Cash Collateral Deposit Letter Dated As of October 10, 1997

CASH COLLATERAL DEPOSIT LETTER


October 10, 1997


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


Attention: Andrew Rogow


Gentlemen:


Reference is made to (a) the Second Restated and Amended Financing Agreement dated as of the date hereof (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) that certain $12,500,000 Promissory Note dated the date hereof (as same has been and may be further amended, modified, supplemented and restated from time to time, the "Note") executed by the undersigned in favor of 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 Note and the Obligations, the undersigned hereby deposits with Lender, the sum of $12,500,000 which are the proceeds of the loan made under the Note, 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 under Title 11, United States Code by or against Borrower, if any, and whether or not such indebtedness is allowed or disallowed by court order entered in such case, but does not represent indebtedness owing b ...