


                     SPECIAL SITUATIONS INVESTING GROUP, INC., L.P.,  as Lender







<PAGE>
                                                                  EXHIBIT 10.16

            AMENDMENT NO. 2 TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT

This  Amendment  No. 2 to  Debtor-In-Possession  Credit  Agreement,  dated as of
September  27,  2001  (this  "Amendment"),  is  entered  into by and among  Ames
Merchandising   Corporation,    a   Delaware   corporation,    as   debtor   and
debtor-in-possession,  Ames Department Stores, Inc., a Delaware corporation,  as
debtor and  debtor-in-possession,  Ames Realty II, Inc., a Delaware corporation,
as  debtor  and  debtor-in-possession,  Ames  Transportation  Systems,  Inc.,  a
Delaware corporation, as debtor and debtor-in-possession, Amesplace.com, Inc., a
Delaware  corporation,  as debtor  and  debtor-in-possession,  General  Electric
Capital  Corporation,  as a  Lender  and as Agent  for  Lenders,  and the  other
Lenders.
                                    RECITALS

        A. Borrower, the other Credit Parties, Agent and Lenders are parties to
that certain Debtor-In-Possession Credit Agreement, dated as of August 20, 2001
(as amended to the date hereof and as from time to time hereafter further
amended, restated, supplemented or otherwise modified and in effect, the "Credit
Agreement"), pursuant to which Lenders have made and will hereafter make loans,
advances and other extensions of credit to Borrower.

        B. Borrower, the other Credit Parties, Agent and Lenders wish to amend
the Credit Agreement as and to the extent set forth herein and pursuant to the
terms and conditions set forth in this Amendment.

        C. This Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment. Capitalized terms used herein
without definition are so used as defined in the Credit Agreement and Annex A
thereto.

              NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1.      Amendments.  The Credit Agreement is amended as follows:
        ----------

        1.1. Clause (ii) of Section 6.8(c) of the Credit Agreement is amended by
deleting the number "40" and replacing it with the number "80".

        1.2.  Section 6.23 of the Credit  Agreement is amended by  inserting
               before the period at the end thereof the  following
               words:

        "; provided, however, that if an order is entered in the Chapter 11
        Cases approving a reclamation program on terms and conditions reasonably
        acceptable to Agent, in its reasonable discretion, then, notwithstanding
        the foregoing, (A) the Credit Parties may, in the aggregate, make
        payments pursuant to such reclamation program of up to the lesser of (i)
        $6,000,000 and (ii) the aggregate amount of payments permitted to be
        made by the Credit Parties under the order approving the reclamation
        program and (B) Agent shall establish a Reserve against the Revolver
        Borrowing Base and the Term Borrowing Base in an amount equal to the
        lesser of (i) $6,000,000 and (ii) the aggregate amount of payments
        permitted to be made by the Credit Parties under the order approving the
        reclamation program, provided, however, that, notwithstanding the
        foregoing, no such payment shall be made if any Default or Event of
        Default has occurred and is continuing or would result from the making
        of any such payment or the establishment of any such Reserve".

        1.3. Section 8.1(j) of the Credit Agreement is amended by inserting
after the words "Any event occurs" and before the words ", whether or not
insured or insurable," the words "other than a store closing or store closings
effected in compliance with the provisions set forth in Section 6.8(c),".

        1.4. Section 8.1(w) of the Credit Agreement is amended by inserting
after the words "the claim or Lien of Agent or any Lender" and before the words
"to a claim in excess of $1,000,000 and," the words "under or otherwise based
upon this Agreement, any other Loan Document, the Interim Order or the Final
Order".

        1.5. Annex A (Definitions) to the Credit Agreement is amended by
inserting in the definition of "EBITDA" before the period at the end of the
first sentence thereof, the following as a new clause (e): ", plus (e) for the
Fiscal Year ending February 2, 2002 only, an amount not to exceed $110,000,000
in respect of non-recurring restructuring charges and incremental inventory
mark-downs".

        1.6. Annex A (Definitions) to the Credit Agreement is amended by
inserting in the proper alphabetical order the following new defined term:

        "EBITDAR" means EBITDA plus Lease Expenses."

        1.7. Annex G (Financial Covenants) to the Credit Agreement is deleted in
its entirety and replaced with the new Annex G (Financial Covenants) attached
hereto.

2.   Reference to and Effect Upon the Credit Agreement and other Loan Documents.
    ---------------------------------------------------------------------------

        2.1. The Credit Agreement, the Notes and each other Loan Document shall
remain in full force and effect and each is hereby ratified and confirmed by
Borrower and the other Credit Parties. Without limiting the foregoing, the Liens
granted pursuant to the Collateral Documents, the Interim Order and the Final
Order shall continue in full force and effect and the guaranties of Parent and
the Credit Parties other than Borrower shall continue in full force and effect.

        2.2. The execution, delivery and effect of this Amendment shall be
limited precisely as written and shall not be deemed to (a) be a consent to any
waiver of any term or condition, or to any amendment or modification of any term
or condition (except for the specific amendments provided in Section 1 above),
of the Credit Agreement or any other Loan Document or (b) prejudice any right,
power or remedy which the Agent or any Lender now has or may have in the future
under or in connection with the Credit Agreement, the Notes or any other Loan
Document.

        2.3. Each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or any other word or words of similar import
shall mean and be a reference to the Credit Agreement as amended hereby, and
each reference in any other Loan Document to the Credit Agreement or any word or
words of similar import shall be and mean a reference to the Credit Agreement as
amended hereby.

     3.  Counterparts.  This Amendment  may  be  executed  in  any  number  of
counterparts,  each of which when so executed  shall be  deemed an
original but all such counterparts shall constitute one and the same instrument.
A counterpart signature page delivered by fax transmission shall be as effective
as delivery of an originally executed counterpart.

4. Costs and Expenses. As provided in Section 11.3 of the Credit Agreement,
Borrower shall pay the fees, costs and expenses incurred by Agent in connection
with the preparation, execution and delivery of this Amendment (including,
without limitation, reasonable attorneys' fees).

5.      GOVERNING  LAW. THIS AMENDMENT  SHALL BE GOVERNED BY AND CONSTRUED AND
        ENFORCED IN ACCORDANCE  WITH THE INTERNAL LAWS (AS
        OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NEW YORK.

6.      Headings.  Section  headings in this  Amendment  are included  herein
        for  convenience  of  reference  only and shall not
        constitute a part of this Amendment for any other purpose.

                                                    [SIGNATURE PAGES FOLLOW]


<PAGE>



         IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first written above.

                                                 AMES MERCHANDISING CORPORATION



        The following Persons are signatories to this Amendment in their
capacity as Credit Parties and not as the Borrower.

                                                    AMES DEPARTMENT STORES, INC.




                                                            AMES REALTY II, INC.




                                               AMES TRANSPORTATION SYSTEMS, INC.




                                                             AMESPLACE.COM, INC.




<PAGE>


                                                       GENERAL ELECTRIC CAPITAL
                                               CORPORATION, as Agent and Lender




<PAGE>


                                                   FOOTHILL CAPITAL CORPORATION,
                                                                     as Lender


                                      FOOTHILL INCOME TRUST II, L.P., as Lender




<PAGE>


                     SPECIAL SITUATIONS INVESTING GROUP, INC., L.P.,  as Lender




<PAGE>




                             ANNEX G (Section 6.10)
                                       to
                                CREDIT AGREEMENT

                               FINANCIAL COVENANTS

        Borrower shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with GAAP
consistently applied:

        (a) Minimum Revolver Borrowing Availability. Borrower shall at all times
(1) during the period from December 15 through March 15, inclusive, of each
year, maintain a Revolver Borrowing Availability of at least $75,000,000 and (2)
during the period from March 16 through December 14, inclusive, of each year,
maintain a Revolver Borrowing Availability of at least $25,000,000.


        (b) Minimum Fixed Charge Coverage Ratio. The Credit Parties shall have
on a consolidated basis at the end of each Fiscal Month set forth below, a Fixed
Charge Coverage Ratio for the 12-month period then ended of not less than the
following:
              0.44 for the Fiscal Month ending on October 6, 2001; 0.37 for the
              Fiscal Month ending on November 3, 2001; 0.37 for the Fiscal Month
              ending on December 1, 2001; 0.33 for the Fiscal Month ending on
              January 5, 2002; 0.37 for the Fiscal Month ending on February 2,
              2002; 0.38 for the Fiscal Month ending on March 2, 2002; 0.39 for
              the Fiscal Month ending on April 6, 2002; 0.38 for the Fiscal
              Month ending on May 4, 2002; 0.38 for the Fiscal Month ending on
              June 1, 2002; 0.39 for the Fiscal Month ending on July 6, 2002;
              0.40 for the Fiscal Month ending on August 3, 2002; 0.44 for the
              Fiscal Month ending on August 31, 2002; 0.44 for the Fiscal Month
              ending on October 5, 2002; 0.53 for the Fiscal Month ending on
              November 2, 2002; 0.53 for the Fiscal Month ending on November 30,
              2002; 0.54 for the Fiscal Month ending on January 4, 2003; 0.55
              for the Fiscal Month ending on February 1, 2003 and each Fiscal
              Month thereafter.


        (c) Minimum EBITDAR. The Credit Parties shall have on a consolidated
basis at the end of each period set forth below, EBITDAR for the period then
ended of not less than the following:

              $2,000,000 for the Fiscal Month ending on March 2, 2002;
              $7,000,000 for the period of 2 Fiscal Months ending on April 6,
              2002; $27,959,900 for the period of 3 Fiscal Months ending on May
              4, 2002; $40,785,550 for the period of 3 Fiscal Months ending on
              June 1, 2002; $50,832,550 for the period of 3 Fiscal Months ending
              on July 6, 2002; $32,357,800 for the period of 3 Fiscal Months
              ending on August 3, 2002; $8,000,000 for the period of 3 Fiscal
              Months ending on August 31, 2002; ($21,000,000) for the period of
              3 Fiscal Months ending on October 5, 2002.


        (d) Minimum Inventory. Borrower shall have at the end of each Fiscal
Month set forth below, total Inventory with a book value, valued at the lower of
cost (determined on a first-in, first-out basis) or market (as stated on
Borrower's monthly balance sheet delivered pursuant to paragraph (a) of Annex
E), of not less than the following:

              $578,660,000 for the Fiscal Month ending on October 6, 2001;
              $677,677,000 for the Fiscal Month ending on November 3, 2001;
              $682,028,000 for the Fiscal Month ending on December 1, 2001;
              $463,040,000 for the Fiscal Month ending on January 5, 2002;
              $549,352,000 for the Fiscal Month ending on February 2, 2002;
              $595,951,000 for the Fiscal Month ending on March 2, 2002;
              $619,174,000 for the Fiscal Month ending on April 6, 2002;
              $631,605,000 for the Fiscal Month ending on May 4, 2002;
              $632,498,000 for the Fiscal Month ending on June 1, 2002;
              $585,602,000 for the Fiscal Month ending on July 6, 2002;
              $584,560,000 for the Fiscal Month ending on August 3, 2002;
              $628,553,000 for the Fiscal Month ending on August 31, 2002;
              $702,991,000 for the Fiscal Month ending on October 5, 2002;
              $739,316,000 for the Fiscal Month ending on November 2, 2002;
              $720,335,000 for the Fiscal Month ending on November 30, 2002;
              $496,947,000 for the Fiscal Month ending on January 4, 2003;
              $585,156,000 for the Fiscal Month ending on February 1, 2003;
              $595,951,000 for the Fiscal Month ending on March 1, 2003;
              $619,174,000 for the Fiscal Month ending on April 5, 2003;
              $631,605,000 for the Fiscal Month ending on May 3, 2003;
              $632,498,000 for the Fiscal Month ending on May 31, 2003;
              $585,602,000 for the Fiscal Month ending on July 5, 2003;
              $584,560,000 for the Fiscal Month ending on August 2, 2003;
              $628,553,000 for the Fiscal Month ending on August 30, 2003;

provided, that for each store closed pursuant to clause (ii) of Section 6.8(c),
each of the minimum Inventory amounts set forth above for each Fiscal Month
after such store closing shall be decreased by $1,500,000.


        (e) Minimum Trade Payables to Inventory. Borrower shall have at the end
of each Fiscal Month set forth below, total trade payables (as stated on
Borrower's monthly balance sheet delivered pursuant to paragraph (a) of Annex
E), as a percentage of total Inventory, valued at the lower of cost (determined
on a first-in, first-out basis) or market (as stated on Borrower's monthly
balance sheet delivered pursuant to paragraph (a) of Annex E) of not less than
the following:

              10.3% for the Fiscal Month ending on October 6, 2001; 7.5% for the
              Fiscal Month ending on November 3, 2001; 8.3% for the Fiscal Month
              ending on December 1, 2001; 6.1% for the Fiscal Month ending on
              January 5, 2002;. 7.4% for the Fiscal Month ending on February 2,
              2002; 10.4% for the Fiscal Month ending on March 2, 2002; 7.4% for
              the Fiscal Month ending on April 6, 2002; 6.6% for the Fiscal
              Month ending on May 4, 2002; 8.4% for the Fiscal Month ending on
              June 1, 2002; 7.0% for the Fiscal Month ending on July 6, 2002;
              8.5% for the Fiscal Month ending on August 3, 2002; 13.3% for the
              Fiscal Month ending on August 31, 2002; 12.9% for the Fiscal Month
              ending on October 5, 2002; 13.7% for the Fiscal Month ending on
              November 2, 2002; 13.4% for the Fiscal Month ending on November
              30, 2002; 9.6% for the Fiscal Month ending on January 4, 2003;
              17.9% for the Fiscal Month ending on February 1, 2003; 10.4% for
              the Fiscal Month ending on March 1, 2003; 7.4% for the Fiscal
              Month ending on April 5, 2003; 6.6% for the Fiscal Month ending on
              May 3, 2003; 8.4% for the Fiscal Month ending on May 31, 2003;
              7.0% for the Fiscal Month ending on July 5, 2003; 8.5% for the
              Fiscal Month ending on August 2, 2003; 13.3% for the Fiscal Month
              ending on August 30, 2003.


        (f) Minimum Trade Payables. Borrower shall have at the end of each
Fiscal Month set forth below, total trade payables (as stated on Borrower's
monthly balance sheet delivered pursuant to paragraph (a) of Annex E), of not
less than the following:

              $66,000,000 for the Fiscal Month ending on October 6, 2001;
              $60,000,000 for the Fiscal Month ending on November 3, 2001;
              $75,000,000 for the Fiscal Month ending on December 1, 2001;
              $40,000,000 for the Fiscal Month ending on January 5, 2002;.
              $64,000,000 for the Fiscal Month ending on February 2, 2002;
              $75,000,000 for the Fiscal Month ending on March 2, 2002;
              $75,000,000 for the Fiscal Month ending on April 6, 2002;
              $75,000,000 for the Fiscal Month ending on May 4, 2002;
              $75,000,000 for the Fiscal Month ending on June 1, 2002;
              $75,000,000 for the Fiscal Month ending on July 6, 2002;
              $75,000,000 for the Fiscal Month ending on August 3, 2002;
              $150,000,000 for the Fiscal Month ending on August 31, 2002;
              $150,000,000 for the Fiscal Month ending on October 5, 2002;
              $150,000,000 for the Fiscal Month ending on November 2, 2002;
              $150,000,000 for the Fiscal Month ending on November 30, 2002;
              $75,000,000 for the Fiscal Month ending on January 4, 2003 and
              each Fiscal Month thereafter.


Unless otherwise specifically provided herein, any accounting term used in the
Agreement shall have the meaning customarily given such term in accordance with
GAAP, and all financial computations hereunder shall be computed in accordance
with GAAP consistently applied. That certain items or computations are
explicitly modified by the phrase "in accordance with GAAP" shall in no way be
construed to limit the foregoing. If any "Accounting Changes" (as defined below)
occur and such changes result in a change in the calculation of the financial
covenants, standards or terms used in the Agreement or any other Loan Document,
then Borrower, Agent and Lenders agree to enter into negotiations in order to
amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrower's and its Subsidiaries' financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
provided, however, that the agreement of Requisite Lenders to any required
amendments of such provisions shall be sufficient to bind all Lenders.
"Accounting Changes" means (i) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions), (ii)
changes in accounting principles concurred in by Borrower's certified public
accountants; (iii) purchase accounting adjustments under A.P.B. 16 or 17 and
EITF 88-16, and the application of the accounting principles set forth in FASB
109, including the establishment of reserves pursuant thereto and any subsequent
reversal (in whole or in part) of such reserves; and (iv) the reversal of any
reserves established as a result of purchase accounting adjustments. All such
adjustments resulting from expenditures made subsequent to the Closing Date
(including capitalization of costs and expenses or payment of pre-Closing Date
liabilities) shall be treated as expenses in the period the expenditures are
made and deducted as part of the calculation of EBITDA in such period. If Agent,
Borrower and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Agent, Borrower and Requisite
Lenders cannot agree upon the required amendments within 30 days following the
date of implementation of any Accounting Change, then all Financial Statements
delivered and all calculations of financial covenants and other standards and
terms in accordance with the Agreement and the other Loan Documents shall be
prepared, delivered and made without regard to the underlying Accounting Change.
For purposes of Section 8.1, a breach of a Financial Covenant contained in this
Annex G shall be deemed to have occurred as of any date of determination by
Agent or as of the last day of any specified measurement period, regardless of
when the Financial Statements reflecting such breach are delivered to Agent.

<PAGE>
                                                                  EXHIBIT 10.17

            AMENDMENT NO. 3 TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT

     This Amendment No. 3 to Debtor-In-Possession  Credit Agreement, dated as of
October  31,  2001  (this  "Amendment"),  is  entered  into  by and  among  Ames
Merchandising   Corporation,    a   Delaware   corporation,    as   debtor   and
debtor-in-possession,  Ames Department Stores, Inc., a Delaware corporation,  as
debtor and  debtor-in-possession,  Ames Realty II, Inc., a Delaware corporation,
as  debtor  and  debtor-in-possession,  Ames  Transportation  Systems,  Inc.,  a
Delaware corporation, as debtor and debtor-in-possession, Amesplace.com, Inc., a
Delaware  corporation,  as debtor  and  debtor-in-possession,  General  Electric
Capital  Corporation,  as a  Lender  and as Agent  for  Lenders,  and the  other
Lenders.

                                    RECITALS

        A. Borrower, the other Credit Parties, Agent and Lenders are parties to
that certain Debtor-In-Possession Credit Agreement, dated as of August 20, 2001
(as amended to the date hereof and as from time to time hereafter further
amended, restated, supplemented or otherwise modified and in effect, the "Credit
Agreement"), pursuant to which Lenders have made and will hereafter make loans,
advances and other extensions of credit to Borrower.

        B. Borrower, the other Credit Parties, Agent and Lenders wish to amend
the Credit Agreement as and to the extent set forth herein and pursuant to the
terms and conditions set forth in this Amendment.

        C. This Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment. Capitalized terms used herein
without definition are so used as defined in the Credit Agreement and Annex A
thereto.

              NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1.      Amendments.  The Credit Agreement is amended as follows:
        ----------

        1.1. Annex B to the Credit Agreement (Letters of Credit) is amended by
deleting from clause (i) of the second sentence of paragraph (a) thereof the
words "Fifty Million Dollars ($50,000,000)" and replacing them with the words
"Seventy Five Million Dollars ($75,000,000)".

2.   Reference to and Effect Upon the Credit Agreement and other Loan Documents.
    ---------------------------------------------------------------------------

        2.1. The Credit Agreement, the Notes and each other Loan Document shall
remain in full force and effect and each is hereby ratified and confirmed by
Borrower and the other Credit Parties. Without limiting the generality of the
foregoing, the Liens granted pursuant to the Collateral Documents, the Interim
Order and the Final Order shall continue in full force and effect and the
guaranties of Parent and the Credit Parties other than Borrower shall continue
in full force and effect.

        2.2. The execution, delivery and effect of this Amendment shall be
limited precisely as written and shall not be deemed to (a) be a consent to any
waiver of any term or condition, or to any amendment or modification of any term
or condition (except for the specific amendment provided in Section 1 above) of
the Credit Agreement or any other Loan Document or (b) prejudice any right,
power or remedy which the Agent or any Lender now has or may have in the future
under or in connection with the Credit Agreement, the Notes or any other Loan
Document.

        2.3. Each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or any other word or words of similar import
shall mean and be a reference to the Credit Agreement as amended hereby, and
each reference in any other Loan Document to the Credit Agreement or any word or
words of similar import shall be and mean a reference to the Credit Agreement as
amended hereby.

     3. No  Default.  Borrower  and each  Credit  Party  jointly  and  severally
represent  and warrant to Agent and each Lender  that no Default or
Event of  Default  has  occurred  and is  continuing  or would  result  from the
execution, delivery and performance of this Amendment.

     4.  Counterparts.   This  Amendment  may  be  executed  in  any  number  of
counterparts,  each of which when so executed  shall be deemed an
original but all such counterparts shall constitute one and the same instrument.
A counterpart signature page delivered by fax transmission shall be as effective
as delivery of an originally executed counterpart.

5. Costs and Expenses. As provided in Section 11.3 of the Credit Agreement,
Borrower shall pay the fees, costs and expenses incurred by Agent in connection
with the preparation, execution and delivery of this Amendment (including,
without limitation, reasonable attorneys' fees).

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

7.      Headings.  Section  headings in this  Amendment  are included  herein
        for  convenience  of  reference  only and shall not
        constitute a part of this Amendment for any other purpose.

                                                    [SIGNATURE PAGES FOLLOW]


<PAGE>


         IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first written above.

                                                 AMES MERCHANDISING CORPORATION



        The following Persons are signatories to this Amendment in their
capacity as Credit Parties and not as the Borrower.

                                                    AMES DEPARTMENT STORES, INC.




                                                            AMES REALTY II, INC.




                                               AMES TRANSPORTATION SYSTEMS, INC.





                                                           AMESPLACE.COM, INC.




<PAGE>


                                                       GENERAL ELECTRIC CAPITAL
                                               CORPORATION, as Agent and Lender




<PAGE>


                                                  FOOTHILL CAPITAL CORPORATION,
                                                                       as Lender





<PAGE>


                                      FOOTHILL INCOME TRUST II, L.P., as Lender






<PAGE>


                     SPECIAL SITUATIONS INVESTING GROUP, INC., L.P.,  as Lender





<PAGE>


                                         GMAC COMMERCIAL CREDIT LLC,  as Lender


                                          GMAC BUSINESS CREDIT, LLC,  as Lender





<PAGE>


                                             HELLER FINANCIAL, INC.,  as Lender




<PAGE>


                                         FLEET RETAIL FINANCE, INC.,  as Lender





<PAGE>


                                             MICHIGAN NATIONAL BANK,  as Lender



                                      TEXTRON FINANCIAL CORPORATION,  as Lender





<PAGE>


                                                    RZB FINANCE LLC,  as Lender








<PAGE>


                                     CONGRESS FINANCIAL CORPORATION,  as Lender




<PAGE>


                             NATIONAL CITY COMMERCIAL FINANCE, INC.,  as Lender



<PAGE>


                                       OXFORD STRATEGIC INCOME FUND,  as Lender




<PAGE>


                           EATON VANCE INSTITUTION SENIOR LOAN FUND,  as Lender

                                    EATON VANCE SENIOR INCOME TRUST,  as Lender

                                                      GRAYSON & CO.,  as Lender



<PAGE>


                                              SENIOR DEBT PORTFOLIO,  as Lender





<PAGE>
                                                                  EXHIBIT 10.18

            AMENDMENT NO. 4 TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT

     This Amendment No. 4 to Debtor-In-Possession  Credit Agreement, dated as of
February  1,  2002  (this  "Amendment"),  is  entered  into  by and  among  Ames
Merchandising   Corporation,    a   Delaware   corporation,    as   debtor   and
debtor-in-possession,  Ames Department Stores, Inc., a Delaware corporation,  as
debtor and  debtor-in-possession,  Ames Realty II, Inc., a Delaware corporation,
as  debtor  and  debtor-in-possession,  Ames  Transportation  Systems,  Inc.,  a
Delaware corporation, as debtor and debtor-in-possession, Amesplace.com, Inc., a
Delaware  corporation,  as debtor  and  debtor-in-possession,  General  Electric
Capital  Corporation,  as a  Lender  and as Agent  for  Lenders,  and the  other
Lenders.
                                    RECITALS

        A. Borrower, the other Credit Parties, Agent and Lenders are parties to
that certain Debtor-In-Possession Credit Agreement, dated as of August 20, 2001
(as amended to the date hereof and as from time to time hereafter further
amended, restated, supplemented or otherwise modified and in effect, the "Credit
Agreement").

        B. Borrower, the other Credit Parties, Agent and Lenders wish to amend
the Credit Agreement as and to the extent set forth herein and pursuant to the
terms and conditions set forth in this Amendment.

        C. This Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment. Capitalized terms used herein
without definition are so used as defined in the Credit Agreement and Annex A
thereto.

              NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1.      Amendments.  The Credit Agreement is amended as follows:
        ----------

        1.1. Annex A to the Credit Agreement is amended by deleting from clause
(e) of the definition of "EBITDA" the figure "$110,000,000" and replacing it
with the figure "$175,000,000".

        1.2. Paragraph (a) (Minimum Revolver Borrowing Availability) of Annex G
to the Credit Agreement is amended by inserting the following proviso before the
period at the end thereof:

              "provided, however, that, if Revolver Borrowing Availability on
              any day during the period from January 31, 2002 through March 15,
              2002, inclusive, shall exceed $125,000,000 at all times on such
              day and after taking into effect any Advances requested by
              Borrower to be made on such day, then, only on any such day,
              Borrower shall maintain a Revolver Borrowing Availability of at
              least $50,000,000"

        1.3. Paragraph (d) (Minimum Inventory) of Annex G to the Credit
Agreement is amended by deleting the following proviso: "provided, that for each
store closed pursuant to clause (ii) of Section 6.8(c), each of the minimum
Inventory amounts set forth above for each Fiscal Month after such store closing
shall be decreased by $1,500,000.", and replacing it with the following:
"provided, that, upon the commencement of any store closing which is permitted
under clause (ii) of Section 6.8(c), the minimum Inventory amount set forth
above for the Fiscal Month during which such store closing shall have commenced
and for each Fiscal Month thereafter shall be decreased by $1,500,000 for each
such store closing."

        1.4. Paragraph (f) (Minimum Trade Payables) of Annex G to the Credit
Agreement is amended by inserting the following at the end thereof: "provided,
that, upon the commencement of any store closing which is permitted under clause
(ii) of Section 6.8(c), the minimum trade payables amount set forth above for
the Fiscal Month during which such store closing shall have commenced and for
each Fiscal Month thereafter shall be decreased by the percentage equal to the
product of (a) 0.25% times (b) the total number (without duplication) of such
store closings."

     2. Conditions to  Effectiveness.  The  effectiveness  of the amendments set
forth in Section 1 above is expressly  conditioned upon the satisfaction of each
of the following conditions precedent in a manner acceptable to Agent:

        2.1. Agent's receipt of counterparts of this Amendment, duly executed by
Borrower, each other Credit Party, Agent and each Lender.

3.   Reference to and Effect Upon the Credit Agreement and other Loan Documents.
    ---------------------------------------------------------------------------

        3.1. The Credit Agreement, the Notes and each other Loan Document shall
remain in full force and effect and each is hereby ratified and confirmed by
Borrower and the other Credit Parties. Without limiting the generality of the
foregoing, the Liens granted pursuant to the Collateral Documents, the Interim
Order and the Final Order shall continue in full force and effect and the
guaranties of Parent and the Credit Parties other than Borrower shall continue
in full force and effect.

        3.2. The execution, delivery and effect of this Amendment shall be
limited precisely as written and shall not be deemed to (a) be a consent to any
waiver of any term or condition, or to any amendment or modification of any term
or condition (except for the specific amendments provided in Section 1 above) of
the Credit Agreement or any other Loan Document or (b) prejudice any right,
power or remedy which the Agent or any Lender now has or may have in the future
under or in connection with the Credit Agreement, the Notes or any other Loan
Document.

        3.3. Each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or any other word or words of similar import
shall mean and be a reference to the Credit Agreement as amended hereby, and
each reference in any other Loan Document to the Credit Agreement or any word or
words of similar import shall be and mean a reference to the Credit Agreement as
amended hereby.

     4. No  Default.  Borrower  and each  Credit  Party  jointly  and  severally
represent  and  warrant  to Agent and each  Lender  that no  Default or Event of
Default has  occurred  and is  continuing  or would  result from the  execution,
delivery and performance of this Amendment.

     5.  Counterparts.   This  Amendment  may  be  executed  in  any  number  of
counterparts, each of which when so executed shall be deemed an original but all
such  counterparts  shall constitute one and the same instrument.  A counterpart
signature page delivered by fax  transmission  shall be as effective as delivery
of an originally executed counterpart.

6. Costs and Expenses. As provided in Section 11.3 of the Credit Agreement,
Borrower shall pay the fees, costs and expenses incurred by Agent in connection
with the preparation, execution and delivery of this Amendment (including,
without limitation, reasonable attorneys' fees).

     7.  GOVERNING  LAW. THIS  AMENDMENT  SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN  ACCORDANCE  WITH THE INTERNAL  LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF NEW YORK.

8.      Headings.  Section  headings in this  Amendment  are included  herein
        for  convenience  of  reference  only and shall not
        constitute a part of this Amendment for any other purpose.

                                                    [SIGNATURE PAGES FOLLOW]


<PAGE>


         IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first written above.

                                                 AMES MERCHANDISING CORPORATION



        The following Persons are signatories to this Amendment in their
capacity as Credit Parties and not as the Borrower.

                                                    AMES DEPARTMENT STORES, INC.




                                                            AMES REALTY II, INC.




                                               AMES TRANSPORTATION SYSTEMS, INC.




                                                             AMESPLACE.COM, INC.




<PAGE>


                                                       GENERAL ELECTRIC CAPITAL
                                               CORPORATION, as Agent and Lender



<PAGE>


                                                   FOOTHILL CAPITAL CORPORATION,
                                                                      as Lender


                                      FOOTHILL INCOME TRUST II, L.P., as Lender






<PAGE>


                     SPECIAL SITUATIONS INVESTING GROUP, INC., L.P.,  as Lender




<PAGE>


                                         GMAC COMMERCIAL CREDIT LLC,  as Lender





<PAGE>


                                          GMAC BUSINESS CREDIT, LLC,  as Lender





<PAGE>


                                             HELLER FINANCIAL, INC.,  as Lender

                                         FLEET RETAIL FINANCE, INC.,  as Lender


                     LASALLE  BUSINESS  CREDIT,  INC.,  as Agent  for  Standard
                                   Federal Bank National Association, as Lender




<PAGE>


                                      TEXTRON FINANCIAL CORPORATION,  as Lender




<PAGE>


                                                    RZB FINANCE LLC,  as Lender


                                     CONGRESS FINANCIAL CORPORATION,  as Lender




<PAGE>


                             NATIONAL CITY COMMERCIAL FINANCE, INC.,  as Lender





<PAGE>


                                       OXFORD STRATEGIC INCOME FUND,  as Lender

                           EATON VANCE INSTITUTION SENIOR LOAN FUND,  as Lender



                                    EATON VANCE SENIOR INCOME TRUST,  as Lender

                                                      GRAYSON & CO.,  as Lender

                                              SENIOR DEBT PORTFOLIO,  as Lender



<PAGE>


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





<PAGE>
                                                                  EXHIBIT 10.19

            AMENDMENT NO. 5 TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT

     This Amendment No. 5 to Debtor-In-Possession  Credit Agreement, dated as of
April  4,  2002  (this   "Amendment"),   is  entered  into  by  and  among  Ames
Merchandising   Corporation,    a   Delaware   corporation,    as   debtor   and
debtor-in-possession,  Ames Department Stores, Inc., a Delaware corporation,  as
debtor and  debtor-in-possession,  Ames Realty II, Inc., a Delaware corporation,
as  debtor  and  debtor-in-possession,  Ames  Transportation  Systems,  Inc.,  a
Delaware corporation, as debtor and debtor-in-possession, Amesplace.com, Inc., a
Delaware  corporation,  as debtor  and  debtor-in-possession,  General  Electric
Capital  Corporation,  as a  Lender  and as Agent  for  Lenders,  and the  other
Lenders.

                                    RECITALS

        A. Borrower, the other Credit Parties, Agent and Lenders are parties to
that certain Debtor-In-Possession Credit Agreement, dated as of August 20, 2001
(as amended to the date hereof and as from time to time hereafter further
amended, restated, supplemented or otherwise modified and in effect, the "Credit
Agreement").

        B. Borrower, the other Credit Parties, Agent and Lenders wish to amend
the Credit Agreement as and to the extent set forth herein and pursuant to the
terms and conditions set forth in this Amendment.

        C. This Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment. Capitalized terms used herein
without definition are so used as defined in the Credit Agreement and Annex A
thereto.

              NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1.      Amendments.  The Credit Agreement is amended as follows:
        ----------

        1.1. Existing Annex G (Financial Covenants) to the Credit Agreement is
deleted in its entirety and replaced with the new Annex G (Financial Covenants)
attached hereto.

2.      Conditions to Effectiveness.  The  effectiveness of the amendments set
        forth in Section 1 above is expressly  conditioned upon the
        satisfaction of each of the following conditions precedent in a manner
        acceptable to Agent:

        2.1. Agent's receipt of counterparts of this Amendment, duly executed by
Borrower, each other Credit Party, Agent and Requisite Lenders.

        2.2. Borrower shall have paid an amendment fee to Agent (a) for the
account of each Revolving Lender which has approved this Amendment, as evidenced
by such Revolving Lender's timely execution and delivery of a counterpart
signature page to this Amendment, in an amount equal to 0.25% (i.e., 25 basis
points) of the aggregate of such approving Revolving Lenders' Revolving Loan
Commitments and (b) for the account of each Term Lender which has approved this
Amendment, as evidenced by such Term Lender's timely execution and delivery of a
counterpart signature page to this Amendment, in an amount equal to 0.58333%
(i.e., 58? basis points) of the aggregate of such approving Term Lenders'
outstanding principal amount of the Term Loan.

3.   Reference to and Effect Upon the Credit Agreement and other Loan Documents.
    ---------------------------------------------------------------------------

        3.1. The Credit Agreement, the Notes and each other Loan Document shall
remain in full force and effect and each is hereby ratified and confirmed by
Borrower and the other Credit Parties. Without limiting the generality of the
foregoing, the Liens granted pursuant to the Collateral Documents, the Interim
Order and the Final Order shall continue in full force and effect and the
guaranties of Parent and the Credit Parties other than Borrower shall continue
in full force and effect.

        3.2. The execution, delivery and effect of this Amendment shall be
limited precisely as written and shall not be deemed to (a) be a consent to any
waiver of any term or condition, or to any amendment or modification of any term
or condition (except for the specific amendments provided in Section 1 above) of
the Credit Agreement or any other Loan Document or (b) prejudice any right,
power or remedy which the Agent or any Lender now has or may have in the future
under or in connection with the Credit Agreement, the Notes or any other Loan
Document.

        3.3. Each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or any other word or words of similar import
shall mean and be a reference to the Credit Agreement as amended hereby, and
each reference in any other Loan Document to the Credit Agreement or any word or
words of similar import shall be and mean a reference to the Credit Agreement as
amended hereby.

     4. No  Default.  Borrower  and each  Credit  Party  jointly  and  severally
represent  and warrant to Agent and each Lender  that no  Default or
Event of  Default  has  occurred  and is  continuing  or would  result  from the
execution, delivery and performance of this Amendment.

     5.  Counterparts.   This  Amendment  may  be  executed  in  any  number  of
counterparts, each of which when so executed shall be deemed an original but all
such  counterparts  shall constitute one and the same instrument.  A counterpart
signature page delivered by fax  transmission  shall be as effective as delivery
of an originally executed counterpart.

6. Costs and Expenses. As provided in Section 11.3 of the Credit Agreement,
Borrower shall pay the fees, costs and expenses incurred by Agent in connection
with the preparation, execution and delivery of this Amendment (including,
without limitation, reasonable attorneys' fees).

7.      GOVERNING  LAW. THIS AMENDMENT  SHALL BE GOVERNED BY AND CONSTRUED AND
        ENFORCED IN ACCORDANCE  WITH THE INTERNAL LAWS (AS
        OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NEW YORK.

8.      Headings.  Section  headings in this  Amendment  are included  herein
        for  convenience  of  reference  only and shall not
        constitute a part of this Amendment for any other purpose.


<PAGE>

                             ANNEX G (Section 6.10)
                                       to
                                CREDIT AGREEMENT

                               FINANCIAL COVENANTS

        Borrower shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with GAAP
consistently applied:

        (a) Minimum Revolver Borrowing Availability. Borrower shall at all times
(1) during the period from December 15 through March 15, inclusive, of each
year, maintain a Revolver Borrowing Availability of at least $75,000,000 and (2)
during the period from March 16 through December 14, inclusive, of each year,
maintain a Revolver Borrowing Availability of at least $25,000,000; provided,
however, that, if Revolver Borrowing Availability on any day during the period
from January 31, 2002 through March 15, 2002, inclusive, shall exceed
$125,000,000 at all times on such day and after taking into effect any Advances
requested by Borrower to be made on such day, then, only on any such day,
Borrower shall maintain a Revolver Borrowing Availability of at least
$50,000,000.

                         (b) Minimum Fixed Charge Coverage Ratio. The Credit
              Parties shall have on a consolidated basis at the end of each
              Fiscal Month set forth below, a Fixed Charge Coverage Ratio for
              the 12-month period then ended of not less than the following:
              0.44 for the Fiscal Month ending on October 6, 2001; 0.37 for the
              Fiscal Month ending on November 3, 2001; 0.37 for the Fiscal Month
              ending on December 1, 2001; 0.33 for the Fiscal Month ending on
              January 5, 2002; 0.37 for the Fiscal Month ending on February 2,
              2002; 0.41 for the Fiscal Month ending on March 2, 2002; 0.45 for
              the Fiscal Month ending on April 6, 2002; 0.41 for the Fiscal
              Month ending on May 4, 2002; 0.41 for the Fiscal Month ending on
              June 1, 2002; 0.41 for the Fiscal Month ending on July 6, 2002;
              0.45 for the Fiscal Month ending on August 3, 2002; 0.57 for the
              Fiscal Month ending on August 31, 2002; 0.66 for the Fiscal Month
              ending on October 5, 2002; 0.79 for the Fiscal Month ending on
              November 2, 2002; 0.85 for the Fiscal Month ending on November 30,
              2002; 1.00 for the Fiscal Month ending on January 4, 2003; 1.00
              for the Fiscal Month ending on February 1, 2003 and each Fiscal
              Month thereafter.

        (c) Minimum Inventory. Borrower shall have at the end of each Fiscal
Month set forth below, total Inventory with a book value, valued at the lower of
cost (determined on a first-in, first-out basis) or market (as stated on
Borrower's monthly balance sheet delivered pursuant to paragraph (a) of Annex
E), of not less than the following:

              $578,660,000 for the Fiscal Month ending on October 6, 2001;
              $677,677,000 for the Fiscal Month ending on November 3, 2001;
              $682,028,000 for the Fiscal Month ending on December 1, 2001;
              $463,040,000 for the Fiscal Month ending on January 5, 2002;
              $549,352,000 for the Fiscal Month ending on February 2, 2002;
              $595,951,000 for the Fiscal Month ending on March 2, 2002;
              $619,174,000 for the Fiscal Month ending on April 6, 2002;
              $631,605,000 for the Fiscal Month ending on May 4, 2002;
              $632,498,000 for the Fiscal Month ending on June 1, 2002;
              $585,602,000 for the Fiscal Month ending on July 6, 2002;
              $584,560,000 for the Fiscal Month ending on August 3, 2002;
              $628,553,000 for the Fiscal Month ending on August 31, 2002;
              $702,991,000 for the Fiscal Month ending on October 5, 2002;
              $739,316,000 for the Fiscal Month ending on November 2, 2002;
              $720,335,000 for the Fiscal Month ending on November 30, 2002;
              $496,947,000 for the Fiscal Month ending on January 4, 2003;
              $585,156,000 for the Fiscal Month ending on February 1, 2003;
              $595,951,000 for the Fiscal Month ending on March 1, 2003;
              $619,174,000 for the Fiscal Month ending on April 5, 2003;
              $631,605,000 for the Fiscal Month ending on May 3, 2003;
              $632,498,000 for the Fiscal Month ending on May 31, 2003;
              $585,602,000 for the Fiscal Month ending on July 5, 2003;
              $584,560,000 for the Fiscal Month ending on August 2, 2003;
              $628,553,000 for the Fiscal Month ending on August 30, 2003;

provided, that, the minimum Inventory amounts set forth above assume that
Borrower is operating 403 stores; provided, further, that, upon the commencement
of any store closing which is permitted under clause (ii) of Section 6.8(c), the
minimum Inventory amount set forth above for the Fiscal Month during which such
store closing shall have commenced and for each Fiscal Month thereafter shall be
decreased by $1,500,000 for each such store closing.

        (d) Minimum Trade Payables. Borrower shall have at the end of each
Fiscal Month set forth below, total trade payables (as stated on Borrower's
monthly balance sheet delivered pursuant to paragraph (a) of Annex E), of not
less than the following:

              $66,000,000 for the Fiscal Month ending on October 6, 2001;
              $60,000,000 for the Fiscal Month ending on November 3, 2001;
              $75,000,000 for the Fiscal Month ending on December 1, 2001;
              $40,000,000 for the Fiscal Month ending on January 5, 2002;.
              $64,000,000 for the Fiscal Month ending on February 2, 2002;
              $75,000,000 for the Fiscal Month ending on March 2, 2002;
              $75,000,000 for the Fiscal Month ending on April 6, 2002;
              $75,000,000 for the Fiscal Month ending on May 4, 2002;
              $75,000,000 for the Fiscal Month ending on June 1, 2002;
              $75,000,000 for the Fiscal Month ending on July 6, 2002;
              $75,000,000 for the Fiscal Month ending on August 3, 2002;
              $150,000,000 for the Fiscal Month ending on August 31, 2002;
              $150,000,000 for the Fiscal Month ending on October 5, 2002;
              $150,000,000 for the Fiscal Month ending on November 2, 2002;
              $150,000,000 for the Fiscal Month ending on November 30, 2002;
              $75,000,000 for the Fiscal Month ending on January 4, 2003 and
              each Fiscal Month thereafter;

provided, that, the minimum trade payables amounts set forth above assume that
Borrower is operating 403 stores; provided, further, that, upon the commencement
of any store closing which is permitted under clause (ii) of Section 6.8(c), the
minimum trade payables amount set forth above for the Fiscal Month during which
such store closing shall have commenced and for each Fiscal Month thereafter
shall be decreased by the percentage equal to the product of (a) 0.25% times (b)
the total number (without duplication) of such store closings.

Unless otherwise specifically provided herein, any accounting term used in the
Agreement shall have the meaning customarily given such term in accordance with
GAAP, and all financial computations hereunder shall be computed in accordance
with GAAP consistently applied. That certain items or computations are
explicitly modified by the phrase "in accordance with GAAP" shall in no way be
construed to limit the foregoing. If any "Accounting Changes" (as defined below)
occur and such changes result in a change in the calculation of the financial
covenants, standards or terms used in the Agreement or any other Loan Document,
then Borrower, Agent and Lenders agree to enter into negotiations in order to
amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrower's and its Subsidiaries' financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
provided, however, that the agreement of Requisite Lenders to any required
amendments of such provisions shall be sufficient to bind all Lenders.
"Accounting Changes" means (i) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions), (ii)
changes in accounting principles concurred in by Borrower's certified public
accountants; (iii) purchase accounting adjustments under A.P.B. 16 or 17 and
EITF 88-16, and the application of the accounting principles set forth in FASB
109, including the establishment of reserves pursuant thereto and any subsequent
reversal (in whole or in part) of such reserves; and (iv) the reversal of any
reserves established as a result of purchase accounting adjustments. All such
adjustments resulting from expenditures made subsequent to the Closing Date
(including capitalization of costs and expenses or payment of pre-Closing Date
liabilities) shall be treated as expenses in the period the expenditures are
made and deducted as part of the calculation of EBITDA in such period. If Agent,
Borrower and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Agent, Borrower and Requisite
Lenders cannot agree upon the required amendments within 30 days following the
date of implementation of any Accounting Change, then all Financial Statements
delivered and all calculations of financial covenants and other standards and
terms in accordance with the Agreement and the other Loan Documents shall be
prepared, delivered and made without regard to the underlying Accounting Change.
For purposes of Section 8.1, a breach of a Financial Covenant contained in this
Annex G shall be deemed to have occurred as of any date of determination by
Agent or as of the last day of any specified measurement period, regardless of
when the Financial Statements reflecting such breach are delivered to Agent.




<PAGE>


      IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.

                                                 AMES MERCHANDISING CORPORATION



        The following Persons are signatories to this Amendment in their
capacity as Credit Parties and not as the Borrower.

                                                    AMES DEPARTMENT STORES, INC.



                                                            AMES REALTY II, INC.




                                               AMES TRANSPORTATION SYSTEMS, INC.





                                                             AMESPLACE.COM, INC.







<PAGE>


                                                       GENERAL ELECTRIC CAPITAL
                                               CORPORATION, as Agent and Lender






<PAGE>


                                                   FOOTHILL CAPITAL CORPORATION,
                                                                       as Lender






<PAGE>


                                      FOOTHILL INCOME TRUST II, L.P., as Lender




<PAGE>


                                          GMAC BUSINESS CREDIT, LLC,  as Lender




<PAGE>


                                             HELLER FINANCIAL, INC.,  as Lender





<PAGE>


                                         FLEET RETAIL FINANCE, INC.,  as Lender




<PAGE>


                          STANDARD FEDERAL BANK NATIONAL ASSOCIATION, as Lender



<PAGE>


                                      TEXTRON FINANCIAL CORPORATION,  as Lender




<PAGE>


                                                  RZB FINANCE LLC,  as Lender




<PAGE>


                                     CONGRESS FINANCIAL CORPORATION,  as Lender





<PAGE>


                             NATIONAL CITY COMMERCIAL FINANCE, INC.,  as Lender





<PAGE>


                                       OXFORD STRATEGIC INCOME FUND,  as Lender




<PAGE>


                            EATON VANCE INSTITUTION SENIOR LOAN FUND, as Lender



<PAGE>


                                    EATON VANCE SENIOR INCOME TRUST,  as Lender


<PAGE>


                                                    GRAYSON & CO.,  as Lender




<PAGE>


                                              SENIOR DEBT PORTFOLIO,  as Lender

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






<PAGE>

                                                                EXHIBIT 10.20
                                AGENCY AGREEMENT

        THIS AGREEMENT ("the Agreement") is entered into as of this 15th day of
August, 2001, by and between AMES MERCHANDISING CORPORATION ("AMES"), a Delaware
corporation, having its corporate offices at 2418 Main Street, Rocky Hill,
Connecticut 06067, and THE NASSI GROUP, LLC ("AGENT"), a California limited
liability company, having its offices at 23622 Calabasas Road, Suite 333,
Calabasas, California 91302.

        WHEREAS, there are certain AMES Stores listed on the attached Schedule
"A" (the "Stores") which contain merchandise inventory to be liquidated (the
merchandise inventory being referred to as the "Inventory"); and

        WHEREAS, AMES wishes to employ AGENT for the purpose of liquidating the
Inventory by conducting a so-called store closing or total liquidation sale (the
"Liquidation Sale" or "Sale").

        NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto intending to be legally bound
hereby agree as follows:

        1. SUPERVISION. AGENT shall supply, as a Sale Expense, up to twenty-five
(25) full-time supervisors for the Stores at the outset of the Sale and shall
have the right to reduce or increase that number as dictated by the demands of
the Sale. AGENT, through its management and supervision, shall plan the
advertising, marketing and sales promotion for the Liquidation Sale, arrange the
stock in the Stores for liquidation, determine and effect price reductions so as
to sell the Inventory in the time allotted for the Sale, arrange for and
supervise all personnel and merchandise preparation, and conduct the Sale in a
manner reasonably designed to minimize the expenses of the Sale to AMES and
realize for its benefit the maximum return.

        2.  SECURITY.  AGENT shall  arrange  for  security  against  theft
            of the  Inventory  and  monies,  including,  without
            limitation, protection against customers and employees.  AGENT
            shall utilize current loss prevention store staff.

        3. INCENTIVE PLAN. As an incentive to ensure employee loyalty and hard
work, AGENT will utilize a performance-based Bonus Plan for AMES' store
managers, their assistants and key personnel which will emphasize the
maximization of liquidation proceeds. Said incentive plan shall be approved by
AMES in advance.

        4. LIQUIDATION SALE. The Liquidation Sale shall commence on August 16,
2001. Said date shall hereinafter be referred to as the "Effective Date" for the
Stores. AGENT has, however, had meetings with AMES' management prior to the date
hereof. AGENT shall discount the Inventory (and change discounts from time to
time) and set the duration of the Sale in accordance with its professional
judgment in order to maximize the proceeds and maintain the momentum of the
Sale. Within three (3) days of completion of the Liquidation Sale at any Store,
which is anticipated to be October 21, 2001 (unless otherwise agreed to by AMES
and AGENT), AGENT shall cause the Stores to be left in broom clean condition
(other than with respect to store fixtures and equipment). The date upon which
the last Store is vacated and left in broom clean condition (which in no event
shall be later than October 24, 2001) shall be known as the "Sale Termination
Date."

        5. ADVERTISING. Unless otherwise permitted pursuant to any order of the
bankruptcy court or such other court having applicable jurisdiction (such order
being hereinafter referred to as "Applicable Order"), AGENT shall cause all
advertising to conform to applicable laws and lease instruments, and all such
advertising shall be conducted under the name of AMES. Unless otherwise
permitted pursuant to any Applicable Order, the Sale will be advertised as a
Store Closing Sale, Total Liquidation Sale or similar description, throughout
the Sale Term, and to the extent permitted by the Lease, local ordinance or any
Applicable Order, AGENT shall be permitted to use signs and banners reflecting
this message. AGENT will be sensitive to and work with AMES to resolve conflicts
with advertising near on-going stores as identified by AMES. AMES must, in any
event, approve all advertising and signage prior to its use. The words "Going
Out of Business (GOB)" will not be used in any advertising.

        6. LICENSES - RULES. Unless otherwise provided in any Applicable Order,
AGENT shall work with AMES to obtain all necessary permits and licenses and
comply with all federal, state and local laws, rules and regulations relating to
the Liquidation Sale. AGENT will be responsible for advising its supervisors as
well as AMES' employees under AGENT's supervision on how to comply with those
laws, rules and regulations. Each and every sale shall be conducted on an
"as-is" and "where-is" basis with "all sales final." No refunds or exchanges
whatsoever shall be accepted other than refunds for merchandise purchased before
commencement of the Sale. Such refunds will be recorded and the merchandise, if
saleable, returned to stock for resale, or, if defective, returned to vendor.
Such merchandise shall be included in the aggregate Retail Value, with a
reduction for the prevailing discount in effect at the time the merchandise is
returned. There will be no express warranties regarding the Inventory sold other
than those provided by the manufacturer. All sales shall be for cash, travelers'
checks, AMES Cash Cards and all credit cards currently accepted by AMES. AGENT
shall cause all floor operations to comply with current credit authorization
procedures.
        7. AMES EMPLOYEES. AGENT shall use AMES Store personnel, including Store
management, to the extent AGENT believes the same to be feasible, and AGENT
shall select and schedule the number and type of employees required for the
Sale. AGENT shall, as soon as reasonably possible, notify AMES as to which of
the AMES employees are no longer required for the Sale, and AMES shall dismiss
said personnel in accordance with its applicable termination procedures.

        8. AGENT FEE AND EXPENSE GUARANTEE. As consideration for AGENT's efforts
and services in connection with the Sale, AGENT shall receive a Fee of
$1,057,500 ($22,500 per Store). In addition, if the sales per the AMES Stock
Ledger (audited sales net of returns) during the period starting from the
Effective Date through the Sale Termination Date (the "Gross Proceeds") divided
by the aggregate Retail Value of Inventory (the result of such division being
defined as "Gross Return") exceed fifty-six percent (56%), the AGENT shall be
entitled to an incentive fee equal to (i) thirty percent (30%) of the dollar
value of that portion of the Gross Return that is greater than fifty-six percent
(56%) but less than or equal to fifty-seven percent (57%), (ii) forty percent
(40%) of the dollar value of the Gross Return that is greater than fifty-seven
percent (57%) but less than or equal to fifty-eight percent (58%) and (iii)
twenty-percent (20%) of the dollar value of the Gross Return that is greater
than fifty-eight percent (58%). AGENT's Fee and any incentive fee shall be paid
in accordance with Schedule "B". Notwithstanding anything herein the maximum
AGENT's fee payable to the AGENT hereunder shall not exceed one million eight
hundred fifty thousand dollars ($1,850,000).

        The starting Inventory upon which AGENT's fee and recoveries will be
based will be the Original Retail as calculated by AGENT and AMES. Original
Retail shall mean the sum of (i) Gross Proceeds plus (ii) all markdowns recorded
by the AMES point-of-sale terminals during the period starting from the
Effective Date through the Sale Termination Date (the "POS Markdowns"). The
Original Retail shall be multiplied by 102% in order to determine the aggregate
Retail Value of Inventory. All sales shall be run through AMES point-of-sale
terminals. Gross Proceeds excludes all sales taxes and leased shoe department
sales.

        In addition, to the extent permitted by law, AMES may transfer
additional Inventory into the Stores, provided, that the regular everyday retail
price shall be adjusted to reflect the same price the Inventory is offered for
sale on the Effective Date at the AMES stores that are not closing, provided,
further that in the event such additional Inventory is delivered to the Stores
after August 30, 2001, such Inventory shall be included in the aggregate Retail
Value, with a reduction for the prevailing discount in effect at the time such
Inventory arrives at the Stores. Finally, AMES may require that AGENT not sell
certain Inventory in excess of a given discount (to be provided by AMES). Any
such Inventory remaining as of the end of the Liquidation Sale shall be the
responsibility of AMES.

        9.    EXPENSES.  AMES shall pay the following expenses of the Sale
              (the "Sale Expenses") from proceeds:
              a.Payroll and incentive bonuses for Store employees;
              b. Payroll taxes and benefits for Store employees (excluding sick
              leave, maternity benefits and other leaves of absence, severance
              or termination pay, ERISA coverage and similar benefits), which
              amount shall not exceed 18.20% of Payroll; c. AGENT's actual cost
              for supervisors' fees, reasonable travel costs and bonuses at
              rates agreed to by AMES and Agent; d. Advertising and promotional
              costs, including signage; e. Risk management; f. Outside services
              (excluding Muzak in Stores), bank charges, credit card fees and
              discounts (at AMES' customary rates) and chargebacks; g.
              Utilities; h. Repairs and maintenance; i. Cleaning; j. Supplies;
              k. Travel (store associates); l. "Occupancy" expenses including
              rent, percentage rent, CAM, real estate taxes, rental equipment
              and similar items on a per diem, per Store basis; m.
              Communications; n. Bad check expense; o. Cash over/short; p.
              Sundry.

        AMES and AGENT shall agree, on a weekly basis, to a payroll plan with
respect to employees on a Store-by-Store basis.

        Schedule "C" lists all detailed expense categories by master heading.
Schedule "D" lists account numbers that are to be excluded from the expense
guarantee. AGENT will guarantee that the Sale Expenses will not exceed sixteen
million two hundred sixty-five thousand dollars ($16,265,000). This guarantee is
subject to an Original Retail of approximately one hundred one million seven
hundred thousand dollars ($101,700,000).

        AMES shall provide (not to be considered Sale Expenses), throughout the
Sale Term, central administrative services reasonable or necessary for the Sale,
such as POS administration, other insurance, sales audit, cash reconciliation
and payroll processing.

        AGENT shall charge no home office expense (except for out-of-pocket
travel and related expenses) for its management representation. AMES shall be
responsible for all other expenses which are not Sale Expenses.

        10. LEASED DEPARTMENTS. The leased shoe departments within AMES may
participate in the Liquidation Sale at the option of the operator of such
departments so long as they follow the rules, procedures and discounts
recommended and implemented by AGENT. Applicable lease income for the leased
shoe department accrued during the Liquidation Sale shall be included in Gross
Proceeds. Lease income is defined as the net proceeds received or retained by
AMES during the Sale as determined in accordance with the respective License
Agreement or other Agreement between AMES and the respective Lessee.

        11. CHANGE FUND,  VENDING  MACHINE  FUND AND SNACK BAR.  The change
            funds and any funds from vending  machines and the
            snack bar shall not be considered part of the proceeds of the Sale
            for purposes of this Agreement.

        12.   OTHER SALE MATTERS.
              ------------------

        a. Administration of matters such as layaways, store credits and gift
        certificates will be the responsibility of AMES, but AGENT agrees to
        cooperate fully with AMES in the administration of such matters.

        AGENT will conduct the Sale using all existing merchant policies.

        b. Returns of merchandise purchased before commencement of the Sale will
        be accepted throughout the sale. When a receipt is not present, the
        lowest price offered for the last thirty (30) days will be paid to the
        customer. c. Subject to Section 17 hereof, furniture, fixtures and
        equipment will not be sold.

        13. INSURANCE. AMES shall maintain, during the period of the Sale, all
insurance in amounts at least equal to the insurance coverage presently in
force. AGENT will not be responsible for loss, liability, damage or expense
arising out of any casualty or other loss, unless caused by the intentional or
willful misconduct or gross negligence of AGENT's employees or supervisors. With
respect to losses of Inventory occurring after the Effective Date, any insurance
proceeds shall be deemed Gross Proceeds from the Sale.

        14. INDEMNIFICATION. AGENT and AMES agree to indemnify, defend and hold
each other free and harmless from and against any and all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities,
obligations, costs and expenses of any kind whatsoever, including, without
limitation, attorneys' fees and costs, asserted against, resulting from or
imposed upon, or incurred by either party hereto by reason of or resulting from
a material breach of any term or condition contained in this Agreement or any
willful or intentional act of the other party.
In the event that AGENT's Supervisor directs that an arrest be initiated against
any person in the Store, and said action results in suit against AMES for false
arrest or similar action, then AGENT shall accept full responsibility for its
Supervisor's acts and shall indemnify AMES for any and all damages resulting
from said acts.

        15. AGENCY. The parties hereby agree that AGENT is acting as agent
during the period of this Agreement and as such will observe all of the
fiduciary duties which the law imposes on agents with respect to their
principals. No joint venture or partnership has been formed. In the event that
AMES files a petition for relief under Chapter 11 of the bankruptcy code AMES
shall use its best efforts to cause this Agreement to be approved by the
bankruptcy court as soon as possible.

        16. ADDITIONAL MERCHANDISE. In the event that AMES and AGENT determine
that the Sale would benefit by additional merchandise being supplied to the
Stores, AGENT, at its expense, shall use all reasonable efforts to procure
additional merchandise for the Stores. With respect to any and all proceeds
realized upon the sale of such additional merchandise, AMES and AGENT agree that
AMES shall be entitled to five percent (5%) of such gross proceeds (net of sales
taxes) and AGENT shall be entitled to the remainder thereof.

        17. LIQUIDATION OF FIXTURES. In the event AMES requests AGENT to sell or
otherwise dispose of the fixtures, equipment, furniture, furnishings and other
appurtenances thereto located at the Stores (hereinafter referred to
collectively as "Store Fixtures"), AGENT agrees to use its reasonable best
efforts to sell or otherwise dispose of the Store Fixtures. In consideration for
rendering such services, AMES and AGENT hereby agree that AGENT shall receive
twenty percent (20%) of the gross proceeds (net of sales taxes) realized on the
sale or other disposition of the Store Fixtures. AGENT shall pay to AMES the
remaining eighty percent (80%) of the gross proceeds (net of sales taxes) from
such sale on a weekly basis.

        18.   ASSIGNMENT.  Neither party may assign this Agreement without the
              express written consent of the other party.

        19. NOTICES. All notices or other consents and communications required
under this Agreement or otherwise shall be in writing and effective only upon
receipt, and may be hand-delivered or sent via U.S. express mail, Federal
Express or another recognized overnight courier. Notices to AMES shall be sent
to Grant Sanborn, Executive Vice President, at the address noted above with a
required copy to David Lissy, General Counsel, and notices to Nassi, shall be
sent to Daniel Kane at the address noted above (or such other address as may be
provided).

        20. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with regard to its subject matter and may not be amended or
rescinded except by a writing executed by each of the parties hereto. Each party
represents that it has the requisite authority to enter into this Agreement upon
the terms and conditions set forth herein.

        21.  EXECUTION.  This Agreement may be executed in  counterparts  by
             the parties hereto and any signatures  received via
             facsimile transmissions will be binding and effective between the
             parties until original signatures are obtained.

        22.   GOVERNING  LAW. This  Agreement  shall be governed by, and
              construed in accordance  with,  the laws of the State of
              New York, without giving effect to conflict of laws principles.

                                                           THE NASSI GROUP, LLC




                                                           AMES MERCHANDISING
                                                             CORPORATION, INC.




<PAGE>


                                   Schedule D


Account                                                       Name
-------                                                       ----
5500101                                 Eas Cost of Goods Sold
4520100                                 Other inc layaway svc charges
4520101                                 Other inc layaway credits
4540100                                 Best vendors
4540101                                 Other income telephone
4540120                                 Migrant vendor income
4540123                                 Lease dept inc photo promotion
6100220                                 Sal store paid-not-worked
6100230                                 Salaries - Special project
6170200                                 Sal unused sick pay
6240100                                 Employee benefits misc
6300100                                 Advertising circular prod
6300110                                 Photo studio allocation
6300200                                 Adv circular print/paper
6300300                                 Adv circular newspapers
6300400                                 Adv circular mailers
6310100                                 Adv radio media
6310110                                 Adv radio production
6310200                                 Adv TV media
6310210                                 Advertising TV production
6320100                                 Outside signing
6320200                                 Print shop ISP sign alloca
6330100                                 ISP special promotions
6340100                                 Advertising newspaper rop
6350104                                 Administrative allocation
6370100                                 Co-op advertising collection
6570300                                 Inventory expense
6570910                                 1800SHOPAMES
6770130                                 Misc expense use tax
6770640                                 Gift certificate expense
6720200                                 Trailer rental
6720230                                 Forklift rental
6800100                                 Depreciation
6800110                                 Depreciation admin cap lease


<PAGE>


                                   Schedule B

                                      AMES
                       Agent's Fee and Incentive Schedule

Payable as follows:

Prior to the Effective Date                                            $528,750
By August 13, 2001                                                     $264,375
By September 30, 2001                                                  $264,375

Any and all amounts payable to AGENT as an incentive fee shall be paid by
November 30, 2001



<PAGE>
                                                        EXHIBIT 10.21

                                AGENCY AGREEMENT

        THIS AGREEMENT (the "Agreement") is entered into as of this 12th day of
November, 2001, by and between AMES MERCHANDISING CORPORATION ("AMES"), a
Delaware corporation, having its corporate offices at 2418 Main Street, Rocky
Hill, Connecticut 06067, in its capacity as debtor and debtor-in-possession, and
THE NASSI GROUP, LLC ("AGENT"), a California limited liability company, having
its offices at 340 N. Westlake Blvd., Suite 260, Westlake Village, California
91362 (the "AGENT").
                                                      W I T N E S S E T H :
                                                      --------------------

        WHEREAS,  on August 20, 2001, AMES filed a voluntary  petition for
            relief under Chapter 11 of the Bankruptcy  Code, 11 U.
S. C.ss.ss.101 - 1330 (the  "Bankruptcy  Code"),  and is continuing in the
 operation of its business and management of its property
pursuant toss.1107 and 1108 of the Bankruptcy Code;

        WHEREAS, there are certain AMES Stores listed on the attached Schedule
"A" (the "Stores") which contain merchandise inventory to be liquidated (the
merchandise inventory being referred to as the "Inventory"); and

        WHEREAS, AMES wishes to employ AGENT for the purpose of liquidating the
Inventory by conducting a so-called store closing or total liquidation sale (the
"Liquidation Sale" or "Sale").

        NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto intending to be legally bound
hereby agree as follows:

        1. SUPERVISION. AGENT shall supply, as a Sale Expense, up to fourteen
(14) full-time supervisors for the Stores at the outset of the Sale and shall
have the right to reduce or increase that number as dictated by the demands of
the Sale. AGENT, through its management and supervision, shall plan the
advertising, marketing and sales promotion for the Liquidation Sale, arrange the
stock in the Stores for liquidation, determine and effect price reductions so as
to sell the Inventory in the time allotted for the Sale, arrange for and
supervise all personnel and merchandise preparation, and conduct the Sale in a
manner reasonably designed to minimize the expenses of the Sale to AMES and
realize for its benefit the maximum return.

     2.  SECURITY.  AGENT shall arrange for security  against theft of Inventory
and monies,  including,  without  limitation,  protection  against customers and
employees. AGENT shall utilize current loss prevention store staff.

     3. INCENTIVE PLAN.  As an  incentive  to ensure  employee  loyalty and
hard work,  AGENT will utilize  a  performance-based  Bonus  Plan  for  AMES'
store  managers,   their assistants  and  key  personnel   which  will
emphasize  the   maximization  of liquidation proceeds.  Said incentive plan
shall be approved by AMES in advance.

4.  LIQUIDATION  SALE. The Liquidation Sale shall commence on November 25, 2001.
Said date shall  hereinafter  be  referred  to as the  "Effective  Date" for the
Stores. AGENT has, however, had meetings with AMES' management prior to the date
hereof.  AGENT shall discount the Inventory  (and change  discounts from time to
time)  and set the  duration  of the Sale in  accordance  with its  professional
judgment in order to maximize  the  proceeds  and  maintain  the momentum of the
Sale.  Within three (3) days of completion of the Liquidation Sale at any Store,
which is anticipated to be January 20, 2002 (unless  otherwise agreed to by AMES
and AGENT),  AGENT  shall  cause the Stores to be left in broom clean  condition
(other than with respect to store fixtures and  equipment).  The date upon which
the last Store is vacated and left in broom clean  condition  (which in no event
shall be later than  January 23,  2002) shall be known as the "Sale  Termination
Date".

        5. ADVERTISING. Unless otherwise permitted pursuant to the Approval
Order (as defined hereinafter), AGENT shall cause all advertising to conform to
applicable laws and lease instruments, and all such advertising shall be
conducted under the name of AMES. Unless otherwise permitted pursuant to the
Approval Order, the Sale will be advertised as a Store Closing Sale, Total
Liquidation Sale or similar description, throughout the Sale Term, and to the
extent permitted by the Lease, local ordinance or the Approval Order, AGENT
shall be permitted to use signs and banners reflecting this message. AGENT will
be sensitive to and work with AMES to resolve conflicts with advertising near
on-going stores as identified by AMES. AMES must, in any event, approve all
advertising and signage prior to its use. The words "Going Out of Business
(GOB)" will not be used in any advertising.

        6. LICENSES - RULES. Unless otherwise provided in the Approval Order,
AGENT shall work with Ames to obtain all necessary permits and licenses and
comply with all federal, state and local laws, rules and regulations relating to
the Liquidation Sale. AGENT will be responsible for advising its supervisors as
well as AMES' employees under AGENT's supervision on how to comply with those
laws, rules, and regulations. Each and every sale shall be conducted on an
"as-is" and "where-is" basis with "all sales final." No refunds or exchanges
whatsoever shall be accepted other than refunds for merchandise purchased before
commencement of the Sale. Such refunds will be recorded and the merchandise, if
saleable, returned to stock for resale, or, if defective, returned to vendor.
Such merchandise shall be included in the aggregate Retail Value, with a
reduction for the prevailing discount in effect at the time the merchandise is
returned. There will be no express warranties regarding the merchandise sold
other than those provided by the manufacturer. All sales shall be for cash,
travelers' checks, Ames Cash Cards and all credit cards currently accepted by
AMES. AGENT shall cause all floor operations to comply with current credit
authorization procedures.

        7. AMES EMPLOYEES. AGENT shall use AMES Store personnel, including Store
management, to the extent AGENT believes the same to be feasible, and AGENT
shall select and schedule the number and type of employees required for the
Sale. AGENT shall, as soon as reasonably possible, notify AMES as to which of
the AMES employees are no longer required for the Sale, and AMES shall dismiss
said personnel in accordance with its applicable termination procedures.

        8. AGENT FEE AND EXPENSE GUARANTEE. As consideration for AGENT's efforts
and services in connection with the Sale, AGENT shall receive a Fee of $360,000
($22,500 per Store). In addition, if the sales per the Ames Stock Ledger
(audited sales net of returns) during the period starting from the Effective
Date through the Sale Termination Date (the "Gross Proceeds") divided by the
aggregate Retail Value of Inventory (the result of such division being defined
as "Gross Return") exceed sixty and one quarter percent (60.25%) the AGENT shall
be entitled to an incentive fee equal to (i) thirty percent (30%) of the dollar
value of that portion of the Gross Return that is greater than sixty and one
quarter percent (60.25%) but less than or equal to sixty one and one quarter
percent (61.25%), (ii) forty percent (40%) of the dollar value of the Gross
Return that is greater than sixty one and one quarter percent (61.25%) but less
than or equal to sixty two and one quarter percent (62.25%) and (iii) twenty
percent (20%) of the dollar value of the Gross Return that is greater than sixty
two and one quarter percent (62.25%). AGENT's Fee and any incentive fee shall be
paid in accordance with Schedule "B". Notwithstanding anything herein the
maximum AGENT's fee payable to the AGENT hereunder shall not exceed six hundred
thirty thousand dollars ($630,000)

        The starting Inventory upon which AGENT's fee and recoveries will be
based will be the Original Retail as calculated by AGENT and AMES. Original
Retail shall mean the sum of (i) Gross Proceeds plus (ii) all markdowns recorded
by the Ames point-of-sale terminals during the period starting from the
Effective Date through the Sale Termination Date (the "POS Markdowns"). The
Original Retail shall be multiplied by 102% in order to determine the aggregate
Retail Value of InventoryAll sales shall be run through Ames point-of-sale
terminals. Gross Proceeds excludes all sales taxes and leased shoe department
sales.

        In addition, to the extent permitted by law, AMES may transfer
additional Inventory into the Stores provided that the regular everyday retail
price shall be adjusted to reflect the same price the merchandise is offered for
sale on the Sale Commencement Date at the AMES stores that are not closing
provided, further in the event such additional Inventory is delivered to the
Stores after December 4, 2001, such Inventory shall be included in the aggregate
Retail Value, with a reduction for the prevailing discount in effect at the time
such Inventory arrives at the Stores. Finally, AMES may require that AGENT not
sell certain Inventory in excess of a given discount (to be provided by AMES).
Any such inventory remaining as of the end of the Liquidation Sale shall be the
responsibility of Ames.

        9.    EXPENSES.  AMES shall pay the following expenses of the Sale
(the "Sale Expenses") from proceeds:

              a.  Payroll and retention bonuses for Store employees;

              b. Payroll taxes and benefits for Store employees (excluding sick
leave, maternity benefits and other leaves of absence, severance or termination
pay, ERISA coverage and similar benefits), which amount shall not exceed 18.20%
of Payroll;

              c.  AGENT's actual cost for supervisors'  fees,  reasonable
travel costs and bonuses at rates agreed to by AMES and
Agent;

              d.  Advertising and promotional costs, including signage;

              e.  Risk management;

              f.  Outside services (excluding Muzak in Stores), bank charges,
 credit card fees and discounts (at AMES' customary
rates) and chargebacks;

              g.  Utilities;

              h.  Repairs and maintenance;

              i.  Cleaning;

              j.  Supplies;

              k.  Travel (store associates);

              l.  "Occupancy"  expenses  including rent,  percentage  rent,
 CAM, real estate taxes,  rental equipment and similar
items on a per diem, per Store basis;

              m.  Communications;

              n.  Bad check expense;

              o.  Cash over/short;

              p.  Sundry.

        AMES and AGENT shall agree, on a weekly basis, to a payroll plan with
respect to employees on a store-by-store basis.

        Schedule "C" lists all detailed expense categories by master heading.
Schedule "D" lists account numbers that are to be excluded from the expense
guarantee. AGENT will guarantee that Sale Expenses will not exceed $7,045,000.
This guarantee is subject to an Original Retail of forty million dollars
($40,000,000).

        AMES shall provide (not to be considered Sale Expenses), throughout the
Sale Term, central administrative services reasonable or necessary for the Sale,
such as POS administration, other insurance, sales audit, cash reconciliation
and payroll processing.

        AGENT shall charge no home office expense (except for out-of-pocket
travel and related expenses) for its management representation. AMES shall be
responsible for all other expenses which are not Sale Expenses.

        10. LEASED DEPARTMENTS. The leased shoe departments within AMES may
participate in the Liquidation Sale at the option of the operator of such
departments so long as they follow the rules, procedures and discounts
recommended and implemented by AGENT. Applicable lease income for the leased
shoe department accrued during the Liquidation Sale shall be included in Gross
Proceeds. Lease income is defined as the net proceeds received or retained by
AMES during the Sale as determined in accordance with the respective License
Agreement or other Agreement between AMES and the respective Lessee.

        11.   CHANGE FUND,  VENDING  MACHINE  FUND AND SNACK BAR.  The change
 funds and any funds from vending  machines and the snack bar shall not be
considered part of the proceeds of the Sale for purposes of this Agreement.

        12.   OTHER SALE MATTERS
              ------------------

              a. Administration of matters such as layaways, store credits and
gift certificates will be the responsibility of AMES, but AGENT agrees to
cooperate fully with AMES in the administration of such matters. AGENT will
conduct the Sale using all existing merchant policies.

              b. Returns of merchandise purchased before commencement of the
Sale will be accepted throughout the sale. When a receipt is not present, the
lowest price offered for the last thirty (30) days will be paid to the customer.

              c.  Subject to Section 17 hereof, furniture, fixtures and
equipment will not be sold.

        13. INSURANCE. AMES shall maintain, during the period of the Sale, all
insurance in amounts at least equal to the insurance coverage presently in
force. AGENT will not be responsible for loss, liability, damage or expense
arising out of any casualty or other loss, unless caused by the intentional or
willful misconduct or gross negligence of AGENT's employees or supervisors. With
respect to losses of Inventory occurring after the Effective Date, any insurance
proceeds shall be deemed Gross Proceeds from the Sale.

        14. INDEMNIFICATION. AGENT and AMES agree to indemnify, defend and hold
each other free and harmless from and against any and all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities,
obligations, costs and expenses of any kind whatsoever, including, without
limitation, attorneys' fees and costs, asserted against, resulting from or
imposed upon, or incurred by either party hereto by reason of or resulting from
a material breach of any term or condition contained in this Agreement or any
willful or intentional act of the other party.
In the event that AGENT's Supervisor directs that an arrest be initiated against
any person in the Store, and said action results in suit against AMES for false
arrest or similar action, then AGENT shall accept full responsibility for its
Supervisor's acts and shall indemnify AMES for any and all damages resulting
from said acts.

        15. AGENCY. The parties hereby agree that AGENT is acting as agent
during the period of this Agreement and as such will observe all of the
fiduciary duties which the law imposes on agents with respect to their
principals. No joint venture or partnership has been formed. AMES shall use its
best efforts to cause this Agreement to be approved by the bankruptcy court as
soon as possible.

        16. ADDITIONAL MERCHANDISE. In the event that AMES and AGENT determine
that the Sale would benefit by additional merchandise being supplied to the
Stores, AGENT, at its expense, shall use all reasonable efforts to procure
additional merchandise for the Stores. With respect to any and all proceeds
realized upon the sale of such additional merchandise, AMES and AGENT agree that
AMES shall be entitled to 5% of such gross proceeds (net of sales taxes) and
AGENT shall be entitled to the remainder thereof.

        17. LIQUIDATION OF FIXTURES. In the event AMES requests AGENT to sell or
otherwise dispose of the fixtures, equipment, furniture, furnishings and other
appurtenances thereto located at the Stores (hereinafter referred to
collectively as "Store Fixtures"), AGENT agrees to use its reasonable best
efforts to sell or otherwise dispose of the Store Fixtures. In consideration for
rendering such services, AMES and AGENT hereby agree that AGENT shall receive
twenty percent (20%) of the gross proceeds (net of sales taxes) realized on the
sale or other disposition of the Store Fixtures. AGENT shall pay to AMES the
remaining eighty percent (80%) of the gross proceeds (net of sales taxes) from
such sale on a weekly basis.

        18. BANKRUPTCY COURT APPROVAL This Agreement shall only be effective,
and AGENT's obligations to consummate the transactions contemplated by this
Agreement shall be conditioned upon the entry by the Bankruptcy Court of an
order (the "Approval Order") that shall contain each and every one of the
following provisions:

             (i) Approve this Agreement and authorize the Sale, and retain
             jurisdiction over any matters, claims or rights relating to the
             Agreement or Sale.

             (ii) Provide that AGENT shall retain all sums paid to it by AMES
             under this Agreement, including those provided in Section 8 above,
             as AGENT's sole and exclusive property, free and clear of any and
             all liens, claims, rights, mortgages, pledges, charges,
             encumbrances or equities of any kind, and enjoin all persons or
             entities from taking any action that interferes with or impedes
             AMES' payment to AGENT of any such sums.

             (iii)Dispense with any necessity on the part of AGENT or AMES' from
             complying with any state or local laws, rules, regulations or
             ordinances which would otherwise prohibit liquidation or auction
             Sales.

             (iv) Authorize the advertising, promotion and signage (including
             banners) of the Sale in respect of all of the Stores as a
             "going-out-of business", liquidation or auction sales or as
             otherwise agreed to by AGENT and AMES, and enjoin and restrain all
             Store landlords, their agents or employees from taking any action
             that interferes with or impedes the conduct of the Sale, or any
             advertising, promotion or signage relating thereto.

        19.   ASSIGNMENT.  Neither party may assign this Agreement without the
 express written consent of the other party.

        20. NOTICES. All notices or other consents and communications required
under this Agreement or otherwise shall be in writing and effective only upon
receipt, and may be hand delivered or sent via U.S. express mail, Federal
Express or another recognized overnight courier. Notices to Ames shall be sent
to Grant Sanborn, Executive Vice President, at the address noted above with a
required copy to David Lissy, General Counsel, and notices to AGENT, shall be
sent to Daniel Kane at the address noted above (or such other address as may be
provided).

        21. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with regard to its subject matter and may not be amended or
rescinded except by a writing executed by each of the parties hereto. Each party
represents that it has the requisite authority to enter into this Agreement upon
the terms and conditions set forth herein.

        22.   EXECUTION.  This Agreement may be executed in  counterparts  by
the parties hereto and any signatures  received via facsimile transmissions
will be binding and effective between the parties until original signatures
are obtained.

        23.   GOVERNING  LAW. This  Agreement  shall be governed by, and
construed in accordance  with,  the laws of the State of New York, without
regard to conflicts of laws principles thereof.

                                                           THE NASSI GROUP, LLC




                                           AMES MERCHANDISING CORPORATION, INC.





<PAGE>

                                                        EXHIBIT 10.22
                                AGENCY AGREEMENT

        THIS AGREEMENT (the "Agreement") is entered into as of this 4th day of
December, 2001, by and between AMES MERCHANDISING CORPORATION ("AMES"), a
Delaware corporation, having its corporate offices at 2418 Main Street, Rocky
Hill, Connecticut 06067, in its capacity as debtor and debtor-in-possession, and
THE NASSI GROUP, LLC ("AGENT"), a California limited liability company, having
its offices at 340 N. Westlake Blvd., Suite 260, Westlake Village, California
91362 (the "AGENT").

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

        WHEREAS,  on August 20, 2001, AMES filed a voluntary  petition for
relief under Chapter 11 of the Bankruptcy  Code, 11 U.
S. C.ss.ss.101 - 1330 (the  "Bankruptcy  Code"),  and is continuing in the
operation of its business and management of its property
pursuant toss.1107 and 1108 of the Bankruptcy Code;

        WHEREAS, there are certain AMES Stores listed on the attached Schedule
"A" (the "Stores") which contain merchandise inventory to be liquidated (the
merchandise inventory being referred to as the "Inventory"); and

        WHEREAS, AMES wishes to employ AGENT for the purpose of liquidating the
Inventory by conducting a so-called store closing or total liquidation sale (the
"Liquidation Sale" or "Sale").

        NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto intending to be legally bound
hereby agree as follows:

         1. SUPERVISION. AGENT shall supply, as a Sale Expense, up to thirty two
(32) full-time supervisors for the Stores at the outset of the Sale and shall
have the right to reduce or increase that number as dictated by the demands of
the Sale. AGENT, through its management and supervision, shall plan the
advertising, marketing and sales promotion for the Liquidation Sale, arrange the
stock in the Stores for liquidation, determine and effect price reductions so as
to sell the Inventory in the time allotted for the Sale, arrange for and
supervise all personnel and merchandise preparation, and conduct the Sale in a
manner reasonably designed to minimize the expenses of the Sale to AMES and
realize for its benefit the maximum return.

         2.   SECURITY.  AGENT shall arrange for security against theft of
Inventory and monies,  including,  without limitation, protection against
customers and employees.  AGENT shall utilize current loss prevention store
staff.

         3. INCENTIVE PLAN. As an incentive to ensure employee loyalty and hard
work, AGENT will utilize a performance-based Bonus Plan for AMES' store
managers, their assistants and key personnel which will emphasize the
maximization of liquidation proceeds. Said incentive plan shall be approved by
AMES in advance.

         4. LIQUIDATION SALE. The Liquidation Sale shall commence on December
30, 2001. Said date shall hereinafter be referred to as the "Effective Date" for
the Stores. AGENT has, however, had meetings with AMES' management prior to the
date hereof. AGENT shall discount the Inventory (and change discounts from time
to time) and set the duration of the Sale in accordance with its professional
judgment in order to maximize the proceeds and maintain the momentum of the
Sale. Within three (3) days of completion of the Liquidation Sale at any Store,
which is anticipated to be March 2, 2002 (unless otherwise agreed to by AMES and
AGENT), AGENT shall cause the Stores to be left in broom clean condition (other
than with respect to store fixtures and equipment). The date upon which the last
Store is vacated and left in broom clean condition (which in no event shall be
later than March 5, 2002) shall be known as the "Sale Termination Date".

        5. ADVERTISING. Unless otherwise permitted pursuant to the Approval
Order (as defined hereinafter), AGENT shall cause all advertising to conform to
applicable laws and lease instruments, and all such advertising shall be
conducted under the name of AMES. Unless otherwise permitted pursuant to the
Approval Order, the Sale will be advertised as a Store Closing Sale, Total
Liquidation Sale or similar description, throughout the Sale Term, and to the
extent permitted by the Lease, local ordinance or the Approval Order, AGENT
shall be permitted to use signs and banners reflecting this message. AGENT will
be sensitive to and work with AMES to resolve conflicts with advertising near
on-going stores as identified by AMES. AMES must, in any event, approve all
advertising and signage prior to its use. The words "Going Out of Business
(GOB)" will not be used in any advertising.

        6. LICENSES - RULES. Unless otherwise provided in the Approval Order,
AGENT shall work with Ames to obtain all necessary permits and licenses and
comply with all federal, state and local laws, rules and regulations relating to
the Liquidation Sale. AGENT will be responsible for advising its supervisors as
well as AMES' employees under AGENT's supervision on how to comply with those
laws, rules, and regulations. Each and every sale shall be conducted on an
"as-is" and "where-is" basis with "all sales final." No refunds or exchanges
whatsoever shall be accepted other than refunds for merchandise purchased before
commencement of the Sale. Such refunds will be recorded and the merchandise, if
saleable, returned to stock for resale, or, if defective, returned to vendor.
Such merchandise shall be included in the aggregate Retail Value, with a
reduction for the prevailing discount in effect at the time the merchandise is
returned. There will be no express warranties regarding the merchandise sold
other than those provided by the manufacturer. All sales shall be for cash,
travelers' checks, Ames Cash Cards and all credit cards currently accepted by
AMES. AGENT shall cause all floor operations to comply with current credit
authorization procedures.

        7. AMES EMPLOYEES. AGENT shall use AMES Store personnel, including Store
management, to the extent AGENT believes the same to be feasible, and AGENT
shall select and schedule the number and type of employees required for the
Sale. AGENT shall, as soon as reasonably possible, notify AMES as to which of
the AMES employees are no longer required for the Sale, and AMES shall dismiss
said personnel in accordance with its applicable termination procedures.

        8. AGENT FEE AND EXPENSE GUARANTEE. As consideration for AGENT's efforts
and services in connection with the Sale, AGENT shall receive a Fee of
$1,080,000 ($20,000 per Store). In addition, if the sales per the Ames Stock
Ledger (audited sales net of returns) during the period starting from the
Effective Date through the Sale Termination Date (the "Gross Proceeds") divided
by the aggregate Retail Value of Inventory (the result of such division being
defined as "Gross Return") exceed sixty percent (60%) the AGENT shall be
entitled to an incentive fee equal to (i) thirty percent (30%) of the dollar
value of that portion of the Gross Return that is greater than sixty percent
(60%) but less than or equal to sixty-one percent (61%), (ii) forty percent
(40%) of the dollar value of the Gross Return that is greater than sixty-one
percent (61%) but less than or equal to sixty-two percent (62%) and (iii) twenty
percent (20%) of the dollar value of the Gross Return that is greater than
sixty-two percent (62%). AGENT's Fee and any incentive fee shall be paid in
accordance with Schedule "B" and is based on information provided by AMES as to
the projected quantity of and mix of Inventory on the Effective Date.
Notwithstanding anything herein the maximum AGENT's fee payable to the AGENT
hereunder shall not exceed one million eight hundred fifty thousand dollars
($1,850,000).

        The starting Inventory upon which AGENT's fee and recoveries will be
based will be the Original Retail as calculated by AGENT and AMES. Original
Retail shall mean the sum of (i) Gross Proceeds plus (ii) all markdowns recorded
by the Ames point-of-sale terminals during the period starting from the
Effective Date through the Sale Termination Date (the "POS Markdowns"). The
Original Retail shall be multiplied by 102% in order to determine the aggregate
Retail Value of InventoryAll sales shall be run through Ames point-of-sale
terminals. Gross Proceeds exclude all sales taxes and leased shoe department
sales.

        In addition, to the extent permitted by law, AMES may transfer
additional Inventory into the Stores provided that the regular everyday retail
price shall be adjusted to reflect the same price the merchandise is offered for
sale on the Sale Commencement Date at the AMES stores that are not closing
provided, further in the event such additional Inventory is delivered to the
Stores after January 11, 2002, such Inventory shall be included in the aggregate
Retail Value, with a reduction for the prevailing discount in effect at the time
such Inventory arrives at the Stores. Finally, AMES may require that AGENT not
sell certain Inventory in excess of a given discount (to be provided by AMES).
Any such inventory remaining as of the end of the Liquidation Sale shall be the
responsibility of Ames.

         9.   EXPENSES.  AMES shall pay the following expenses of the Sale
(the "Sale Expenses") from proceeds:

               a. Payroll and retention bonuses for Store employees;

               b. Payroll taxes and benefits for Store employees (excluding sick
leave, maternity benefits and other leaves of absence, severance or termination
pay, ERISA coverage and similar benefits), which amount shall not exceed 18.8%
of Payroll;

               c. AGENT's actual cost for supervisors'  fees,  reasonable
 travel costs and bonuses at rates agreed to by AMES and
Agent;

               d. Advertising and promotional costs, including signage;

               e. Risk management;

               f. Outside services (excluding Muzak in Stores), bank charges,
 credit card fees and discounts (at AMES' customary
rates) and chargebacks;

              g.  Utilities;

              h.  Repairs and maintenance;
              i.  Cleaning;

              j.  Supplies;

              k.  Travel (store associates);

              l.  "Occupancy"  expenses  including rent,  percentage  rent,
CAM, real estate taxes,  rental equipment and similar
items on a per diem, per Store basis;

              m.  Communications;

              n.  Bad check expense;

              o.  Cash over/short;

              p.  Sundry.

        AMES and AGENT shall agree, on a weekly basis, to a payroll plan with
respect to employees on a store-by-store basis.

        Schedule "C" lists all detailed expense categories by master heading.
Schedule "D" lists account numbers that are to be excluded from the expense
guarantee. AGENT will guarantee that Sale Expenses will not exceed seventeen
million five hundred eight thousand seven hundred fifty dollars ($17,508,750).
This guarantee is subject to an Original Retail of one hundred two million six
hundred fifty thousand dollars ($102,650,000).

        AMES shall provide (not to be considered Sale Expenses), throughout the
Sale Term, central administrative services reasonable or necessary for the Sale,
such as POS administration, other insurance, sales audit, cash reconciliation
and payroll processing.

        AGENT shall charge no home office expense (except for out-of-pocket
travel and related expenses) for its management representation. AMES shall be
responsible for all other expenses which are not Sale Expenses.

        10. LEASED DEPARTMENTS. The leased shoe departments within AMES may
participate in the Liquidation Sale at the option of the operator of such
departments so long as they follow the rules, procedures and discounts
recommended and implemented by AGENT. Applicable lease income for the leased
shoe department accrued during the Liquidation Sale shall be included in Gross
Proceeds. Lease income is defined as the net proceeds received or retained by
AMES during the Sale as determined in accordance with the respective License
Agreement or other Agreement between AMES and the respective Lessee.

        11.   CHANGE FUND,  VENDING  MACHINE  FUND AND SNACK BAR.  The change
  funds and any funds from vending  machines and the
snack bar shall not be considered part of the proceeds of the Sale for purposes
 of this Agreement.

        12.   OTHER SALE MATTERS

              a. Administration of matters such as layaways, store credits and
gift certificates will be the responsibility of AMES, but AGENT agrees to
cooperate fully with AMES in the administration of such matters. AGENT will
conduct the Sale using all existing merchant policies.

              b. Returns of merchandise purchased before commencement of the
Sale will be accepted throughout the sale. When a receipt is not present, the
lowest price offered for the last thirty (30) days will be paid to the customer.

              c.  Subject to Section 17 hereof, furniture, fixtures and
equipment will not be sold.

        13. INSURANCE. AMES shall maintain, during the period of the Sale, all
insurance in amounts at least equal to the insurance coverage presently in
force. AGENT will not be responsible for loss, liability, damage or expense
arising out of any casualty or other loss, unless caused by the intentional or
willful misconduct or gross negligence of AGENT's employees or supervisors. With
respect to losses of Inventory occurring after the Effective Date, any insurance
proceeds shall be deemed Gross Proceeds from the Sale.

        14. INDEMNIFICATION. AGENT and AMES agree to indemnify, defend and hold
each other free and harmless from and against any and all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities,
obligations, costs and expenses of any kind whatsoever, including, without
limitation, attorneys' fees and costs, asserted against, resulting from or
imposed upon, or incurred by either party hereto by reason of or resulting from
a material breach of any term or condition contained in this Agreement or any
willful or intentional act of the other party.

        In the event that AGENT's Supervisor directs that an arrest be initiated
against any person in the Store, and said action results in suit against AMES
for false arrest or similar action, then AGENT shall accept full responsibility
for its Supervisor's acts and shall indemnify AMES for any and all damages
resulting from said acts.

        15. AGENCY. The parties hereby agree that AGENT is acting as agent
during the period of this Agreement and as such will observe all of the
fiduciary duties which the law imposes on agents with respect to their
principals. No joint venture or partnership has been formed. AMES shall use its
best efforts to cause this Agreement to be approved by the bankruptcy court as
soon as possible.

        16. ADDITIONAL MERCHANDISE. In the event that AMES and AGENT determine
that the Sale would benefit by additional merchandise being supplied to the
Stores, AGENT, at its expense, shall use all reasonable efforts to procure
additional merchandise for the Stores. With respect to any and all proceeds
realized upon the sale of such additional merchandise, AMES and AGENT agree that
AMES shall be entitled to 5% of such gross proceeds (net of sales taxes) and
AGENT shall be entitled to the remainder thereof.

        17. LIQUIDATION OF FIXTURES. In the event AMES requests AGENT to sell or
otherwise dispose of the fixtures, equipment, furniture, furnishings and other
appurtenances thereto located at the Stores (hereinafter referred to
collectively as "Store Fixtures"), AGENT agrees to use its reasonable best
efforts to sell or otherwise dispose of the Store Fixtures. In consideration for
rendering such services, AMES and AGENT hereby agree that AGENT shall receive
twenty percent (20%) of the gross proceeds (net of sales taxes) realized on the
sale or other disposition of the Store Fixtures. AGENT shall pay to AMES the
remaining eighty percent (80%) of the gross proceeds (net of sales taxes) from
such sale on a weekly basis.

        18. .BANKRUPTCY COURT APPROVAL This Agreement shall only be effective,
and AGENT's obligations to consummate the transactions contemplated by this
Agreement shall be conditioned upon the entry by the Bankruptcy Court of an
order (the "Approval Order") that shall contain each and every one of the
following provisions:

              (i) Approve this Agreement and authorize the Sale, and retain
              jurisdiction over any matters, claims or rights relating to the
              Agreement or Sale.

              (ii)Provide that AGENT shall retain all sums paid to it by AMES
              under this Agreement, including those provided in Section 8 above,
              as AGENT's sole and exclusive property, free and clear of any and
              all liens, claims, rights, mortgages, pledges, charges,
              encumbrances or equities of any kind.

              (iii) Dispense with any necessity on the part of AGENT or AMES'
              from complying with any state or local laws, rules, regulations or
              ordinances which would otherwise prohibit liquidation or auction
              Sales.

              (iv)Authorize the advertising, promotion and signage (including
              banners) of the Sale in respect of all of the Stores as a
              "going-out-of business", liquidation or auction sales or as
              otherwise agreed to by AGENT and AMES, and enjoin and restrain all
              Store landlords, their agents or employees from taking any action
              that interferes with or impedes the conduct of the Sale, or any
              advertising, promotion or signage relating thereto.

         19.  ASSIGNMENT.  Neither party may assign this Agreement without the
 express written consent of the other party.

        20. NOTICES. All notices or other consents and communications required
under this Agreement or otherwise shall be in writing and effective only upon
receipt, and may be hand delivered or sent via U.S. express mail, Federal
Express or another recognized overnight courier. Notices to Ames shall be sent
to Grant Sanborn, Executive Vice President, at the address noted above with a
required copy to David Lissy, General Counsel, and notices to AGENT, shall be
sent to Daniel Kane at the address noted above (or such other address as may be
provided).

        21. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with regard to its subject matter and may not be amended or
rescinded except by a writing executed by each of the parties hereto. Each party
represents that it has the requisite authority to enter into this Agreement upon
the terms and conditions set forth herein.

        22.   EXECUTION.  This Agreement may be executed in  counterparts  by
 the parties hereto and any signatures  received via
              ---------
facsimile transmissions will be binding and effective between the parties until
 original signatures are obtained.

        23.   GOVERNING  LAW. This  Agreement  shall be governed by, and
construed in accordance  with,  the laws of the State of
              --------------
New York, without regard to conflicts of laws principles thereof.

                                                           THE NASSI GROUP, LLC




                                            AMES MERCHANDISING CORPORATION, INC.





<PAGE>

<TABLE>
<S>                                                                <C>                                          <C>


                                                                                                           Exhibit 11

                                        AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                                        SCHEDULE OF COMPUTATION OF BASIC AND DILUTED
                                                    NET EARNINGS PER SHARE
                                            (In thousands, except per share amounts)


                                                                      52 Weeks                53 Weeks              52 Weeks
                                                                        Ended                  Ended                 Ended
                                                                      February 2,            February 3,           January 29,
                                                                        2002                    2001                  2000
                                                                    ---------------         --------------        --------------
Income before Cumulative Effect adjustment and
Extraordinary item..........................................              (813,078)            ($233,624)               $18,234
Cumulative Effect adjustment, net of tax....................                    ---                   ---               (1,107)
Extraordinary item, net of tax..............................                    ---               (6,964)                   ---
                                                                    ---------------         --------------        --------------

     Basic and diluted net income...........................              (813,078)             ($240,588)              $17,127
                                                                    ===============         ==============        ==============

For Basic Earnings Per Share:
Weighted average number of common shares outstanding
during the period (a).......................................                29,405                29,383                27,517
Basic earnings per share:
Basic income per share before Cumulative
Effect adjustment and Extraordinary item                                   ($27.65)               ($7.95)                $0.66
Cumulative Effect adjustment, net of tax....................                    ---                   ---               (0.04)
Extraordinary item, net of tax..............................                    ---                (0.24)                  ---
                                                                    ---------------         --------------        --------------
Basic net income per share..................................               ($27.65)               ($8.19)                 $0.62
                                                                    ===============         ==============        ==============


For Diluted Earnings Per Share:
Weighted average number of common shares outstanding
during the period (a).......................................                 29,405               29,383                27,517
Add Common stock equivalent shares represented by:
     Series B Warrants......................................                    ---                    3                    20
     Series C Warrants......................................                    ---                  ---                   ---
     Options under 1994 Management Stock Option
     Plan and 1998 Stock Incentive Plan.....................                    ---                  113                   106
     Options under 2000 Store Manager Stock Option Plan.....                    ---                   14                   ---
     Options under 1994 Non-Employee Director
     Stock Option Plan......................................                    ---                   30                    15
                                                                    ---------------         --------------        --------------

Weighted average number of common and common
equivalent shares...........................................                 29,405               29,543                27,658
                                                                    ===============         ==============        ==============


Diluted earnings per share:
Diluted income per share before cumulative
effect adjustment...........................................               ($27.65)              ($7.95)                 $0.66
Cumulative Effect adjustment, net of tax....................                    ---                  ---                (0.04)
Extraordinary item, net of tax..............................                    ---               (0.24)                   ---
                                                                    ---------------         --------------        --------------

     Diluted net income per share...........................               ($27.65)               ($8.19) (b)            $0.62
                                                                    ===============         ==============        ==============

</TABLE>

---------------------------------


(a) The weighted average number of common shares outstanding is net of Treasury
    Stock.
(b) Common stock equivalents have not been included because the effect would be
    anti-dilutive.

<PAGE>
<TABLE>

                                                                                                         Exhibit 12
                                    AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                                         RATIO OF EARNINGS TO FIXED CHARGES
                                          (In thousands, except ratio data)


<S>                                          <C>
                                                                    Fiscal Year Ended
                                             -------------------------------------------------------------------------

                                             February 2,    February 3,    January 29,     January 30,    January 31,
                                                2002           2001            2000           1999           1998
                                             ------------   ------------   -------------   ------------   ------------

(Loss) income before income taxes,
      extraordinary item and cumulative
      effect adjustment                        (383,154)      (288,377)        (31,355)         52,605         53,633


Add:
      Interest expense                            76,151         87,961          60,843         15,253         11,600

      Interest component of rental
      expense                                     26,068         28,876          29,253         21,121         18,409
                                             ------------   ------------   -------------   ------------   ------------


Earnings available for fixed charges           (280,935)      (171,540)          58,741         88,979         83,642


Fixed Charges:
      Interest expense                            76,151         87,961          60,843         15,253         11,600

      Interest component of rental expense        26,068         28,876          29,253         21,121         18,409

                                             ------------   ------------   -------------   ------------   ------------


Total fixed charges                              102,219        116,837          90,096         36,374         30,009

Ratio of earnings to fixed charges                 (2.7)x        (1.5)x             .7x           2.4x          2.8x


</TABLE>


      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 fiscal year ended February 2, 2002, the amount of additional earnings that
would have been required to cover fixed charges for this period was $383.2
million.

<PAGE>

<TABLE>
<S>                                                                                      <C>


                                                                                          EXHIBIT 21

</TABLE>



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


     As of February 2, 2002, the subsidiaries of the Company were as follows:


                 Name                                    State of Incorporation

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

AmesPlace.com, Inc......................................................Delaware

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

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



<PAGE>

<TABLE>
<S>                                                             <C>
                                                                Exhibit 99.1

Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT  06067

Letter to Commission Pursuant to Temporary Note 3T

May 3, 2002

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20249-0408

Ladies and Gentlemen:

Pursuant to Temporary Note 3T to Article 3 of Regulation S-X, Ames Department
Stores, Inc. has obtained a letter of representation from Arthur Andersen LLP
("Andersen") stating that the February 2, 2002 audit was subject to their
quality control system for the U.S. accounting and auditing practice to provide
reasonable assurance that the engagement was conducted in compliance with
professional standards, that there was appropriate continuity of Andersen
personnel working on the audit and availability of national office consultation.
Availability of personnel at foreign affiliates of Andersen is not relevant to
this audit.

Very truly yours,

Ames Department Stores, Inc.

/s/ Joseph R. Ettore

Joseph R. Ettore
Chairman and Chief Executive Officer





















</TABLE>