<PAGE>
                                                                  EXHIBIT (10)-2

                               SECURITY AGREEMENT
                               ------------------



     This Security Agreement ("Agreement") is entered as of the 15th  day of
August, 1998 by Grand Havana Enterprises, Inc., a Delaware corporation, (the
"Debtor"), and Harry Shuster, an individual (the "Secured Party").


                                    RECITALS
                                    --------

     A.  The Secured Party has agreed to lend the Debtor the sum set forth in
the attached Secured Promissory Note (the "Note").

     B.  As a condition of Secured Party agreeing to accept the Note in
consideration for making the loan evidenced by the Secured Party has required
that Debtor enter into this Security Agreement and pledge certain collateral, as
hereinafter described, to assure the Secured Party receives the benefits of the
service contracts.

     NOW, THEREFORE, in consideration of the above premises, and for other good
and valuable consideration the receipt of which Debtor hereby acknowledges,
Debtor agrees as follows:

                                    ARTICLE
1. AGREEMENT

1.1    The Collateral.  For value received, Debtor hereby pledges, assigns and
       --------------
grants to Secured Party without any recourse to Debtor except as provided herein
and subject to the provisions of this Agreement, a security interest in the
following described personal property (the "Collateral"):

     See Exhibit "A" attached hereto and incorporated herein by this reference.

1.2    Grant of Security Interest.  For value received, Debtor hereby pledges,
       --------------------------
assigns, and grants to Secured Party, without any recourse to Debtor whatsoever
and subject to the provisions of this Agreement, a security interest in the
personal property described in Section 1.1 hereof which shall be referred to as
the "Collateral."

                                  Page 1 of 13
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1.3    The Obligations.  The Collateral secures and will secure the prompt and
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unconditional payment of the "Obligations."  As used in this Agreement, the term
"Obligations" means any and all amounts due to Secured Party as the successor-
in-interest to the Debtor by virtue of the Note executed by the Debtor and
delivered to the Secured Party.

1.4    Representations, Warranties and Covenants.  Debtor acknowledges and
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agrees that Secured Party is relying on the representations and warranties and
covenants in this Agreement as a condition precedent to the acceptance of the
Note and that all such representations and warranties and covenants shall
survive the execution and delivery of this Agreement and any bankruptcy,
insolvency or similar proceedings.  Debtor hereby represents and warrants to
Secured Party and covenants for the benefit of Secured Party as follows:

       A.      Debtor is (and with respect to all Collateral acquired hereafter,
               shall be) the sole legal and equitable owner of the Collateral
               free from any adverse claim, lien, security interest, encumbrance
               or other right, title or interest of any person, except for the
               security interest created hereby. Debtor has the unqualified
               right and power to grant a security interest in the Collateral
               without the consent of any person and Debtor shall at Debtor's
               expense defend the Collateral against all claims and demands of
               all persons at any time claiming the Collateral or any interest
               therein adverse to Secured Party. Debtor shall not create, grant
               nor suffer to exist any pledge, security interest, lien, levy,
               garnishment, attachment, charge or encumbrance upon any of the
               Collateral (except in favor of Secured Party) and shall at all
               times keep the Collateral free from the same.

       B.      If new or additional Collateral is pledged to Secured Party, then
               the same shall be deemed an increment to the Collateral and under
               pledge and assignment to Secured Party hereunder. If evidenced by
               a stock certificate, bond, warrant, debenture, certificate, or
               other Instrument or writing, then such securities shall (to the
               extent acquired or received by or placed under Debtor's control)
               be held in trust for and promptly delivered to Secured Party,
               together with duly executed stock powers in blank and any other
               assignments or endorsements as Secured Party may request. If any
               such securities are uncertificated, then Debtor shall immediately
               upon acquisition of such securities cause Secured Party to be
               registered as the transferee thereof on the books of the
               depository, custodian bank, clearing corporation, brokerage
               house, issuer or otherwise, as may be requested by Secured Party.

       C.      Without the prior written consent of Secured Party, Debtor shall
               not sell, transfer, assign, convey or otherwise dispose of any
               interest in any of the Collateral, nor enter into any contract or
               agreement to do so.

                                  Page 2 of 13
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         D.    Debtor shall pay when due all taxes or other governmental charges
               whatsoever levied against the Collateral and all assessments
               (including stock assessments) upon the Collateral, and Debtor
               shall pay any tax which may be levied on or assessed against this
               Agreement;

         E.    Debtor, or if Debtor fails to do so, Secured Party shall pay on
               demand all filing fees and similar charges and all costs incurred
               by Secured Party in creating a security interest or securing and
               enforcing a security interest in the Collateral including the
               expenses and reasonable fees of Secured Party's legal counsel,
               whether or not involving litigation and/or appellate,
               administrative or bankruptcy proceedings. Debtor agrees to
               indemnify and hold Secured Party harmless on demand against all
               expenses, losses, consequences or damages incurred or suffered by
               Secured Party arising from or relating to any claim, demand,
               action or proceeding brought by any person(s) whomsoever in
               connection with or relating to the Collateral or this Agreement
               (including without limitation any court costs and the expenses
               and reasonable fees of Secured Party's legal counsel), except to
               the extent that a court of competent jurisdiction shall hold the
               same to be the result of Secured Party's own gross negligence or
               willful misconduct. Debtor shall pay any documentary stamp taxes,
               intangible taxes or other taxes (except for federal or state
               franchise or income taxes based on the net income of Secured
               Party) which may now or hereafter apply to the Collateral or this
               Agreement, and Debtor agrees to indemnify and hold Secured party
               harmless from and against any liability, costs, attorney's fees,
               penalties, interest or expenses relating to any such taxes, as
               and when the same may be incurred. Debtor shall pay on demand,
               and indemnify and hold Secured Party harmless against, any and
               all present or future taxes, levies, imposts, deductions, charges
               and withholdings imposed in connection with this Agreement, the
               Collateral or the Obligations by the laws or governmental
               authorities of any jurisdiction or the United States of America.
               All sums payable by Debtor under this subparagraph are and shall
               be secured by the Collateral.

         F.    There is no fact that the Debtor has not disclosed to Secured
               Party in writing that could materially adversely affect its
               properties, business or financial condition, or any Collateral.
               Debtor shall promptly notify Secured Party in writing if any
               event shall occur or become known to Debtor which has or could
               have any such materially adverse effect with respect to Debtor,
               or which changes the truth or correctness of any representation
               or warranty in this Agreement or which affects the value of, or
               any rights incidental to, any Collateral or the ability of Debtor
               or Secured Party to dispose of the same (including without
               limitation the levy of any legal process or the filing of any
               lien against the Collateral or the adoption of any marketing
               order, arrangement or procedure affecting the Collateral, whether
               governmental or otherwise).

                                  Page 3 of 13
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         G.    Debtor shall not take or permit any action that may impair the
               Collateral or Secured Party's security interest therein, and
               shall not permit any of the Collateral to be used in violation of
               any statute or regulation or ordinance. Without limiting the
               foregoing, Debtor will not compromise, release, surrender or
               waive any rights of any nature whatsoever in respect of any of
               the Collateral without Secured Party's prior written consent,
               which Secured Party may grant or withhold in its sole discretion.

         H.    Debtor shall immediately: (a) to the extent not previously
               delivered to Secured Party in compliance with the terms hereof,
               deliver to Secured Party any and all Instruments, securities,
               notes, drafts and acceptances included in the Collateral at the
               time and place and manner specified by Secured Party, together
               with any endorsements, stock powers in blank and assignments
               requested by Secured Party for their transfer to Secured Party or
               to any other person selected by Secured Party, all in form and
               substance satisfactory to Secured Party; and (b) execute, deliver
               and file any and all financing statements, continuation
               statements, mortgages, agreements, notices, vouchers, invoices,
               schedules, confirmatory assignments, conveyances, transfer
               endorsements, powers of attorney, proxies, certificates, deeds or
               other papers and/or perform any act which Secured Party may deem
               necessary or appropriate to create, perfect, preserve, validate
               or otherwise protect Secured Party's security interest in the
               Collateral or to enable Secured Party from time to time to
               exercise and enforce Secured Party's rights under this Agreement.

         I.    The execution and delivery of this Agreement does not and shall
               not (a) violate any material provisions of any law, rule,
               regulation, order, writ, judgment, injunction, decree,
               determination or award applicable to Debtor, nor (b) result in a
               breach of, or constitute a default under, any indenture, bond,
               mortgage, lease, instrument, credit agreement, undertaking,
               contract or other agreement to which Debtor is a party or by
               which any of them or their respective properties may be bound or
               affected. This Agreement constitutes the legal, valid and binding
               obligation of the Debtor and is enforceable against Debtor in
               accordance with its terms.

1.5    Rights of Secured Party.  Debtor agrees with and for the benefit of
       -----------------------
Secured Party that:

       A.      Secured Party shall have the right (but not the obligation) at
               its option to discharge or pay any taxes, assessments, liens,
               security interests or other encumbrances at any time levied or
               placed on or against the Collateral. Any amount so paid or
               advanced by Secured Party shall be secured by the Collateral and
               shall be repayable by Debtor on demand.

                                  Page 4 of 13
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       B.    Secured Party may sign and file appropriate financing statements,
             security agreements, recording instruments or other documents or
             amendments thereto with respect to the Collateral or any portion
             thereof without the signature of Debtor, and Debtor shall reimburse
             Secured Party on demand for any reasonable costs advanced or
             incurred by Secured Party in connection therewith. At Secured
             Party's option, a carbon, photographic or other reproduction of
             this Agreement (or of any financing statement executed by Debtor)
             shall be sufficient as a financing statement.

       C.    Debtor hereby irrevocably constitutes and appoints Secured Party
             its attorney-in-fact for the purpose of carrying out the provisions
             of this Agreement and taking any action and executing any
             instrument which Secured Party may deem necessary or advisable to
             accomplish the purposes hereof, which appointment is irrevocable
             and coupled with an interest. Without limiting the generality of
             the foregoing, Secured Party shall have the right, after the
             occurrence and during the continuance of an Event of Default, with
             full power of substitution either in Secured Party's or Debtor's
             name, to ask for, demand, sue for, collect, receive and give
             acquittance for any and all moneys due or to become due with
             respect to or in connection with the Collateral; to endorse checks,
             drafts, orders and other instruments for the payment of money
             representing payment on account, dividends or other distribution
             with respect to or in connection with the Collateral or any part
             thereof and to give full discharge for the same; to settle,
             compromise, prosecute or defend any action, claim or proceeding
             with respect to the Collateral; and to sell, assign, endorse,
             pledge, transfer and make any agreement respecting, or otherwise
             deal with, the Collateral.

       D.    Secured Party shall have such other rights as are provided under
             applicable law.

       E.    Secured Party may take control of any Proceeds of Collateral at any
             time and may at its option apply any cash Proceeds of the
             Collateral (including without limitation any insurance proceeds or
             amounts payable in any lawsuit on account of the Collateral) to the
             payment of the Obligations, whether or not matured, in any manner
             deemed appropriate by Secured Party.

1.6    Events of Default.  For purposes of this Agreement, an "Event of Default"
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shall exist hereunder upon the happening of any of the following events:

       A.    The failure of Debtor to pay or to deliver to Secured Party any sum
             when due under the Note;

       B.    Any representation or warranty made in this Agreement or the Note
             shall prove false or misleading in any material respect, or Debtor
             shall

                                  Page 5 of 13
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             fail to perform any covenant, agreement or undertaking under this
             Agreement or the Note;

       C.    Debtor from and after the date hereof shall, or shall attempt to,
             encumber, subject to any further pledge or security interest, sell,
             transfer or otherwise dispose of any of the Collateral or any
             interest therein;

       D.    All or any part of the Collateral shall be attached or levied upon
             or seized in any legal proceedings, or held by virtue of any lien;

       E.    If the Debtor shall make an assignment for the benefit of
             creditors, file a petition in bankruptcy, apply to or petition any
             tribunal for the appointment of a custodian, receiver, intervenor
             or trustee for the Debtor or a substantial part of the Debtor's
             assets; or if the Debtor shall commence any proceeding under any
             bankruptcy, arrangement, readjustment of debt, dissolution or
             liquidation law or statute of any jurisdiction, whether now or
             hereafter in effect; or if any such petition or application shall
             have been filed or proceeding commenced against the Debtor or if
             any such custodian, receiver, intervenor or trustee shall have been
             appointed.

1.7    Rights and Remedies on Default.  If any of the foregoing Events of
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Default shall occur, then Secured Party, in its sole discretion and without
prior notice to Debtor, may at any time and from time to time during the
continuation thereof take any or all of the following actions:

       A.    Foreclose Secured Party's security interest(s) in any or all of the
             Collateral as provided by law;

       B.    Sell, resell, discount or dispose of all or any portion of the
             Collateral, or endorse, assign and convey the same to any third
             party;

       C.    Require Debtor to assemble Debtor's books, records, files, papers
             and other data pertaining to the Collateral and deliver them to
             Secured Party at Debtor's expense to a place designated by Secured
             Party;

       D.    Exercise any and all other rights and remedies with respect to the
             Collateral which Secured Party may enjoy as a secured party under
             this Agreement, the California Commercial Code or any other
             applicable law.

       All rights, remedies and powers granted to Secured Party in this
Agreement or the Note or by applicable law shall be cumulative and may be
exercised singly or concurrently on one or more occasions. No delay in
exercising or failure to exercise any of Secured Party's rights or remedies
shall constitute a waiver thereof, nor shall any single or partial exercise of
any right or remedy by Secured Party preclude any other or further exercise of
that or any other right or remedy. No waiver of any right or remedy by Secured
Party shall

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be effective unless made in writing and signed by Secured Party, nor shall any
waiver on one occasion apply to any future occasion, but shall be effective only
with respect to the specific occasion addressed in that signed writing.

1.8    Sale of the Collateral.  With respect to any sale or disposition of any
       ----------------------
of the Collateral, whether made under the power of sale in this Agreement, under
any applicable provisions of the California Commercial Code or other applicable
law, or under judgment or order or decree in any judicial proceeding for the
foreclosure of Secured Party's security interest or involving the enforcement of
this Agreement:

       A.    The Collateral may be sold, resold, assigned or delivered in one or
             more parcels, at the same or at different times, at public or
             private sale or at any broker's board or on any securities exchange
             if publicly traded at the time of the sale, for cash or on credit
             or for other property, for immediate or future delivery, and at
             such price(s) and on such terms as Secured Party may determine in
             its sole discretion, so long as such disposition is commercially
             reasonable. Without precluding any other methods of sale, the sale
             of the Collateral shall be deemed made in a commercially reasonable
             manner if conducted in conformity with reasonable commercial
             practices of banks or other financial institutions when disposing
             of similar property.

       B.    Secured Party agrees to give Debtor not less than fifteen (15)
             business days prior written notice of the time and place of any
             non-judicial public sale of the Collateral and not less than
             fifteen (15) days prior written notice of the date after which
             Secured Party will effect a private sale of the Collateral. Debtor
             hereby waives any and all other demands, advertisements or notices
             except as required by law. In the case of any sale at a broker's
             board or on a securities exchange, the notice required by this
             subsection B shall identify the board or exchange at which such
             sale is to be made and the day on which the Collateral (or a
             portion thereof) will first be offered for sale. Any public sale of
             any of the Collateral shall be held at such time or times within
             ordinary business hours at such place or places as Secured Party
             may state in the notice or publication (if any) of such sale.

       C.    Secured Party shall not be obligated to sell any of the Collateral
             if it determines not to do so, notwithstanding that notice of a
             sale of such Collateral may have been given. Secured Party may,
             without notice or publication, adjourn any public or private sale
             or cause the same to be adjourned from time to time by announcement
             at the time and place fixed for the sale, and such sale may be
             made, without further notice, at the time and place identified in
             such announcement. In case of any sale of all or any part of the
             Collateral on credit or for future delivery, Secured Party may
             retain the Collateral sold until the sales price is paid by the
             purchaser(s) thereof, but Secured Party shall not incur any
             liability if any such purchaser shall fail to

                                  Page 7 of 13
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             take up and pay for the Collateral so sold, in which case such
             Collateral may again be sold upon like notice.

       D.    Debtor understands that applicable federal and state laws
             restricting and imposing requirements on the sales of securities to
             the general public (the "Securities Laws") may affect the
             disposition of any securities and that Secured Party's concern that
             its sale or disposition of any such securities be in compliance
             with the Securities Laws may limit Secured Party's course of
             conduct in disposing or attempting to dispose of all or any part of
             such securities, and may also limit the extent to which or the
             manner in which any subsequent transferee may dispose of the same.
             Consequently, Debtor agrees that Secured Party may, in selling or
             disposing of any such securities, proceed in such manner and under
             such circumstances as it may deem necessary or advisable to assure
             compliance with all Securities Laws. Without limiting the
             generality of the foregoing, the Secured Party may, subject to
             compliance with applicable law, in its discretion: i) sell
             privately any such securities notwithstanding that such securities
             may be qualified or registered for sale to the general public; ii)
             approach and negotiate with a restricted number of potential
             purchasers to effect such sale; and iii) restrict such sale to
             purchasers as to their number, nature of business and investment
             intention (including, without limitation, to purchasers each of
             whom will represent and agree to the satisfaction of Secured Party
             that such purchaser is purchasing for its own account, for
             investment, and not with a view to the distribution or sale of such
             securities or part thereof), it being understood that Secured Party
             may require Debtor, and Debtor hereby agrees upon the written
             request of Secured Party to cause: a) a legend or legends to be
             placed on the certificates or Instruments to be delivered to such
             purchasers to the effect that the securities represented thereby
             have not been registered under the Securities Laws and setting
             forth or referring to restrictions on the transferability of such
             securities; b) the issuance of stock transfer instructions to the
             issuer's transfer agent, if any, with respect to such securities,
             or, if the issuer transfers its own securities, a notation in the
             appropriate records of such issuer; and to be delivered to the
             purchasers a signed acknowledgment of the issuer of such securities
             that, as concerns such securities, such purchasers shall be
             entitled to the rights of Debtor by virtue of their purchase of
             such securities from Secured Party.

       E.    Debtor agrees, if requested by Secured Party, at Debtor's sole
             expense to take (and to cause any Issuer(s) of securities pledged
             and assigned hereunder to take) such actions, render such
             assistance and prepare, distribute and/or file such documents as
             Secured Party or its legal counsel may reasonably request in
             connection with the private or public sale of such securities.
             Debtor agrees to indemnify and hold harmless Secured Party and any
             underwriter against all loss, liability, expenses or claims
             (including the reasonable cost of any investigation) which any of
             them may incur in

                                  Page 8 of 13
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             connection with the sale of such securities to the extent that such
             loss, liability, expense or claim arises out of or is based upon
             any alleged untrue statement of a material fact by Debtor contained
             in any registration statement, prospectus (or any amendment or
             supplement thereto) or in any notification or offering circular, or
             arises out of or is based upon any alleged omission to state a
             material fact by Debtor required to be stated therein or necessary
             to make the statements therein not misleading, except to the extent
             due to the gross negligence or willful misconduct of Secured Party
             or any such underwriter.

       F.    Secured Party may, to the fullest extent permitted by applicable
             law, bid for and purchase the Collateral in a commercially
             reasonable manner, and upon compliance with the terms of sale may
             hold, retain and possess and dispose of the same in its own
             absolute right.

       G.    Upon consummation of any sale, Secured Party shall have the right
             to assign, transfer, endorse, convey and deliver to the respective
             purchaser(s) the Collateral or portion thereof so sold.

       H.    A sale of the Collateral shall divest all right, title, interest,
             equity, redemption, claim and demand whatsoever of Debtor,
             including Debtors right to claim a percentage or royalty from the
             profits or proceeds derived from the Collateral and shall be a
             perpetual bar both at law and in equity against Debtor and Debtor's
             successors and assigns, and against any and all persons claiming or
             who may claim all or any part of the Collateral from, through or
             under any of them.

       I.    To the fullest extent permitted by law, Debtor hereby waives any
             claims against Secured Party arising with respect to any decrease
             in the market value of any Collateral during the period held for
             sale, or arising by reason of the possibility that the price at
             which the Collateral may have been sold was less that the price
             that might have been obtained had the sale been otherwise effected.

       J.    Secured Party shall have no obligation whatsoever to resort first
             to any other security which Secured Party may hold for the
             Obligations. Secured Party shall not incur any liability to Debtor
             as a result of the sale of any Collateral at any private sale
             conducted in a commercially reasonable manner, or as a result of
             any failure to sell or offer for sale any Collateral for any reason
             whatsoever or to exercise any other right, privilege, option or
             power to the fullest extent permitted by law granted to Secured
             Party hereunder.

       K.    A written agreement to sell any Collateral, which agreement Secured
             Party in good faith deems itself bound to perform, shall be treated
             as a sale of such Collateral and Secured Party shall be free to
             carry out such agreement.

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<PAGE>

             If such an agreement is then effective, Debtor shall not be
             entitled to the return of any Collateral subject thereto, even if
             after the date of such agreement all Events of Default shall have
             been cured or the Obligations shall have been fully paid and
             performed.

       L.    After deducting all costs and expenses of every kind for taking,
             retaking, care, safekeeping, collecting, holding, preparing for
             sale, selling, delivering and the like (including legal costs,
             insurance, commission for sale, and reasonable attorney's fees) and
             all other charges against the Collateral, Secured Party shall apply
             the residue of the proceeds of any such sale or other disposition
             against any and all amounts remaining unpaid under the Obligations,
             all in such order of priority as Secured Party may determine in its
             sole and reasonable discretion.

1.9    Waiver of Rights.  To the fullest extent permitted by law, Debtor hereby
       ----------------
waives notice, demand, presentment, protest, notice of dishonor, suit against or
joinder of any other person, and all other requirements necessary to charge or
hold Debtor liable with respect to the obligations hereunder.  Debtor hereby
consents and agrees that, at any time and from time to time without notice to
Debtor, Secured Party and any other owner(s) of any collateral or security given
for the Obligations may agree to renew, extend, compromise, discharge or release
the Obligations in whole or in part, and/or to release, increase, change,
substitute or exchange all or any part of such collateral or security, or to
modify the terms of the Obligations in any other way that Secured Party and such
person(s) may deem appropriate; no such renewal, extension, compromise,
discharge, release, increase, change, substitution, exchange or modification
shall release or affect in any way the liability of Debtor or Secured Party's
rights against the Collateral, and Debtor hereby waives any and all defenses and
claims whatsoever based thereon.  Until Secured Party receives all sums due with
respect to the Obligations in immediately available funds, Debtor shall not be
released from liability unless Secured Party expressly releases Debtor in a
writing signed by Secured Party.

1.10   Interest.  All obligations of Debtor to Secured Party arising under this
       --------
Agreement shall bear interest, from the date when due until paid in full.  All
such interest is and shall be secured by the Collateral.  Notwithstanding any
contrary provision of the obligations, in no event shall any agreed to or actual
exaction charged, reserved or taken as an advance or forbearance by Secured
Party as consideration for the Obligations exceed the limits (if any) imposed or
provided by the law applicable from time to time to the Obligations for the use
or detention of money or for forbearance in seeking its collection; Secured
Party hereby waives any right to demand such excess.  In the event that the
interest provisions of the Note or any exactions required thereunder shall
result at any time or for any reason in an effective rate of interest that
exceeds the maximum interest rate permitted by applicable law (if any), then
without further agreement or notice the obligation to be fulfilled shall be
automatically reduced to such limit and all sums received by Secured Party in
excess of those lawfully collectible as interest shall be applied against the
principal of the Obligations immediately upon Secured Party's receipt thereof,
with the same force and

                                 Page 10 of 13
<PAGE>

effect as though the payor had specifically designated such extra sums to be so
applied to principal and Secured Party had agreed to accept such extra
payment(s) as a premium-free prepayment or prepayments. During any time that any
of the Obligations bear interest at the maximum lawful rate (whether by
application of this paragraph or otherwise), interest shall be computed on the
basis of the actual number of days elapsed and the actual number of days in the
respective calendar year.

1.11   Actions or Proceedings.  With respect to any legal action or proceeding
       ----------------------
arising under this Agreement or the Note or concerning the Obligations and/or
the Collateral, Debtor to the fullest extent permitted by law:  (A) submits to
the jurisdiction of the state and federal courts in the State of California; (B)
agrees that the venue of any such action or proceeding may be laid in Los
Angeles County and waives any claim that the same is an inconvenient forum; (C)
to the extent not prohibited by applicable law waives any right to immunity from
any such action or proceeding; and (D) waives any right to interpose any set off
or counterclaim or to plead laches or any statute of limitations as a defense in
any such action or proceeding, and waives all statutory provisions and
requirements for the benefit of Debtor, now or hereafter in force.  No provision
of this Agreement shall limit Secured Party's right to serve legal process in
any other manner permitted by law or to bring any such action or proceeding in
any other competent jurisdiction.

1.12   Notices.  Except as otherwise provided in this Agreement for service of
       -------
legal process, any notice to Debtor shall be in writing and shall be deemed
sufficiently made if delivered personally or if transmitted by postage prepaid
first class mail (airmail if international) or by telegraph or by telex with
confirmed answer back, to the address appearing below:

Debtor:

Grand Havana Enterprises, Inc.
1990 Westwood Blvd.
Los Angeles, CA.

Secured Party:

Harry Shuster
Attn: Jerry Chizever, Esq.
9601 Wilshire Blvd.
Beverly Hills, CA 90210

Any party may change its address for notice by giving written notice of the
change.

1.13   Binding Effect.  The terms of this Agreement shall inure to the benefit
       --------------
of Secured Party and its successors and assigns and shall be binding upon Debtor
and Debtor's permitted successors and assigns.

                                 Page 11 of 13
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1.14   Term.  This Agreement shall take effect when signed by Debtor and
       ----
delivered to Secured Party.  This Agreement is a continuing agreement and shall
remain in full force and effect until all the Obligations shall have been paid
in full, unless earlier terminated by Secured Party in writing.

1.15   Interpretation.  If this Agreement is signed by more than one person,
       --------------
then the term "Debtor" as used in this Agreement shall refer to all such persons
jointly and severally, and all promises, agreements, covenants, waivers,
consents, representations, warranties and other provisions in this Agreement are
made by and shall be binding upon each and every undersigned person, jointly and
severally.  Whenever used in this Agreement, the term "person" means any
individual, firm, corporation, trust or other organization or association or
other enterprise or any governmental or political subdivision, agency,
department or instrumentality thereof.  Whenever used in this Agreement, the
terms "written" or "in writing" mean any form of written communication and any
communication by means of telex, telecopier device, telegraph or cable.
Captions and paragraph headings contained in this Agreement are for convenience
only and shall not affect its interpretation.  Whenever used in this Agreement
and unless the context otherwise requires, words in the plural include the
singular, words in the singular include the plural, and pronouns of any gender
include the other genders.

1.16   Cumulative Rights.  The rights of Secured Party under this Agreement are
       -----------------
in addition to, and not in substitution for, any rights available to Secured
Party against Debtor at law or in equity, all of which are cumulative and may be
exercised by Secured Party in whole or in part from time to time.

1.17   Miscellaneous.  Time is of the essence with respect to the provisions of
       -------------
this Agreement.  This Agreement may be amended but only by an instrument in
writing executed by the party to be burdened thereby.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction only, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.  This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of California.

       WITNESS THE DUE EXECUTION  by Debtor as of the 15th day of August, 1998.

DEBTOR:


Grand Havana Enterprises, Inc.

        /s/ Stanley Shuster
-----------------------------------
By:   Stanley Shuster
Its:  Vice President

                                 Page 12 of 13
<PAGE>

                                  Exhibit "A"

                           DESCRIPTION OF COLLATERAL

     1.    All membership initiation fees, membership dues whether paid monthly,
annually or in some other periodic payment basis which are paid by patrons or
members for club membership privileges at any of the following locations:

                     Grand Havana Room--Beverly Hills, CA.
                     Grand Havana Room--New York City, NY.
                     Grand Havana Room--Washington, D.C.

all of which shall be referred to herein as the "Clubs".

     2.    All accounts, receipts, funds held by or to be paid to the Debtor
from the Clubs or from the retail stores located in Las Vegas, Nevada in the
Bally's Hotel, known as the Grand Havana House of Cigars and the Grand Havana
House of Cigars in Beverly Hills (collectively, the "Stores").

     3.    The leasehold interests of the Debtor at the locations for the Clubs
and the Store.

     4.    All presently owned or hereafter acquired equipment, supplies,
materials, machines, appliances, fixtures, furniture, furnishings, leasehold
improvements, appurtenances of any description, and all additions and accessions
thereto and replacements therefor; and

     5.    All personal property of any description, now owned or hereafter to
be acquired by or on behalf of Debtor, including, without limitation, inventory,
work-in-progress, and supplies, and all additions and accessions thereto and
replacements therefor; and

     6.    All accounts, contract rights, general intangibles, receivables, and
other documents, instruments, and other rights to the payment of money or
performance of services, now existing or hereafter arising in any way relating
to the business of Debtor or in connection with the use of the property
described in (1) and (2) above; and

     7.    All proceeds of the foregoing collateral, including whatever is
receivable or received when collateral or proceeds is sold, collected, exchanged
or otherwise disposed of, whether such disposition is voluntary or involuntary,
and includes, without limitation, all rights to payment, including return
premiums, with respect to any insurance relating thereto.

                                 Page 13 of 13