<PAGE>
                                                                   EXHIBIT 10.26
 
           [Letterhead of The Beacon Group Financial Services, LLC]


CONFIDENTIAL
------------

July 29, 1998


Thomas W. Stephenson, Jr.
President, Chief Executive Officer
Hollywood Theaters, Inc.
2911 Turtle Creek Boulevard
Suite 1150
Dallas, Texas   75219


Dear Tom:

This will confirm the understanding and agreement between The Beacon Group
Capital Services, LLC ("Beacon") and Hollywood Theaters, Inc. (the "Company") as
follows:

     1.   The Company engages Beacon as the Company's sole and exclusive
     financial advisor for the purpose of (a) identifying opportunities for a
     business combination transaction, as defined in paragraph 4(a), (a
     "Transaction") involving the Company and (b) advising the Company
     concerning opportunities for a Transaction, whether or not identified by
     Beacon.

2.   During the term of its engagement hereunder, Beacon shall:

     (i)  Identify parties that may be interested in a Transaction, coordinate
          visits by and meetings with those parties, provide the Company with
          financial, strategic and structuring advice and assistance in
          connection with a Transaction, including valuation and other financial
          analyses, and participate on the Company's behalf in negotiations
          concerning a Transaction to the extent requested by the Company;

     (ii) Undertake an investigation and analysis which would serve as a
          basis for Beacon's rendering an opinion to the Company's Board of
          Directors concerning the fairness from a financial point of view of
          the Consideration, as defined in 
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            paragraph 4(b), to be received by the Company in connection with a
            Transaction, the nature and scope of the investigation and analysis
            and the scope, form and substance of the opinion to be solely in
            Beacon's discretion, and if requested by the Company deliver the
            opinion to the Company's Board of Directors orally or in writing;

     (iii)  Assist in the preparation of a descriptive memorandum concerning the
            Company which shall be made available to and used in discussions
            with prospective parties to a Transaction to the extent approved by
            the Company;

     (iv)   Develop, update and review with the Company on an ongoing basis a
            list of parties which might be interested in a Transaction and
            contact only those parties on that list which have been approved by
            the Company;

3.   As compensation for Beacon's services hereunder, the Company shall pay
Beacon:

     (a)    A non-refundable retainer of $ Zero  ; and
                                         -------      

     (b)    Additional compensation in an amount equal to  1.0 % of the
                                                          -----        
            Consideration, as defined in paragraph 4(b), in a Transaction if a
            Transaction occurs or a definitive agreement concerning a
            Transaction is reached during the term of Beacon's engagement
            hereunder or within 24 months after the effective date of the
            termination of the engagement.

     The compensation provided for in subparagraph (a) shall be paid
     concurrently with the execution and delivery of this Agreement.  The
     compensation provided for in subparagraph (b) shall be paid at the closing
     or comparable completion of a Transaction, provided that any part thereof
     attributable to Consideration which is held in escrow or is contingent on
     the occurrence of future events, such as realization of sales or earnings
     levels, shall be paid upon release from escrow or elimination of the
     contingency, as the case may be.

4.   For purposes of this Agreement:

     (a)    "Business combination transaction" means any transaction or series
            or combination of transactions whereby, directly or indirectly, (i)
            all or a material portion of, or a material interest in, the assets,
            revenues or income of the Company or any of its subsidiaries or
            affiliates, (ii) more than 50 % of the outstanding capital stock of
                                       ----                                     
            the Company or any of its subsidiaries or affiliates or (iii)
            control of the Company or any of its subsidiaries or affiliates is
            acquired, licensed or leased, with or without a purchase option, by
            another party or parties 
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          or is transferred to another party or parties in any manner, including
          by way of asset or stock purchase, sale or exchange, merger,
          consolidation, reorganization, recapitalization, liquidation, joint
          venture or partnership, minority investment, tender or exchange offer,
          open market or negotiated purchase or any similar transaction or any
          combination of the foregoing.

     (b)  "Consideration" means the sum of (i) the cash paid to the Company, its
          subsidiaries or affiliates or their security holders, (ii) the market
          value of marketable securities, whether equity, debt or convertible,
          issued or issuable to the Company, its subsidiaries or affiliates or
          their security holders, (iii) the fair market value of nonmarketable
          securities, whether equity, debt or convertible, and debt instruments
          or obligations issued or issuable to the Company, its subsidiaries or
          affiliates or their security holders, (iv) the fair market value of
          other property delivered or deliverable to the Company, its
          subsidiaries or affiliates or their security holders, (v) the
          aggregate amount of indebtedness, including capitalized leases,
          pension liabilities and guarantees, assumed or to be assumed by the
          other party or parties to a Transaction or its subsidiaries or
          affiliates, (vi) the fair value of special or extraordinary
          compensation arrangements or commitments, (vii) if a Transaction
          involves a sale of all or substantially all of the assets of the
          Company or a subsidiary or affiliate thereof, the net book value of
          current assets, including cash, cash equivalents, inventories and
          receivables of the selling entity which are not sold in a Transaction,
          (viii) amounts paid into escrow and payments which are contingent on
          the occurrence of future events, such as realization of sales or
          earnings levels, (ix) the aggregate amount of dividends or other
          distributions paid after the date hereof by whichever of the Company
          or its subsidiaries or affiliates is involved in a Transaction, except
          regular cash dividends in a per share amount not exceeding the amount
          most recently paid prior to the date hereof and (x) any other amount
          or property paid or delivered or to be paid or delivered or
          liabilities assumed or to be assumed by the other party or parties to
          a Transaction or its subsidiaries or affiliates.  If any part of the
          Consideration consists of marketable securities, for purposes of
          determining the amount of the Consideration the value of those
          securities shall be determined by using the average of the last sale
          prices for those securities on the 15 trading days ending 5 days prior
          to the closing of a Transaction.  If those securities do not have a
          public trading market, the value of those securities shall be their
          fair market value on the day prior to the completion closing of a
          Transaction.

5.   Whether or not a Transaction is completed, the Company shall periodically
     reimburse Beacon for its out-of-pocket expenses incurred in connection with
     performing its services hereunder, including expenses for travel, the
     reasonable fees, expenses and disbursements of its legal counsel, the fees,
     expenses and disbursements of consultants or advisors 
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     engaged by it with the Company's prior approval and sales, use or similar
     taxes arising in connection with any matter referred to in this Agreement.
     The provisions of this paragraph 5 shall not in any way limit or restrict
     the Company's obligations under paragraph 10.

6.   The Company shall (a) furnish to Beacon all information which Beacon
     reasonably requests in connection with the performance of its services
     hereunder concerning the business, operations and financial condition of
     the Company (the "Information"), (b) make the officers, directors,
     employees, independent accountants and legal counsel of the Company and its
     subsidiaries and affiliates available to Beacon and, to the extent that the
     Company or its subsidiaries or affiliates have access to the officers,
     directors, employees, independent accountants and legal counsel of any
     other contemplated party or parties to a Transaction or its subsidiaries or
     affiliates, provide equivalent access to Beacon and (c) furnish to Beacon
     the names of all parties with which the Company has had discussions or
     contacts prior to the date hereof concerning a Transaction, promptly inform
     Beacon of any inquiry it may receive concerning a Transaction and not
     initiate any discussions or negotiations with any party or its
     representatives or agents concerning a Transaction without first consulting
     Beacon.  Beacon (x) shall use and rely primarily upon the Information and
     on information available from public sources in performing its services
     hereunder without independently verifying the same, (y) does not assume
     responsibility for the accuracy or completeness of the Information and such
     other information and (z) shall not make an appraisal of any assets.  The
     Company represents that the Information is accurate and complete in all
     material respects at the time it is furnished to Beacon and shall promptly
     notify Beacon if it learns of any material inaccuracy or misstatement in,
     or material omission from, the Information in the form furnished to Beacon.

7.   Beacon shall keep the existence of this Agreement and all of the
     Information that is not publicly available confidential, shall not disclose
     or provide any of the Information to a third party without the Company's
     prior consent and shall not use any of the Information for any purpose
     other than performing its services hereunder, provided that the Information
     may be disclosed (a) to the extent required by law, rule or regulation or
     judicial or administrative process or proceeding and (b) to employees,
     partners, agents, principals, officers, directors and legal, accounting and
     other advisors of Beacon and its affiliates who have a need-to-know in
     connection with Beacon's performing its services hereunder and who have
     been advised by Beacon of Beacon's confidentiality obligations under this
     Agreement.  The provisions of this paragraph 7 shall terminate two years
     after the date this Agreement terminates.

8.   All written and oral advice provided by Beacon in connection with Beacon's
     engagement hereunder is exclusively for the information of the Company and
     may not, in whole or in 
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Page 5

     part, be disclosed publicly or to any third party or circulated, quoted or
     referred to without Beacon's prior written consent.

9.   The provisions concerning reimbursement, indemnification, hold harmless,
     contribution and other matters which are set forth in Annex A are
     incorporated in their entirety in this Agreement by reference.

10.  The term of Beacon's engagement hereunder shall extend from the date hereof
     until terminated.  Beacon's engagement hereunder may be terminated by
     either Beacon or the Company at any time by giving the other at least 10
     days prior written notice to that effect.  Notwithstanding the termination
     of this Agreement, including pursuant to the preceding sentence, the
     provisions of paragraphs 3 through 11 shall survive the termination.

11.  This Agreement may not be amended or modified except in writing.

12.  This Agreement shall be binding on the Company and Beacon and their
     successors, assigns and legal representatives.

13.  This Agreement shall be governed by and construed in accordance with the
     laws of the State of New York without regard to conflict of law provisions
     thereof.









Please confirm your agreement to the foregoing by signing and returning the
accompanying copy of this Agreement, whereupon this Agreement shall become
binding on Beacon and the Company.

 
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Hollywood Theaters, Inc.
4/9/98
Page 6


                         Very truly yours,



                         THE BEACON GROUP CAPITAL SERVICES, LLC



                         By:  /s/  Thomas W. Stephenson, Jr.
                              --------------------------------
                                   Thomas W. Stephenson, Jr.



Agreed as of the date first written above:

Hollywood Theaters, Inc.



By:  /s/  Richard Herbst
     -------------------
          Richard Herbst
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                                    ANNEX A
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If Beacon becomes involved in any action, proceeding or investigation by or
against any person or entity, including security holders of the Company, in
connection with or as a result of Beacon's engagement under this Agreement or
any matter referred to herein, the Company shall periodically reimburse Beacon
for its legal and other expenses, including the cost of investigation and
preparation, in that regard, provided that if it is finally determined by a
court of competent jurisdiction that the involvement of Beacon resulted from its
gross negligence or willful misconduct in performing its services hereunder,
Beacon shall refund the amounts so reimbursed by the Company.  The Company shall
indemnify and hold Beacon harmless against all losses, claims, damages or
liabilities incurred in connection with or as a result of Beacon's engagement
under this Agreement or any matter referred to herein, except to the extent that
a loss, claim, damage or liability is finally determined by a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
Beacon in performing its services hereunder.  If for any reason the foregoing
reimbursement, indemnification and hold harmless obligations are to any extent
unavailable to Beacon, the Company shall contribute to any amount paid or
payable by Beacon as a result of a loss, claim, damage or liability in the
proportion that is appropriate to reflect the relative economic interests of the
Company and its stockholders on the one hand and Beacon on the other hand with
respect to the subject matter of this Agreement, the relative fault of the
Company and Beacon with respect to the loss, claim, damage or liability and
other equitable considerations, provided that in no event shall the amount paid
or payable by Beacon exceed the amount of the compensation actually received by
Beacon under this Agreement.  The foregoing reimbursement, indemnification, hold
harmless and contribution obligations of the Company shall be in addition to any
other obligation or liability which the Company may have, shall extend on the
same terms and conditions to subsidiaries and affiliates of Beacon and the
partners, principals, officers, directors, agents, employees and controlling
persons of Beacon and its subsidiaries and affiliates and shall be binding on
and inure to the benefit of the successors, assigns, heirs and personal
representatives of the Company, Beacon, its subsidiaries and affiliates and all
of such other persons.

None of Beacon, its subsidiaries and affiliates or their partners, principals,
officers, directors, agents, employees or controlling persons shall have any
liability to the Company, its subsidiaries and affiliates or any person or
entity asserting a claim on behalf of or in the right of the Company or its
subsidiaries and affiliates in connection with or as a result of Beacon's
engagement under this Agreement or any matter referred to herein, except to the
extent that a loss, claim, damage, liability or expense incurred by the Company
is finally determined by a court of competent jurisdiction to have resulted from
the gross negligence or willful misconduct of the entity or person in performing
services hereunder.  Any suit or proceeding relating to this Agreement or
Beacon's engagement hereunder shall be tried exclusively in the United States
District Court for the Southern District of New York or, if that court does not
have subject matter jurisdiction over the suit or proceeding, in any state court
located in the City of New York, County of New York.  The Company shall submit
to the jurisdiction of and to venue in those courts.  The Company, for itself
and for anyone claiming through it or in its name and on behalf of its security
holders or other owners, irrevocably waives any right it may have to a trial by
jury with respect to any claim relating to this Agreement or Beacon's engagement
hereunder.  Without the prior written consent of Beacon, the Company shall not
settle, compromise or consent to the entry of judgment in any pending or
threatened claim, action or proceeding relating to this Agreement or Beacon's
engagement hereunder, whether or not Beacon is an actual or potential party to
the claim, action 
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or proceeding, unless the settlement, compromise or judgment (a) includes an
unconditional release of each entity and person entitled to reimbursement,
indemnification, hold harmless and contribution hereunder from all liability
arising out of the claim, action or proceeding and (b) does not include a
statement as to, or an admission of, fault, culpability or failure to act by or
on behalf of any entity or person entitled to reimbursement, indemnification,
hold harmless and contribution hereunder.

The provisions of paragraph 10 of this Agreement and this Annex A shall survive
termination and completion of Beacon's engagement under this Agreement.