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                         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 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 

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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 Lender for the payment of any deficiency.

     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 minus (b) three percent (3%). 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/ Joseph Grimaldi
   --------------------------------
   Title: SVP