KASPER A S L LTD, 10-Q, 1999-05-18

KASPER A S L LTD
10-Q, 1999-05-18
WOMEN'S, MISSES', AND JUNIORS OUTERWEAR

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

For the quarterly period ended April 3, 1999

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

For the transition period from ________________ to ________________

Commission file number: 0-24179

-------

KASPER A.S.L., Ltd.
----------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 22-3497645
- ------------------------ --------------------------------
(State of Incorporation) (IRS Employer Identification No)

77 Metro Way, Secaucus, New Jersey 07094
-----------------------------------------------------------------------
(Address and zip code of principal executive office)

(201) 864-0328
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)

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. |X| Yes |_| No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.

Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. |X| Yes |_| No

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of May 17, 1999 was 6,800,000.
<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES

INDEX

<TABLE>
<CAPTION>
Page No.
--------
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements:

<S> <C>
Condensed Consolidated Balance Sheets at April 3, 1999 and January 2, 1999 . . . . . . 3

Condensed Consolidated Statements of Operations for the Thirteen weeks ended
April 3, 1999 and Thirteen weeks ended April 4, 1998. . . . . . . . . . . . . 4

Condensed Consolidated Statements of Cash Flows for the Thirteen weeks ended
April 3, 1999 and Thirteen weeks ended April 4, 1998. . . . . . . . . . . . . 5

Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 8

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

<TABLE>
<CAPTION>
---------------------------------
April 3, January 2,
ASSETS 1999 1999
---------------------------------
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents.................................... $ 3,240 $ 2,437

Accounts receivable-net of allowances for possible losses of
$18,639 and $16,754, respectively........................ 63,810 32,721

Inventories.................................................. 80,291 100,435

Prepaid expenses and other current assets.................... 7,584 6,068
-------- --------

Total Current Assets......................................... 154,925 141,661
-------- --------

Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $6,296 and $5,500,
respectively................................................. 16,552 16,881

Reorganization value in excess of identifiable assets, net of
accumulated amortization of $5,975 and $5,160, respectively.. 59,206 60,021

Trademarks, net of accumulated amortization of $2,671 and $2,307,
respectively................................................. 48,329 48,693

Other Assets, at cost less accumulated amortization of $1,658 and
$1,449, respectively........................................ 1,893 2,102
-------- --------

Total Assets................................................. $280,905 $269,358
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Accounts payable............................................. $12,684 $14,539

Accrued expenses and other current liabilities............... 5,914 6,668

Interest Payable............................................. 125 3,797

Income taxes payable......................................... 4,203 646
-------- --------

Total Current Liabilities.................................... 22,926 25,650

Long-Term Liabilities:

Deferred Taxes............................................... 1,630 1,630

Long-Term Debt............................................... 110,000 110,000

Bank Revolver................................................ 16,638 7,569

Minority Interest............................................ 568 459
-------- --------

Total Liabilities............................................ 151,762 145,308

Commitments and Contingencies

Shareholders' Equity:

Common Stock, $0.01 par value; 20,000,000 shares
authorized; 6,800,000 shares issued and outstanding...... 68 68

Preferred Stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding.................. -- --

Capital in excess of par value............................... 119,932 119,932

Retained Earnings............................................ 9,289 4,142

Cumulative Other Comprehensive Income........................ (146) (92)
-------- --------

Total Shareholders' Equity................................... 129,143 124,050
-------- --------

Total Liabilities and Shareholders' Equity................... $280,905 $269,358
======== ========
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
April 3, April 4,
1999 1998
------------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales...................................... $ 98,286 $ 96,132

Cost of Sales.................................. 66,288 67,960
--------- ---------

Gross Profit................................... 31,998 28,172

Operating Expenses:

Selling, general and administrative expenses... 16,626 15,089

Depreciation and Amortization.................. 2,197 2,059
--------- ---------

Total operating expenses....................... 18,823 17,148
--------- ---------

Operating income............................... 13,175 11,024

Interest and Financing Costs................... 4,302 4,111
--------- ---------

Income before provision for income taxes....... 8,873 6,913

Provision for Income Taxes..................... 3,726 2,905
--------- ---------

Net Income..................................... $ 5,147 $ 4,008
========= =========

Basic earnings per common share................ .76 .59
========= =========

Diluted earnings per common share.............. .76 .59
========= =========

Weighted average number of shares used in computing
Basic earnings per common share............. 6,800,000 6,800,000

Weighted average number of shares used in computing
Diluted earnings per common share........... 6,800,000 6,800,000
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
------------------ ------------------
April 3, April 4,
1999 1998
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income........................................................ $ 5,147 $ 4,008
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization.................................. 1,369 1,302
Amortization of reorganization value in excess of identifiable
assets.................................................... 815 814
Income applicable to minority interest......................... 109 520
Change in allowance for possible losses on accounts receivable. 1,885 1,544
(Increase) decrease in:
Accounts receivable............................................ (32,974) (35,350)
Inventories.................................................... 20,144 3,672
Prepaid expenses and other current assets...................... (1,516) (750)
(Decrease) increase in:
Accounts payable, accrued expenses and other current liabilities (2,609) 570
Interest payable............................................... (3,672) (3,507)
Income taxes payable........................................... 3,557 2,607
------- -------
Total adjustments................................................. (12,892) (28,578)
------- -------
Net cash used in operating activities............................. (7,745) (24,570)
------- -------

Cash Flows from Investing Activities:

Capital expenditures net of proceeds from the sale of fixed assets (467) (844)
------- -------
Net cash used in investing activities............................. (467) (844)
------- -------

Cash Flows from Financing Activities:
Bank Revolver.................................................. 9,069 10,923
------- -------
Net cash provided by financing activities......................... 9,069 10,923

Effect of exchange rate changes on cash and cash equivalents...... (54) (4)
------- -------
Net increase (decrease) in cash and cash equivalents.............. 803 (14,495)

Cash and cash equivalents, at beginning of period................. 2,437 16,677
------- -------
Cash and cash equivalents, at end of period....................... $ 3,240 $ 2,182
======= =======
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. GENERAL

The Condensed Consolidated Financial Statements included herein have
been prepared by Kasper A.S.L., Ltd. and subsidiaries (Kasper A.S.L., Ltd. being
sometimes referred to, and together with its subsidiaries collectively referred
to, as the "Company" or "Kasper" as the context may require) without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principals have been condensed or omitted from this report; as is
permitted by such rules and regulations; however the Company believes that the
disclosures are adequate to make the information presented not misleading. These
Condensed Consolidated Financial Statements included herein should be read in
conjunction with the Consolidated/Combined Financial Statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the Fiscal Year
ended January 2, 1999.

In the opinion of management, the accompanying interim Condensed
Consolidated Financial Statements contain all material adjustments necessary to
present fairly the Condensed Consolidated financial condition, results of
operations, and changes in financial position of Kasper and its subsidiaries for
the interim periods presented.

NOTE 2. INVENTORIES

Inventories are valued at lower of cost or (first-in, first-out, "FIFO")
market.

Inventories consist of the following:

April 3, January 2,
1999 1999
--------- ---------
(in thousands)

Raw materials $ 37,456 $ 38,470
Finished goods 42,835 61,965
--------- ---------
Total inventories $ 80,291 $ 100,435
========= =========

NOTE 3. INCOME PER SHARE

The computation of income per common share is based upon the weighted
average number of common shares outstanding during the period.

NOTE 4. DEBT

At April 3, 1999, there were direct borrowings of $16,638,000
outstanding under the BankBoston Credit Agreement and approximately $17,094,000
outstanding in letters of credit under the facility. The Company has
approximately $35,700,000 available for future borrowings as of April 3, 1999.
The facility has been amended to update certain financial ratios, convenants and
limits on capital expenditures.

-6-
<PAGE>

NOTE 5. SEGMENT INFORMATION

The Company's primary segment is the design, distribution and wholesale
sale of women's career suits, dresses and sportswear to principally major
department stores and specialty shops. In addition, the Company operates 55
retail outlet stores throughout the United States as another distribution
channel for its products. For the purposes of decision-making and assessing
performance, Management includes the operations of Asia Expert Limited in its
wholesale segment. International operations are immaterial for segment reporting
and have been included in the wholesale segment.

The Company measures segment profit as earnings before interest, taxes,
depreciation and amortization ("EBITDA"). All intercompany revenues and expenses
are eliminated in computing revenues and EBITDA. Information on segments and a
reconciliation to the consolidated financial statements is as follows:

Thirteen Weeks ended April 3, 1999

<TABLE>
<CAPTION>
Wholesale Retail Consolidated
---------------- --------------- -----------------
(in thousands)

<S> <C> <C> <C>
Revenues from external customers $ 87,178 $ 11,108 $ 98,286
EBITDA 14,766 606 15,372
Depreciation and amortization 2,197
------
Operating income 13,175
Interest and financing costs 4,302
------
Income before provision for income taxes 8,873
Income taxes 3,726
======
Net income $ 5,147
======

Thirteen Weeks ended April 4, 1998

<CAPTION>
Wholesale Retail Consolidated
---------------- --------------- -----------------
(in thousands)

<S> <C> <C> <C>
Revenues from external customers $ 87,229 $ 8,903 $ 96,132
EBITDA 12,966 117 13,083
Depreciation and amortization 2,059
------
Operating income 11,024
Interest and financing costs 4,111
------
Income before provision for income taxes 6,913
Income taxes 2,905
======
Net income $ 4,008
======
</TABLE>

-7-
<PAGE>

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction
with the foregoing consolidated financial statements and notes thereto. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward-looking
statements due to a number of factors, including those set forth at the end of
this Item.

Results of Operations

Thirteen Weeks Ended April 3, 1999 as Compared to Thirteen Weeks ended April 4,
1998

<TABLE>
<CAPTION>
Net Sales by Segment
(000's except percentages)
First Quarter % First Quarter %
1999 of Total 1998 of Total
------------- -------------
<S> <C> <C> <C> <C>
Wholesale $87,178 88.7% $87,229 90.7%
Retail 11,108 11.3% 8,903 9.3%
------- ----- ------- -----
Total sales $98,286 100.0% $96,132 100.0%

EBITDA by Segment
(000's except percentages)
First Quarter % First Quarter %
1999 of Total 1998 of Total
------------- -------------

Wholesale $14,766 96.1% $12,966 99.1%
Retail 606 3.9% 117 0.9%
------- ----- ------- -----
Total sales $15,372 100.0% $13,083 100.0%
</TABLE>

Net Sales

Net Sales for the thirteen weeks ended April 3, 1999 (the "first
quarter 1999") were $98.3 million as compared to $96.1 for the thirteen weeks
ended April 4, 1998 (the "first quarter 1998"). Despite the decision to
discontinue the Nina Charles(TM) label as of Fall 1998, which in the first
quarter 1998 contributed $2.5 million in sales, wholesale sales remained
comparable with sales for both the first quarter 1999 and the first quarter 1998
totaling $87.2 million.

Retail sales increased to $11.1 million in the first quarter 1999 from
$8.9 million in the first quarter 1998, an increase of $2.2 million or 24.7% due
in part to the net addition of 7 retail outlet stores over the last 12 months.
Comparable store sales contributed to the retail growth with first quarter 1999
sales of $9.2 million compared to $8.5 million for the first quarter 1998, an
increase of 8.2%.

-8-
<PAGE>

Gross Profit

Gross Profit as a percentage of net sales increased to 32.6% for the
first quarter 1999, compared to 29.3% for the first quarter 1998. The
improvement over the first quarter 1998 can be attributed to the improved
performance at the wholesale level as well as the higher retail sales and
continued cost benefits as a result of macroeconomic conditions in Asia.
Wholesale gross profit as a percentage of sales increased to 31.7% in the first
quarter 1999 from 28.2% in the first quarter 1998 as a result of improved
performance of the sportswear line as well as the discontinuance of Nina
Charles(TM).

Retail gross profit as a percentage of sales decreased to 39.4% in the
first quarter 1999 from 39.7% in the first quarter 1998 due to an increase in
markdowns.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $16.6 million
in the first quarter 1999 as compared to $15.1 million in the first quarter
1998, an increase of $1.5 million. Approximately $300 thousand of this increase
is attributed to increased selling, administrative and occupancy costs related
to the net addition of 7 retail outlet stores.

The remaining increase is associated with Wholesale operations.
Advertising expenses increased by approximately $200 thousand primarily as a
result of the continuing national advertising campaign. Administrative expenses
increased approximately $650 thousand as a result of Year 2000 compliance
testing and remediation along with other information system projects, increased
salary costs associated with a newly created executive vice president position
and increased bonus accruals. Increases in production and design totaling
approximately $400 thousand relate primarily to increased personnel costs and
were offset in part by a decrease in selling of approximately $150 thousand as a
result of the discontinuance of Nina Charles(TM). The remaining increase is the
result of modest combined increases in shipping and international operations.
Occupancy costs remained stable.

Earnings before Interest, Taxes, Depreciation and Amortization

Earnings before Interest, Taxes, Depreciation and Amortization,
("EBITDA") increased to $15.4 million in the first quarter 1999 from $13.1
million in the first quarter 1998, an increase of $2.3 million or 17.6%.
Wholesale EBITDA increased $1.8 million during the period as a result of
increased gross profits, which were partially offset by the increased selling,
general, and administrative expenses discussed above. Retail experienced an
increase in EBITDA of $0.5 million reflecting the increased sales and associated
selling, general and administrative expenses relating to the additional 7 new
stores during the first quarter 1999.

Amortization of Reorganization Asset

As a result of the reorganization of Leslie Fay, the portion of the
Company's reorganization value not attributable to specific identifiable assets
has been reported as "reorganization value in excess of identifiable assets".
This asset is being amortized over a 20-year period beginning June 4, 1997.
Accordingly, the Company incurred amortization charges for both the first
quarter 1999 and 1998 totaling approximately $800 thousand.

Depreciation and Amortization

Depreciation and amortization totaled $1.4 million in the first quarter
1999 and $1.3 million in

-9-
<PAGE>

the first quarter 1998, and consist of the amortization charges associated with
the trademarks and bank fees associated with the financing agreement, as well as
fixed asset depreciation. The trademarks are being amortized over 35 years
beginning June 4, 1997 and resulted in amortization charges in both the first
quarter 1999 and 1998 of approximately $400 thousand. The bank fees are being
amortized over the life of the financing agreement, which is three years, and
resulted in approximately $200 thousand of amortization charges for both the
first quarter 1999 and 1998.

Interest and Financing Costs

Interest and financing costs increased to $4.3 million in the first
quarter 1999 from $4.1 million in the first quarter 1998, an increase of
approximately $200 thousand. Interest is primarily attributable to the expense
on the $110 million Senior Notes, which were issued on June 4, 1997. The Senior
Notes bear interest at 12.75% per annum and mature on March 31, 2004. Interest
is payable semi-annually on March 31 and September 30. Interest relating the
Senior Notes for the first quarter 1999 totaled $3.5 million. There are no
principal payments due until maturity. To the extent that the Company elects to
undertake a secondary stock offering or elects to prepay certain amounts, a
premium will be required to be paid.

Income Taxes

Provision for income taxes was $3.7 million for the first quarter 1999.
This amount differs from the amount computed by applying the federal income tax
statutory rate of 34% to income before taxes because of state and foreign taxes.

Liquidity and Capital Resources

Net cash used in operating activities decreased to $7.7 million during
the first quarter 1999 as compared to $24.6 million for the first quarter 1998,
primarily as a result of the decrease in inventory from the beginning of the
year.

The Company's main sources of liquidity have been cash flows from
operations and credit facilities. Effective June 5, 1997, the Company entered
into a $100 million working capital facility with BankBoston as the agent bank
for a consortium of lending institutions. The facility, as amended, provides for
a sub-limit for letters of credit of $50 million. The working capital facility
is secured by substantially all the assets of the Company. The working capital
facility expires in fiscal 2000 and provides for various borrowing rate options,
including rates based upon a fixed spread over LIBOR. The facility provides for
the maintenance of certain financial ratios and covenants and sets limits on the
amount of capital expenditures and dividends to shareholders. Availability under
the facility is limited to a borrowing base calculated upon eligible accounts
receivable, inventory and letters of credit. The facility has been amended to
update certain financial ratios, covenants and limits on capital expenditures.
As of April 3, 1999, there were direct borrowings of $16.6 million outstanding,
$17.1 million in letters of credit outstanding and $35.7 million available for
future borrowings.

Pursuant to the Leslie Fay reorganization plan, the Company issued $110
million in Senior Notes. The Senior Notes bear interest at 12.75% per annum and
mature on March 31, 2004. Interest is payable semi-annually on March 31 and
September 30. Interest relating the Senior Notes for the first quarter 1999
totaled $3.5 million. There are no principal payments due until maturity. To the
extent that the Company elects to undertake a secondary stock offering or elects
to prepay certain amounts, a premium will be required to be paid.

The Company has a factoring/financing agreement with Heller Financial,
Inc. ("Heller"). The agreement had a two-year term expiring in February 1998. It
provided for Heller to act as the credit and

-10-
<PAGE>

collection arm of the Company. The Company would receive funds from Heller as
the receivables were collected. Any amounts unpaid after 120 days would be
guaranteed and paid to the Company by the factor. The cost was .4% for the first
$240 million in sales and .35% for sales above that amount. The agreement was
amended in January 1998 to add an additional 18 months to the term of the
arrangement and lower the rate to .35% for the first $250 million in sales and
.3% on the excess over that amount.

Capital expenditures were $.5 million and $.8 million for the first
quarter 1999 and first quarter 1998, respectively. Capital expenditures for the
first quarter 1999 represent funds spent for new retail stores, information
systems, overseas facilities development and general improvements.

On March 16, 1999, the Company issued a joint press release with Anne
Klein Company LLC ("Anne Klein") announcing, among other things, that the
Company and Anne Klein signed a definitive agreement for the Company to purchase
Anne Klein's trademarks and selected related assets (the "Purchase
Transaction"). The Company and Anne Klein also jointly announced the signing of
a licensing agreement under which Anne Klein granted to the Company an
exclusive, international license for ANNE KLEIN(R), ANNE KLEIN II(R) AND A LINE
ANNE KLEIN(TM) trademarks. Completion of the Purchase Transaction is subject to
obtaining certain consents and approvals and the attainment of financing. The
Company is currently in the process of exploring financing alternatives for the
Purchase Transaction and obtaining the required contents.

Year 2000 Compliance

State of Readiness

The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue.
The Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company uses software developed and supported by
third parties for all mission critical applications including order entry,
distribution, shipping, electronic data interchange ("EDI"), and for its retail
operations. Each of these software vendors has assured the Company in writing
that the current version of their software has been tested and is Year 2000
compliant. The Company has initiated a testing project that will verify such
assurances. This testing is expected to be completed by the early part of the
second quarter 1999.

The Company is also highly dependent on its customers' ability to
transmit and receive EDI documents such as purchase orders, invoices and advance
shipping notices. The Company is in the process of testing the exchange of
electronic information with a number of retailers in order to ensure Year 2000
compliance and expects this evaluation to be completed by the early part of the
second quarter 1999.

In addition, the Company may face some risk to the extent that
suppliers of products and others with whom the Company has a material business
relationship will not be Year 2000 compliant. Accordingly, the Company has
initiated formal communications with significant suppliers and third parties in
order to determine the extent to which the Company may be vulnerable to the
failure of these suppliers and third parties to remediate their own Year 2000
issues. The Company will review and evaluate the responses it receives and
periodically monitor the progress of these suppliers and third parties in
addressing their own Year 2000 issues.

The Company is also reviewing its non-information technology systems to
determine the extent of any changes that may be necessary and currently believes
that minimal changes are necessary for Year 2000 compliance.

Costs

The total cost associated with the required testing and modifications
to become Year 2000 compliant is not expected to be material to the Company's
financial position. The estimated total cost of the Year 2000 project is
approximately $750,000. This cost estimate may change as the Company progresses
in its Year 2000 project and obtains additional information and conducts further
testing.

-11-
<PAGE>

Risks

Despite all efforts, however, there is no assurance that these systems
will be Year 2000 compliant under all the circumstances and volume stresses that
may actually be required. The possible consequences of the Company or its key
vendors, suppliers and customers not being fully year 2000 compliant by January
1, 2000 include, among other things, delays in the delivery of products, delays
in the receipt of goods, invoice and collection errors and inventory
obsolescence. Consequently, the business and results of operations of the
Company could be materially adversely affected by a temporary inability of the
Company to conduct its business in the ordinary course for a period of time
until after January 1, 2000.

Contingency Plans

As an additional precaution, the Company is developing contingency
plans to mitigate the possible disruption in business operations that may
result. These plans which are dependent in large part to the responses the
Company receives from third parties with whom the Company has a material
business relationship are also expected to be completed during the second
quarter 1999. Once developed, contingency plans and related cost estimates will
be continually refined as additional information becomes available.

Disclosure Regarding Forward-Looking Information

The statements contained in this Quarterly Report on Form 10-Q that are
not historical facts are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Those statements appear in a number
of places in this report, including in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and include all discussions of
trends affecting the Company's financial conditions and results of operations
and the Company's business and growth strategies as well as statements that
contain such forward-looking statements as "believes," "anticipates," "could,"
"estimates," "expects," "intends," "may," "plans," "predicts," "projects,"
"will," and similar terms and phrases, including the negative thereof. In
addition, from time to time, the Company or its representatives have made or may
make forward-looking statements, orally or in writing. Furthermore,
forward-looking statements may be included in our other filings with the
Securities and Exchange Commission as well as in press releases or oral
statements made by or with the approval of the Company's 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 in this report 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 following cautionary statements ("Cautionary Statements"):

o general economic conditions;

o the ability of the Company to adapt to changing consumer preferences and
tastes;

o the Company's limited operating history;

o potential fluctuations in the Company's operating costs and results;

o the Company's concentrations of revenues;

o challenges facing the Company related to its rapid growth;

o the Company's dependence on a limited number of suppliers;

o the ability of the Company and third parties, including customers or
suppliers, to adequately address Year 2000 issues;

o the ability of the Company to successfully complete the Purchase Transaction
and integrate those businesses into the Company's exisiting businesses; and

o time constraints on the Company's management in completing the Purchase
Transaction.

All subsequent written and oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by such Cautionary Statements.

-12-
<PAGE>

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

10.1(a) Amendment No. 1 to Revolving Credit Agreement, dated
October 4, 1997

10.1(b) Amendment No. 2 to Revolving Credit Agreement, dated
November 11, 1997

10.1(c) Amendment No. 3 to Revolving Credit Agreement, dated
May 29, 1998

10.1(d) Amendment No. 4 to Revolving Credit Agreement, dated
December 31, 1998

27 Financial Data Schedule

(b) Reports on Form 8-K:

During the quarter ended April 3, 1999, a Current Report on
Form 8-K, dated March 16, 1999, was filed with the Commission
by the Company announcing the signing of a definitive
agreement for the Company to purchase the trademarks and
selected related assets of Anne Klein Company LLC ("Anne
Klein"). The Company and Anne Klein also jointly announced the
signing of a licensing agreement under which Anne Klein
granted to the Company an exclusive, international license
under the ANNE KLEIN(R), ANNE KLEIN II(R) and A LINE ANNE
KLEIN(TM) trademarks.

-13-
<PAGE>

SIGNATURES

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

Kasper A.S.L., Ltd.
(Registrant)
Dated: May 17, 1999

/s/ Arthur S. Levine
------------------------------------
Arthur S. Levine
Chairman and Chief Executive Officer

/s/ Dennis P. Kelly
------------------------------------
Dennis P. Kelly
Chief Financial Officer

-14-
<PAGE>

EXHIBIT INDEX

Exhibit Number Description
- -------------- -----------

10.1(a) Amendment No. 1 to Revolving Credit Agreement, dated October
4, 1997

10.1(b) Amendment No. 2 to Revolving Credit Agreement, dated November
11, 1997

10.1(c) Amendment No. 3 to Revolving Credit Agreement, dated May 29,
1998

10.1(d) Amendment No. 4 to Revolving Credit Agreement, dated December
31, 1998

27 EDGAR Data Schedule

SASSCO FASHIONS, LTD.

AMENDMENT NO. 1

Amendment No. 1, dated as of October 4, 1997 (this "Amendment") to the
Revolving Credit Agreement, dated as of June 4, 1997 (as amended and in effect
from time to time, the "Credit Agreement") among (a) Sassco Fashions, Ltd. (the
"Borrower"), (b) the Guarantors named therein (the "Guarantors"), (c) the
lending institutions listed on Schedule 1 thereto (collectively, the "Lenders")
and (d) BankBoston, N.A. as administrative and collateral agent for the Lenders
(the "Facility Agent"), Citicorp USA, Inc., as documentation agent thereunder
(the "Documentation Agent") and Heller Financial, Inc. as co-agent thereunder
(together with the Facility Agent and the Documentation Agent, the "Agents").
Capitalized terms which are used herein without definition and which are defined
in the Credit Agreement shall have the same meaning herein as in the Credit
Agreement.

WHEREAS, the Borrower has requested that the Lenders amend certain of the
terms and provisions of the Credit Agreement and the Lenders, subject to the
terms and conditions set forth below, have agreed to so amend the Credit
Agreement;

NOW, THEREFORE, in consideration of the foregoing premises, on the terms
and subject to the conditions set forth herein, the parties hereto hereby agree
as follows:

ss.1. Amendments to the Credit Agreement.

ss.1.01 Commitment Fee. Section 2.2 of the Credit Agreement is
hereby amended by deleting the word "quarter" occurring in the ninth line of
such Section and substituting in lieu thereof the word "month".

ss.1.02 Financial Statements, Certificates and Information. Section
9.4(c) of the Credit Agreement is hereby amended by adding the words "(other
than the last fiscal month in each fiscal quarter)" immediately after the words
"fiscal year of the Borrower" occurring in the second line thereof.

ss.1.03 Financial Statements, Certificates and Information. Section
9.4(d) of the Credit Agreement is hereby amended by (i) inserting the text "(i)"
between the letter "(d)" and the word "simultaneously" occurring at the
beginning
<PAGE>

of such Section and (ii) adding the following new text after the words "Balance
Sheet Date" occurring at the end of such Section "and (ii) simultaneously with
the delivery of the financial statements referred to in subsection (c) above, a
statement certified by the principal financial or accounting officer of the
Borrower in substantially the form of Exhibit E hereto (excluding the
information set forth in paragraphs I through IV of the Covenant Compliance
Worksheet contained in such Exhibit E) and setting forth in reasonable detail
computations evidencing compliance with the covenants contained in ss.ss.11.5
and 11.6".

ss.1.04 Capital Expenditures. Section 11.4 of the Credit Agreement
is hereby amended by deleting the amount "$4,000,000" from the table set forth
in such Section and substituting in lieu thereof the amount "$5,000,000".

ss.2. Affirmation and Acknowledgment of the Borrower and the Guarantors.

ss.2.01 The Borrower. The Borrower hereby ratifies and confirms all
of its Obligations to the Lenders and the Facility Agent and the Borrower hereby
affirms its absolute and unconditional promise to pay to the Lenders and the
Facility Agent the Loans and all other amounts due under the Credit Agreement,
as amended hereby. The Borrower hereby confirms that the Obligations are and
remain secured pursuant to the Security Documents and pursuant to all other
instruments and documents executed and delivered by the Borrower as security for
the Obligations.

ss.2.02 The Guarantors. Each of the Guarantors hereby ratifies and
confirms all of its Obligations to the Lenders and the Facility Agent and each
of the Guarantors hereby affirms its unconditional and irrevocable guaranty of
the Obligations under the Credit Agreement, as amended hereby. Each of the
Guarantors hereby confirms that the Obligations are and remain secured pursuant
to the Security Documents and pursuant to all other instruments and documents
executed and delivered by any of the Guarantors as security for the Obligations.

ss.3. Representation and Warranties. Each of the Borrower and the
Guarantors represents and warrants to the Lenders as follows:

be expected to have a material adverse effect on the business, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole, and except to the extent that such representations and warranties
relate expressly to an earlier date).

ss.3.02 Authority. The execution and delivery by each of the
Borrower and the Guarantors of this Amendment and the performance by each of the
Borrower and the Guarantors of all its agreements and obligations under this
Amendment and the Credit Agreement as amended hereby are within its corporate
authority, have been duly authorized by all necessary corporate action and do
not and will not (i) contravene any provision of its charter documents or any
amendment thereof, (ii) conflict with, or result in a breach of any material
term, condition or provision of, or constitute a default under or result in the
creation of any mortgage, lien, pledge, charge, security interest or other
encumbrance upon any of its property under any agreement, deed of trust,
indenture, mortgage or other instrument to which it is a party or by which any
of its properties are bound including, without limitation, any of the Loan
Documents, (iii) violate or contravene any provision of any law, statute, rule
or regulation to which any of the Borrower or the Guarantors is subject or any
decree, order or judgment of any court or governmental or regulatory authority,
bureau, agency or official applicable to any of the Borrower or the Guarantors,
(iv) require any waivers, consents or approvals by any of its creditors which
have not been obtained, or (v) require any approval, consent, order,
authorization or license by, or giving notice to, or taking any other action
with respect to, any governmental or regulatory authority or agency under any
provision of any law, except for those actions which have been taken or will be
taken prior to the date hereof.

ss.3.03 Enforceability of Obligations. This Amendment and the Credit
Agreement, as amended hereby, constitute the legal, valid and binding
obligations of the Borrower and the Guarantors enforceable against each such
Person in accordance with their respective terms and provisions, except as
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors'
rights and except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought.

ss.3.04 No Default. No Default or Event of Default has occurred and
is continuing.

satisfactory to the Facility Agent; (ii) no Default or Event of Default shall
have occurred and be continuing; and (iii) no material adverse change in the
financial condition or business of any of the Borrower or the Guarantors shall
have occurred.

ss.5. Miscellaneous Provisions.

ss.5.01 Credit Agreement in Effect. Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement and the other Loan Documents shall remain the same. It is
declared and agreed by each of the parties hereto that the Credit Agreement, as
amended hereby and the other Loan Documents shall continue in full force and
effect.

ss.5.02 Governing Law. THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS
AN AGREEMENT UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO
CONFLICTS OR CHOICE OF LAW).

ss.5.03 Counterparts. This Amendment may be executed in several
counterparts and by each party on a separate counterpart, each of which when
executed and delivered shall be an original and all of which together shall
constitute one instrument. In proving this Amendment it shall not be necessary
to produce or account for more than one counterpart signed by each party hereto
by and against which enforcement hereof is sought.

ss.5.04 Costs and Expenses The Borrower agrees to pay to the
Facility Agent on demand by the Facility Agent, all reasonable out-of-pocket
costs and expenses incurred or sustained by the Facility Agent in connection
with this Amendment (including reasonable legal fees).
<PAGE>

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
under seal as of the date first written above.

SASSCO FASHIONS, LTD.

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Chief Financial Officer

ASIA EXPERT, LIMITED, as Guarantor

By: /s/ Lester E. Schreiber
----------------------------------------
Name: Lester E. Schreiber
Title: Vice President

ASL RETAIL OUTLETS, INC., as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

SASSCO EUROPE, LTD. as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

ASL/K LICENSING CORP., as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

TOMWELL, LIMITED, as Guarantor
<PAGE>

By: /s/ Lester E. Schreiber
----------------------------------------
Name: Lester E. Schreiber
Title: Vice President

VIEWMON, LIMITED, as Guarantor

By: /s/ Lester E. Schreiber
----------------------------------------
Name: Lester E. Schreiber
Title: Vice President

BANKBOSTON, N.A., individually and
as Facility Agent

By: /s/ Paul G. Feloney
----------------------------------------
Name: Paul G. Feloney
Title: Vice President

CITICORP USA, INC., individually and
as Documentation Agent

By: /s/ Shapleigh B. Smith
----------------------------------------
Name: Shapleigh B. Smith
Title: Vice President

HELLER FINANCIAL, INC., individually
and as Co-Agent

By: /s/ Iris Steinhardt
----------------------------------------
Name: Iris Steinhardt
Title: Vice President
<PAGE>

BTM CAPITAL CORPORATION

By: /s/ William R. York
----------------------------------------
Name: William R. York
Title: Senior Vice President

CORESTATES BANK, N.A.

By: /s/ James H. Maher
----------------------------------------
Name: James H. Maher
Title: Vice President

LASALLE NATIONAL BANK

By: /s/ Sara K. Teu Broek
----------------------------------------
Name: Sara K. Teu Broek
Title: Vice President

FOOTHILL CAPITAL CORPORATION

By: /s/ Peter Drooff
----------------------------------------
Name: Peter Drooff
Title: Assistant Vice President

KASPER A.S.L., LTD.
(f/k/a Sassco Fashions, Ltd.)

AMENDMENT NO. 2

Amendment No. 2, dated as of November 11, 1997 (this "Amendment") to the
Revolving Credit Agreement, dated as of June 4, 1997 (as amended and in effect
from time to time, the "Credit Agreement") among (a) Kasper A.S.L., Ltd. (f/k/a
Sassco Fashions, Ltd.) (the "Borrower"), (b) the Guarantors named therein (the
"Guarantors"), (c) the lending institutions listed on Schedule 1 thereto
(collectively, the "Lenders") and (d) BankBoston, N.A. as administrative and
collateral agent for the Lenders (the "Facility Agent"), Citicorp USA, Inc., as
documentation agent thereunder (the "Documentation Agent") and Heller Financial,
Inc. as co-agent thereunder (together with the Facility Agent and the
Documentation Agent, the "Agents"). Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meaning herein as in the Credit Agreement.

NOW, THEREFORE, in consideration of the foregoing premises, on the terms
and subject to the conditions set forth herein, the parties hereto hereby agree
as follows:

ss.1. Amendments to the Credit Agreement.

ss.1.01 Inventory Coverage Ratio. Section 11.3 of the Credit
Agreement is hereby amended by deleting the word "less" occurring in the third
line of such Section and substituting in lieu thereof the word "more".

ss.1.02 Compliance Certificate. Exhibit E to the Credit Agreement is
hereby amended by deleting the words "Minimum Ratio required" occurring in Item
III(G) on page 2 of Annex A to such Exhibit and substituting in lieu thereof the
words "Maximum Ratio Permitted".

ss.2. Affirmation and Acknowledgment of the Borrower and the
<PAGE>

Guarantors.

ss.3. Representation and Warranties. Each of the Borrower and the
Guarantors represents and warrants to the Lenders as follows:

ss.3.01 Representations and Warranties in Credit Agreement. The
representations and warranties of the Borrower and the Guarantors contained in
the Credit Agreement (i) were true and correct when made, and (ii) continue to
be true and correct on the date hereof (except to the extent of changes
resulting from transactions contemplated or permitted by the Credit Agreement,
as amended hereby, and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate could not reasonably
be expected to have a material adverse effect on the business, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole, and except to the extent that such representations and warranties
relate expressly to an earlier date).

encumbrance upon any of its property under any agreement, deed of trust,
indenture, mortgage or other instrument to which it is a party or by which any
of its properties are bound including, without limitation, any of the Loan
Documents, (iii) violate or contravene any provision of any law, statute, rule
or regulation to which any of the Borrower or the Guarantors is subject or any
decree, order or judgment of any court or governmental or regulatory authority,
bureau, agency or official applicable to any of the Borrower or the Guarantors,
(iv) require any waivers, consents or approvals by any of its creditors which
have not been obtained, or (v) require any approval, consent, order,
authorization or license by, or giving notice to, or taking any other action
with respect to, any governmental or regulatory authority or agency under any
provision of any law, except for those actions which have been taken or will be
taken prior to the date hereof.

ss.3.04 No Default. No Default or Event of Default has occurred and
is continuing.

ss.4. Conditions to Effectiveness. This Amendment shall become effective
as of the date hereof subject to the satisfaction of the following conditions
precedent: (i) the execution and delivery of this Amendment by each of the
Borrower, the Guarantors and the Majority Lenders, in form and substance
satisfactory to the Facility Agent; (ii) no Default or Event of Default shall
have occurred and be continuing; and (iii) no material adverse change in the
financial condition or business of any of the Borrower or the Guarantors shall
have occurred.

ss.5. Miscellaneous Provisions.

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
under seal as of the date first written above.

KASPER A.S.L., LTD.
(f/k/a Sassco Fashions, Ltd.)

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Chief Financial Officer

ASIA EXPERT, LIMITED, as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

ASL RETAIL OUTLETS, INC., as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

SASSCO EUROPE, LTD. as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

ASL/K LICENSING CORP., as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

TOMWELL, LIMITED, as Guarantor
<PAGE>

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

VIEWMON, LIMITED, as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

BANKBOSTON, N.A., individually and
as Facility Agent

By: /s/ Paul G. Feloney
----------------------------------------
Name: Paul G. Feloney
Title: Vice President

CITICORP USA, INC., individually and
as Documentation Agent

By: /s/ Shapleigh B. Smith
----------------------------------------
Name: Shapleigh B. Smith
Title: Vice President

HELLER FINANCIAL, INC., individually
and as Co-Agent

By: /s/ Iris Steinhardt
----------------------------------------
Name: Iris Steinhardt
Title: Vice President
<PAGE>

BTM CAPITAL CORPORATION

By: /s/ William R. York
----------------------------------------
Name: William R. York
Title: Senior Vice President

CORESTATES BANK, N.A.

By: /s/ James H. Maher
----------------------------------------
Name: James H. Maher
Title: Vice President

LASALLE NATIONAL BANK

By: /s/ Shonagh Aylsworth
----------------------------------------
Name: Shonagh Aylsworth
Title: First Vice President

FOOTHILL CAPITAL CORPORATION

By: /s/ Peter Drooff
----------------------------------------
Name: Peter Drooff
Title: Assistant Vice President

KASPER A.S.L., LTD.
(f/k/a Sassco Fashions, Ltd.)

AMENDMENT NO. 3

Amendment No. 3, dated as of May 29, 1998 (this "Amendment") to the
Revolving Credit Agreement, dated as of June 4, 1997 (as amended and in effect
from time to time, the "Credit Agreement") among (a) Kasper A.S.L., Ltd. (f/k/a
Sassco Fashions, Ltd.) (the "Borrower"), (b) the Guarantors named therein (the
"Guarantors"), (c) the lending institutions listed on Schedule 1 thereto
(collectively, the "Lenders") and (d) BankBoston, N.A. as administrative and
collateral agent for the Lenders (the "Facility Agent"), Citicorp USA, Inc., as
documentation agent thereunder (the "Documentation Agent") and Heller Financial,
Inc. as co-agent thereunder (together with the Facility Agent and the
Documentation Agent, the "Agents"). Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meaning herein as in the Credit Agreement.

NOW, THEREFORE, in consideration of the foregoing premises, on the terms
and subject to the conditions set forth herein, the parties hereto hereby agree
as follows:

ss.1. Amendments to the Credit Agreement.

ss.1.01 Debt Service Coverage. Section 11.2 of the Credit Agreement
is hereby amended by (i) deleting the ratio "1.32:1" set forth opposite the date
"10/3/98" in the table therein and substituting in lieu thereof the ratio
"1.20:1" and (ii) deleting the ratio "1.42:1" set forth opposite the date
"1/2/99" in the table therein and substituting in lieu thereof the ratio
"1.25:1".

ss.1.02 Capital Expenditures. Section 11.4 of the Credit Agreement
is hereby amended by deleting the table set forth therein and substituting in
lieu thereof the following new table:

-------------------------------------------------------
Maximum Permitted
-----------------
Fiscal Year Ending Capital Expenditures
------------------ --------------------
-------------------------------------------------------
<PAGE>

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

-------------------------------------------------------
1/3/98 $5,000,000
-------------------------------------------------------
1/2/99 $5,500,000
-------------------------------------------------------
1/1/00 and each fiscal year
ending thereafter $3,000,000
-------------------------------------------------------

ss.2. Affirmation and Acknowledgment of the Borrower and the Guarantors.

ss.3. Representation and Warranties. Each of the Borrower and the
Guarantors represents and warrants to the Lenders as follows:

ss.3.02 Authority. The execution and delivery by each of the
Borrower and the Guarantors of this Amendment and the performance by each
<PAGE>

of the Borrower and the Guarantors of all its agreements and obligations under
this Amendment and the Credit Agreement as amended hereby are within its
corporate authority, have been duly authorized by all necessary corporate action
and do not and will not (i) contravene any provision of its charter documents or
any amendment thereof, (ii) conflict with, or result in a breach of any material
term, condition or provision of, or constitute a default under or result in the
creation of any mortgage, lien, pledge, charge, security interest or other
encumbrance upon any of its property under any agreement, deed of trust,
indenture, mortgage or other instrument to which it is a party or by which any
of its properties are bound including, without limitation, any of the Loan
Documents, (iii) violate or contravene any provision of any law, statute, rule
or regulation to which any of the Borrower or the Guarantors is subject or any
decree, order or judgment of any court or governmental or regulatory authority,
bureau, agency or official applicable to any of the Borrower or the Guarantors,
(iv) require any waivers, consents or approvals by any of its creditors which
have not been obtained, or (v) require any approval, consent, order,
authorization or license by, or giving notice to, or taking any other action
with respect to, any governmental or regulatory authority or agency under any
provision of any law, except for those actions which have been taken or will be
taken prior to the date hereof.

ss.3.04 No Default. No Default or Event of Default has occurred and
is continuing.

ss.5. Miscellaneous Provisions.
<PAGE>

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
under seal as of the date first written above.

KASPER A.S.L., LTD.
(f/k/a Sassco Fashions, Ltd.)

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Chief Financial Officer

ASIA EXPERT, LIMITED, as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

ASL RETAIL OUTLETS, INC., as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

SASSCO EUROPE, LTD. as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

ASL/K LICENSING CORP., as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

TOMWELL, LIMITED, as Guarantor
<PAGE>

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

VIEWMON, LIMITED, as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

BANKBOSTON, N.A., individually and
as Facility Agent

By: /s/ Paul G. Feloney
----------------------------------------
Name: Paul G. Feloney
Title: Vice President

CITICORP USA, INC., individually and
as Documentation Agent

By: /s/ Shapleigh B. Smith
----------------------------------------
Name: Shapleigh B. Smith
Title: Vice President

HELLER FINANCIAL, INC., individually
and as Co-Agent

By: /s/ Iris Steinhardt
----------------------------------------
Name: Iris Steinhardt
Title: Vice President
<PAGE>

PNC BANK, NATIONAL ASSOCIATION

By: /s/ Donald K. Mitchell
----------------------------------------
Name: Donald K. Mitchell
Title: Vice President

CORESTATES BANK, N.A.

By: /s/ James H. Maher
----------------------------------------
Name: James H. Maher
Title: Vice President

LASALLE NATIONAL BANK

By: /s/ Shonagh Aylsworth
----------------------------------------
Name: Shonagh Aylsworth
Title: First Vice President

FOOTHILL CAPITAL CORPORATION

By: /s/ Peter Drooff
----------------------------------------
Name: Peter Drooff
Title: Assistant Vice President

KASPER A.S.L., LTD.
(f/k/a Sassco Fashions, Ltd.)

AMENDMENT NO. 4

Amendment No. 4, dated as of December 31, 1998 (this "Amendment") to the
Revolving Credit Agreement, dated as of June 4, 1997 (as amended and in effect
from time to time, the "Credit Agreement") among (a) Kasper A.S.L., Ltd. (f/k/a
Sassco Fashions, Ltd.) (the "Borrower"), (b) the Guarantors named therein (the
"Guarantors"), (c) the lending institutions listed on Schedule 1 thereto
(collectively, the "Lenders") and (d) BankBoston, N.A. as administrative and
collateral agent for the Lenders (the "Facility Agent"), Citicorp USA, Inc., as
documentation agent thereunder (the "Documentation Agent") and Heller Financial,
Inc. as co-agent thereunder (together with the Facility Agent and the
Documentation Agent, the "Agents"). Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meaning herein as in the Credit Agreement.

NOW, THEREFORE, in consideration of the foregoing premises, on the terms
and subject to the conditions set forth herein, the parties hereto hereby agree
as follows:

ss.1. Amendments to the Credit Agreement.

ss.1.01 Minimum EBITDA. Section 11.1 of the Credit Agreement is
hereby amended by deleting the table set forth in such Section in its entirety
and substituting in lieu thereof the following new table:

--------------------------------------------------
Fiscal Quarter Ending Minimum Consolidated EBITDA
--------------------- ---------------------------
--------------------------------------------------

--------------------------------------------------
4/5/97 $ 7,200,000
--------------------------------------------------
7/5/97 $ 9,500,000
--------------------------------------------------
10/4/97 $20,300,000
--------------------------------------------------
1/3/98 $22,200,000
--------------------------------------------------
4/4/98 $24,700,000
--------------------------------------------------
7/4/98 $25,200,000
--------------------------------------------------
10/3/98 $27,500,000
--------------------------------------------------
<PAGE>

--------------------------------------------------
1/2/99 $28,500,000
--------------------------------------------------
4/3/99 $27,500,000
--------------------------------------------------
7/3/99 $28,000,000
--------------------------------------------------
10/2/99 $27,300,000
--------------------------------------------------
1/1/00 $29,000,000
--------------------------------------------------
4/1/00 $35,800,000
--------------------------------------------------

ss.1.02 Debt Service Coverage. Section 11.2 of the Credit Agreement
is hereby amended by deleting the table set forth in such Section in its
entirety and substituting in lieu thereof the following new table:

----------------------------------------------
Fiscal Quarter Ending Ratio
--------------------- -----
----------------------------------------------

----------------------------------------------
7/5/97 1.81:1
----------------------------------------------
10/4/97 2.06:1
----------------------------------------------
1/3/98 1.43:1
----------------------------------------------
4/4/98 1.23:1
----------------------------------------------
7/4/98 1.22:1
----------------------------------------------
10/3/98 1.20:1
----------------------------------------------
1/2/99 1.15:1
----------------------------------------------
4/3/99 1.15:1
----------------------------------------------
7/3/99 1.20:1
----------------------------------------------
10/2/99 1.20:1
----------------------------------------------
1/1/00 1.25:1
----------------------------------------------
4/1/00 1.65:1
----------------------------------------------

ss.1.03 Capital Expenditures. Section 11.4 of the Credit Agreement
is hereby amended by deleting the table set forth therein and substituting in
lieu thereof the following new table:

-------------------------------------------------------
Maximum Permitted Capital
-------------------------
Fiscal Year Ending Expenditures
------------------ ------------
-------------------------------------------------------

-------------------------------------------------------
1/3/98 $5,000,000
-------------------------------------------------------
1/2/99 $5,700,000
-------------------------------------------------------
1/1/00 and each fiscal
year ending thereafter $5,000,000
-------------------------------------------------------

ss.2. Affirmation and Acknowledgment of the Borrower and the Guarantors.
<PAGE>

ss.3. Representation and Warranties. Each of the Borrower and the
Guarantors represents and warrants to the Lenders as follows:

governmental or regulatory authority, bureau, agency or official applicable to
any of the Borrower or the Guarantors, (iv) require any waivers, consents or
approvals by any of its creditors which have not been obtained, or (v) require
any approval, consent, order, authorization or license by, or giving notice to,
or taking any other action with respect to, any governmental or regulatory
authority or agency under any provision of any law, except for those actions
which have been taken or will be taken prior to the date hereof.

ss.3.04 No Default. No Default or Event of Default has occurred and
is continuing.

ss.5. Miscellaneous Provisions.

ss.5.03 Counterparts. This Amendment may be executed in several
<PAGE>

counterparts and by each party on a separate counterpart, each of which when
executed and delivered shall be an original and all of which together shall
constitute one instrument. In proving this Amendment it shall not be necessary
to produce or account for more than one counterpart signed by each party hereto
by and against which enforcement hereof is sought.

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
under seal as of the date first written above.

KASPER A.S.L., LTD.

(f/k/a Sassco Fashions, Ltd.)

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Chief Financial Officer

ASIA EXPERT, LIMITED, as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President
<PAGE>

ASL RETAIL OUTLETS, INC., as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

SASSCO EUROPE, LTD. as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

ASL/K LICENSING CORP., as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

TOMWELL, LIMITED, as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President

VIEWMON, LIMITED, as Guarantor

By: /s/ Dennis P. Kelly
----------------------------------------
Name: Dennis P. Kelly
Title: Vice President
<PAGE>

BANKBOSTON, N.A., individually and as
Facility Agent

By: /s/ Paul. G. Feloney
----------------------------------------
Name: Paul G. Feloney
Title: Director

CITICORP USA, INC., individually and
as Documentation Agent

By: /s/ Shapleigh B. Smith
----------------------------------------
Name: Shapleigh B. Smith
Title: Vice President

HELLER FINANCIAL, INC., individually
and as Co-Agent

By: /s/ Iris Steinhardt
----------------------------------------
Name: Iris Steinhardt
Title: Vice President

PNC BANK, NATIONAL ASSOCIATION

By: /s/ Michael D. Shover
----------------------------------------
Name: Michael D. Shover
Title: Bank Officer

FIRST UNION NATIONAL BANK
(f/k/a CORESTATES BANK, N.A.)

By: /s/ James H. Maher
----------------------------------------
Name: James H. Maher
Title: Vice President

LASALLE NATIONAL BANK
<PAGE>

By: /s/ Shonagh Aylsworth
----------------------------------------
Name: Shonagh Aylsworth
Title: First Vice President

FOOTHILL CAPITAL CORPORATION

By: /s/ Peter Drooff
----------------------------------------
Name: Peter Drooff
Title: Vice President

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-3-1999
<PERIOD-END> APR-3-1999
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<RECEIVABLES> 82,449
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0
0
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</TABLE>