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                         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 by Lender
to Borrower as debtor-in-possession arising pursuant to court order under
Section 364 of Title 11, United States Code.

     Upon the occurrence and during the continuation of an Event of Default or
the undersigned should at any time become insolvent, or make a general
assignment, or if a proceeding in or under any federal or state bankruptcy,
reorganization, moratorium or insolvency law relating to or affecting the
enforcement of creditor's rights generally, shall be filed or commenced by, or
in respect of the undersigned, or if a notice of any lien, levy or assessment
is filed of record with respect to any assets of the undersigned by the United
States or any department, agency or instrumentality thereof, or if any taxes or
debts owing at any time or times hereafter to any one of them becomes a lien or
encumbrance upon any assets of the undersigned in Lender's possession or
otherwise, Lender and its successors and assigns may, without demand of
performance or advertisement or notice of any kind to or upon the undersigned
(each of which demands, advertisements and/or notices are hereby expressly
waived), forthwith or at any time or times thereafter, appropriate and apply
all or any part of the Collateral Deposit to the payment in whole or in part,
in such order as Lender may elect, of the Obligations, whether then due or not
due, returning the surplus, if any, to the undersigned, who shall nevertheless
remain liable to 
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Lender for the payment of any deficiency.

     The Collateral Deposit shall be released simultaneously with the
Restructure Transaction and shall thereafter be applied as provided in Section
12.3 of the Financing Agreement.

     When all of the Obligations have been paid and/or are otherwise satisfied
in full, the Financing Agreement has been irrevocably terminated and Borrower
and the undersigned have executed full releases in favor of Lender in form and
substance reasonably satisfactory to Lender, any sums still on deposit
hereunder shall be returned to the undersigned.

     While any sums are on deposit with Lender hereunder, Lender shall pay to
the undersigned interest on the Collateral Deposit at a rate per annum equal to
(a) the Alternate Base Rate plus (b) one-half of one percent (.50%).
Notwithstanding the foregoing, upon the occurrence and during the continuation
of an Event of Default, interest on the Collateral Deposit shall either, at
Lender's option, accrue and be added to the Collateral Deposit or cease
accruing.

     This letter agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, administrators, executors,
successors and assigns and shall be governed by and construed in accordance
with the laws of the State of New York.

                                       Very truly yours,

                                       /s/ Josephine Chaus
                                       ---------------------------------------
                                                   JOSEPHINE CHAUS

                                       Social Security No.: ###-##-####
                                                           --------------------

ACCEPTED:

BNY FINANCIAL CORPORATION


By: /s/ Andrew Rogow
   ----------------------------
             Title: SVP