Cash Collateral Deposit Letter Dated As of July 23, 1997

CASH COLLATERAL DEPOSIT LETTER


July 23, 1997


BNY Financial Corporation 1290 Avenue of the Americas New York, New York


Attention: Andrew Rogow


Gentlemen:


Reference is made to (a) the Restated and Amended Financing Agreement dated as of February 21, 1995 (as same has been and may be further amended, modified, supplemented and restated from time to time, the "Financing Agreement") between BNY Financial Corporation ("Lender") and Bernard Chaus, Inc. ("Borrower") and (b) the Guaranty dated February 21, 1995 (as same has been and may be further amended, modified, supplemented and restated from time to time, the "Guaranty") executed by the undersigned in favor of Lender pursuant to which the undersigned guaranteed to Lender the payment of Borrower's Obligations to Lender. All capitalized terms used herein which are not defined shall have the meanings given to them in the Financing Agreement.


As collateral security for the undersigned's obligations under the Guaranty and the Obligations, the undersigned hereby deposits with Lender, the sum of $10,000,000 which are the proceeds of certain collateral pledged by the undersigned to secure a certain Citibank Letter of Credit No. NY-01623-00141033, expiration date July 31, 1997, such sum to be held by Lender for the uses and purposes herein stated (this deposit to be hereinafter referred to as the "Collateral Deposit"). For purposes hereof, the term "Obligations" also includes indebtedness of Borrower to Lender, whether accrued or incurred prior or subsequent to the commencement of any voluntary or involuntary case un ...