<PAGE>
 
                                                                  EXHIBIT 10.15
                                                                  -------------

                                 ASSET PUT AND
                         REGISTRATION RIGHTS AGREEMENT

     This Asset Put and Registration Rights Agreement (this "Agreement") is
                                                             ---------     
entered into as of this 15th day of October, 1996 by and among Reading
Entertainment, Inc., a Delaware corporation ("Reading Entertainment"), Citadel
                                              ---------------------           
Holding Corporation, a Delaware corporation ("Citadel"), and Citadel Acquisition
                                              -------                           
Corp., Inc., a Delaware corporation ("CAC"), with reference to the following:
                                      ---                                    

     A.  The parties to this Agreement are also parties to an Exchange Agreement
dated as of Septemer 4, 1996 (the "Exchange Agreement") pursuant to which CAC is
                                   ------------------                           
purchasing 70,000 shares (the "Preferred Shares") of Reading Entertainment's
                               ----------------                             
Series A Voting Cumulative Convertible Preferred Stock, stated value $100 per
share (the "Series A Preferred Stock"), for an aggregate cash purchase price of
            ------------------------                                           
$7,000,000.

     B.  As conditions to CAC's purchase of the Preferred Shares, Reading
Entertainment has agreed that (i) Citadel shall have an option to exchange all
or substantially all of its assets (other than Excluded Assets as defined below)
for shares (the "Exchange Shares") of Reading Entertainment's Common Stock,
                 ---------------                                           
$0.001 par value (the "Common Stock"), and (ii) Reading Entertainment will under
                       ------------                                             
certain circumstances register under the Securities Act of 1933, as amended (the
"Act"), the Exchange Shares and any shares of Common Stock, received upon
 ---                                                                     
conversion of the Preferred Shares (the "Conversion Shares"), all in accordance
                                         -----------------                     
with and subject to the terms of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth herein, the parties hereto agree as follows:

                                  ARTICLE ONE

                                   ASSET PUT
     1.1  Asset Put.
          --------- 
          (a) Commencing on the date hereof, Citadel shall have the right, by
giving written notice to Reading Entertainment prior to 11:59 p.m. on the
thirtieth (30th) day following the date on which Reading Entertainment files its
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the
"Exchange Notice"), to exchange (the "Asset Put") all or substantially all of
 ---------------
its assets (other than the Excluded Assets as defined below), together with any
debt encumbering or related to such assets, including without limitation,
mortgages and leases (collectively, the "Citadel Assets"), for such number of
                                         --------------
shares of Common Stock as are determined with reference to the Citadel Asset
Valuation and the Common Stock Value, as described below. The term "Excluded
                                                                    --------
Assets" shall mean (i) all Preferred Shares and Conversion Shares (or all shares
------
of capital stock of CAC, if the sole assets of CAC are Excluded Assets), (ii)
such cash and/or marketable securities as a special committee comprised of the
independent directors of the Board of Directors of Citadel may reasonably
determine are necessary in order to maintain an appropriate level of liquidity
for Citadel and its subsidiaries, (iii) any assets that, in the reasonable
opinion of the Board of Directors of Reading Entertainment, are subject to
liabilities (including, without limitation, contingent or environmental
liabilities) reasonably likely to be in excess of the fair market value of such
assets, (iv) After Acquired Assets (as defined below) to the extent the After
Acquired Assets Value (as defined in Section 1.2) exceeds $5,000,000 and (v)
assets to the extent the Citadel Asset Valuation (as defined in Section 1.2)
exceeds $30,000,000. "After Acquired Assets" shall mean any assets other than
                      ---------------------
cash and assets owned by Citadel or its subsidiaries on the date hereof and cash
proceeds of the sale thereof. If any assets are excluded by reason of clause
(iv) or (v), Reading Entertainment shall determine
<PAGE>
 
in good faith which assets shall be Excluded Assets on such basis.  Subject to
Section 1.1(e), the Asset Put shall be consummated (the "Closing") on the tenth
business day following the Determination Date (as defined below), or such later
date as the parties may agree, at the executive offices of Citadel at 10:00 a.m.
local time (the "Closing Date").  At the Closing, Citadel shall deliver such
                 ------------                                               
stock powers, assignments, bills of sale, deeds, consents, cash by wire transfer
and other instruments of transfer and conveyance as shall be necessary, within
the reasonable requirements of Reading Entertainment, to transfer the Citadel
Assets to Reading Entertainment and, subject to Section 1.1(c), Reading
Entertainment shall deliver to Citadel the Exchange Shares, together with such
assumption agreements, acknowledgments and other documents as shall be
necessary, within the reasonable requirements of Citadel, to transfer and assign
the Citadel Assets to Reading Entertainment and for Reading Entertainment to
assume any and all debt encumbering the Citadel Assets.

     (b) Subject to Sections 1.1(c) and 1.3, the aggregate number of Exchange
Shares to be delivered to Citadel at the Closing shall be determined by dividing
the Citadel Asset Valuation by the Common Stock Value, rounded to the nearest
whole number of shares.

     (c) In the event the issuance to Citadel, upon Citadel's exercise of the
Asset Put, of the number of shares of Common Stock determined pursuant to
Section 1.1(b) would result in an "owner shift" (as defined in Section 382 of
the Internal Revenue Code, as amended (the "Code")) of Reading Entertainment
                                            ----                            
which, when added to all other "owner shifts" that have occurred during the
"testing period," would result in aggregate "owner shifts" that count against
the 50 percentage point limit (under Section 382(g) of the Code) in excess of 45
percentage points (the "Owner Shift Threshold"), Reading Entertainment shall
                        ---------------------                               
issue to Citadel the maximum number of shares of Common Stock which would not
result in the crossing of such Owner Shift Threshold.  Reading Entertainment may
elect not to issue the shares of Common Stock (the "Excess Shares") which would
                                                    -------------              
exceed the number of shares determined by the preceding sentence.  In such case,
Reading Entertainment shall either:  (i) issue to Citadel debt securities (the
                                                                              
"Debt Securities") in an aggregate principal amount equal to the number of
 ---------------                                                          
Excess Shares multiplied by the average of the closing sales prices of Common
Stock on the Nasdaq National Market (or, if that shall not be the principal
market on which the Common Stock shall be trading or quoted, then on such
principal market)(the "Closing Price") for the thirty (30) consecutive trading
                       -------------                                          
days in which trading of the Common Stock occurs immediately preceding the
Closing Date (the "Excess Share Value") or (ii) pay to Citadel cash, in
                   ------------------                                  
immediately available funds, in an amount equal to the Excess Shares Value (the
"Cash Portion").  The economic terms of the Debt Securities, if any, shall be
determined by an investment banking firm which shall be independent of Citadel
and Reading (the "Independent Investment Banker"), and which shall be chosen by
                  -----------------------------                                
Reading Entertainment, subject to Citadel's consent (not to be unreasonably
withheld).  All fees and expenses of, and any other charges incurred by the
Independent Investment Banker shall be borne by Reading Entertainment.  The form
and terms of the Debt Securities shall be as otherwise agreed by Reading
Entertainment and Citadel in good faith.

     (d) As promptly as practicable after receipt of the Exchange Notice,
Reading Entertainment shall notify Citadel whether Reading Entertainment
anticipates issuing to Citadel any Debt Securities and, if so, the aggregate
principal amount of Debt Securities Reading Entertainment estimates it will
issue (provided, that an inaccuracy in such estimate shall not limit Reading
Entertainment's right to issue the full amount of Debt Securities permitted to
be issued pursuant to Section 1.1(c)).  If, within ninety (90) days from the
date of such notice, Citadel notifies Reading Entertainment of Citadel's bona
fide intention to sell all, but not less than all, the Debt Securities, if
requested by Citadel in such notice, Reading Entertainment shall take all
reasonable actions to assist Citadel in the sale of all or any portion of the
Debt Securities to a third party or parties and shall, upon consummation of such
sale: (i) reimburse Citadel for all out-of-pocket expenses incurred by Citadel
in connection with the issuance of the Debt Securities and the negotiation and
consummation of such sale, including, without limitation, reasonable fees and
expenses of legal counsel, accountants, financial advisors, brokers and
investment bankers and

                                       2
<PAGE>
 
(ii) pay to Citadel in cash by wire transfer in immediately available funds, the
amount by which the net proceeds received by Citadel (without duplication of
amounts reimbursed under clause (i) above) from the sale of the Debt Securities
is less than the Excess Shares Value.

       (e) In the event Citadel's legal counsel advises Citadel that the
exercise of the Asset Put and consummation of the transactions contemplated
thereby will require the approval of Citadel's stockholders:

           (i) Within thirty (30) calendar days of the date of the Exchange
    Notice, Citadel shall prepare and file with the Securities and Exchange
    Commission (the "SEC") a proxy statement and related proxy material meeting
                     ---
    the requirements of Regulation 14A of the Securities Exchange Act of 1934,
    as amended (the "Exchange Act"), to be mailed to stockholders in connection
                     ------------
    with a meeting of the Citadel stockholders (the "Proxy Statement") or as
                                                     ---------------
    soon as practicable thereafter, and use its commercially reasonable efforts
    to clear such materials with the SEC and mail such materials to the Citadel
    stockholders within sixty (60) calendar days of originally filing such
    materials with the SEC, or as soon as practicable thereafter. In such event,
    Citadel covenants that the Proxy Statement at the time of mailing to the
    Citadel stockholders and at the time of the meeting of stockholders held to
    approve the consummation of the Asset Put (the "Meeting") will not contain
                                                    -------
    any untrue statement of a material fact or omit to state any material fact
    necessary in order to make the statements therein, in light of the
    circumstances under which they are made, not misleading (other than
    statements or omissions therein supplied by Reading Entertainment in writing
    for use therein) and the Proxy Statement will comply as to form in all
    material respects with the provisions of the Exchange Act.

           (ii) Reading Entertainment shall furnish in writing for inclusion in
    the Proxy Statement such information as may be reasonably necessary to
    comply with the provisions of the Exchange Act and the rules and regulations
    thereunder and shall have been requested in writing by Citadel.

           (iii)  As an additional condition to Citadel's obligation to
    consummate the Asset Put, Citadel may elect to receive at Citadel's expense,
    on or prior to the mailing date of the Proxy Statement, an opinion,
    reasonably satisfactory to Citadel, from a financial advisor selected by
    Citadel that the consummation of the Asset Put is fair from a financial
    point of view to Citadel and such opinion shall not have been withdrawn or
    modified in a manner which is not reasonably satisfactory to Citadel.

           (iv) Reading Entertainment and Craig Corporation, a Delaware
    corporation ("Craig"), agree that any Citadel voting securities which it, or
                  -----
    any of their respective subsidiaries or affiliates, may hold on the record
    date of any such meeting will be voted to approve the exercise and Closing
    of the Asset Put.

           (v) The Closing shall take place on or before the fifth business day
    next following the Meeting. If, at any time prior to the Closing Date, it
    shall be necessary to amend or supplement the Proxy Statement to correct any
    statement or omission with respect to Citadel, CAC or Reading Entertainment
    in order to comply with any applicable legal requirements, the appropriate
    party shall supply in writing the necessary information to Citadel and
    Citadel shall amend or supplement the Proxy Statement to the extent
    necessary to comply with applicable legal requirements.

       (f) The risk of loss or damage by fire or other casualty or cause to
the Citadel Assets until the Closing shall be upon Citadel.  In the event of
loss or damage to a material amount of any

                                       3
<PAGE>
 
Citadel Assets following Citadel's delivery of the Exchange Notice and prior to
the Closing, Citadel shall promptly notify Reading Entertainment in writing of
such event describing with such particularity as is possible the extent of such
loss or damage and the extent to which such loss or damage may be covered by any
insurance policy of Citadel.  Within ten (10) days after receipt of written
notice from Citadel of such loss or damage, Reading Entertainment shall, at its
option, either (i) have Citadel assign to Reading Entertainment at the Closing
all insurance proceeds to which Citadel would be entitled as a result of such
loss or damage or (ii) exclude such assets from the Citadel Assets; provided
that Reading Entertainment shall have no right to exclude such assets under this
Section 1.1(f) if Citadel promptly repairs the damaged asset substantially to
its previous condition.  If any assets are substituted or excluded pursuant to
this Section 1.1(f), the Citadel Asset Valuation shall be adjusted accordingly.

     1.2  Citadel Asset Valuation.
          ----------------------- 

        (a)  (i) The Exchange Notice shall set forth the name and address 
     of a qualified Member of Appraisal Institute ("MAI") real estate appraiser
     to appraise the value of real estate assets which are part of the Citadel
     Assets (the "Real Estate Assets") and a qualified appraiser to appraise the
                  ------------------
     value of the non-real estate assets, if any, which are part of the Citadel
     Assets (the "Non-Real Estate Assets"), each appraiser chosen by Citadel
                  ----------------------
     (the "Citadel Appraisers") (such aggregate value being referred to as the
           ------------------
     "Citadel Asset Valuation"). Within fifteen (15) business days of the date
      -----------------------
     of the Exchange Notice, Reading Entertainment shall give Citadel notice of
     the names and addresses of a qualified MAI real estate appraiser to
     appraise the value of the Real Estate Assets and a qualified appraiser to
     appraise the value of the Non-Real Estate Assets, each chosen by Reading
     Entertainment (the "Reading Entertainment Appraisers"). Each of the Citadel
                         --------------------------------
     Appraisers and Reading Entertainment Appraisers (collectively, the
     "Appraisers") shall value the Citadel Assets to be appraised by them as of
      ----------
     the date the last of the Appraisers is retained (the "Valuation Date"). The
                                                           --------------
     Appraisers shall be requested to separately appraise any After Acquired
     Assets. The Appraisers, in appraising any Citadel Assets, shall take into
     account any liabilities (including, without limitation, contingent or
     environmental liabilities) relating to or encumbering such Citadel Assets
     and the "value" thereof shall be determined net of any such liabilities
     which will encumber the Citadel Assets following the Closing. Any mortgage
     debt relating to any asset shall be deemed to be a liability equal to its
     outstanding principal amount as of the Valuation Date, which amount shall
     be deducted (without duplication) from the value otherwise attributable to
     such asset, unless such debt is repaid by Citadel at or prior to the
     Closing.

             (ii) Within thirty (30) days of the date of the Exchange Notice,
     Citadel and Reading Entertainment shall cause the Citadel and the Reading
     Entertainment Appraisers, respectively, to deliver to both Reading
     Entertainment and Citadel their respective appraisal reports setting forth
     the value of the Citadel Assets appraised by them. Thereafter, Reading
     Entertainment and Citadel agree to use their best efforts to agree on the
     Citadel Asset Valuation and the value of the After Acquired Assets (such
     value of the After Acquired Assets being the "After Acquired Asset
     Valuation;" the excess of the Citadel Asset Valuation over the After
                                                                    -----    
     Acquired Asset Valuation is hereinafter referred to as the "Existing Asset
     ------------------------                                    --------------
     Valuation"). If an agreement on both valuations can be reached within five
     ---------
     (5) business days of the latest to be delivered of the Appraisers' reports,
     those valuations shall be the Citadel Asset Valuation and After Acquired
     Asset Valuation. If no agreement on either or both such matters can be
     reached within such five (5) business day period, the parties shall select
     and jointly engage, a third set of appraisers (the "Third Appraisers") who
                                                         ----------------
     shall be directed, as promptly as practicable, to value the Citadel Assets
     as of the Valuation Date and shall affirm the valuation of either the
     Reading Entertainment Appraisers or the Citadel Appraisers. Such
     determination by the Third Appraisers shall be binding upon Citadel and
     Reading Entertainment and the valuations affirmed by the Third Appraisers
     shall be the Citadel Asset Valuation and After Acquired Asset Valuation.
     The date when the Citadel Asset

                                       4
<PAGE>
 
     Valuation and After Acquired Asset Valuation are determined as provided 
     above shall be the "Determination Date."
                         ------------------  

          (iii)  If required by either Citadel or Reading Entertainment, the
     parties shall request the Appraisers to update their procedures, as set
     forth above, to a date not later than forty-five (45) days prior to the
     anticipated Closing Date, which date shall thereupon become the Valuation
     Date. Upon delivery of such reports, Citadel and Reading Entertainment
     shall, to the extent necessary as a result of any difference in such
     reports from the original reports of the Appraisers, repeat the procedures
     set forth in Section 1.2(a)(ii), and the dates and valuations, determined
     by such repeated procedures, shall be substituted for the dates and
     valuations as originally determined.

          (iv) With respect to the liabilities encumbering or relating to the
     Citadel Assets which require the consent of the other party for the
     assignment of such liabilities to Reading Entertainment, at or prior to the
     Closing, Citadel and Reading Entertainment shall cooperate with each other
     to obtain any such consent. In the event any such consent cannot be
     obtained, Reading Entertainment shall, at its own expense, refinance any or
     all of such debt to permit the transfer of such assets to Reading
     Entertainment.

          (v) Citadel shall be entitled to all income earned or accrued and
     shall be responsible for all liabilities and obligations incurred or
     payable in connection with the Citadel Assets through the close of business
     on the Closing Date and Reading Entertainment shall be entitled to all
     income earned or accrued and shall be responsible for all assumed
     liabilities incurred or payable in connection with the Citadel Assets after
     the close of business on the Closing Date. At the Closing, all assumed
     liabilities, accrued but unpaid expenses (including accrued interest) and
     prepaid expenses relating to the Citadel Assets shall be apportioned
     between Reading Entertainment and Citadel in accordance with generally
     accepted accounting principles ("GAAP") as of the close of business on the
                                      ----
     Closing Date and the Citadel Asset Valuation shall be adjusted accordingly.
     The Citadel Asset Valuation shall also be adjusted for changes in the
     principal amount of any indebtedness to be assumed by Reading Entertainment
     between the Valuation Date and the Closing Date; provided however, that in
     the event Reading Entertainment refinances any such debt at the Closing,
     the Citadel Asset Valuation shall be determined immediately prior to the
     repayment or refinance of such debt. At or prior to the Closing, the
     parties will prepare a preliminary closing statement which shall set forth
     the final Citadel Asset Valuation and specify on a preliminary basis all
     adjustments to the Citadel Asset Valuation between the Valuation Date and
     the Closing Date. Promptly following the Closing, the parties will finalize
     such closing statement, making such adjustments as may be appropriate.

          (b) If the parties are unable to agree upon the Third Appraisers
within the time periods set forth above, either Reading Entertainment or
Citadel, by giving seven (7) days written notice to the other, may apply to the
American Arbitration Association for the purpose of selecting the Third
Appraisers and the parties agree that the decision of the American Arbitration
Association selecting the Third Appraisers shall be final and binding.

          (c) Citadel and Reading Entertainment shall each be responsible for
the fees and expenses of its own Appraisers.  The fees and expenses of the Third
Appraisers, if required, shall be paid by the party whose valuation is rejected
and not affirmed by the Third Appraisers.

          (d) The Citadel Assets shall be valued at their fair market value as
the assets are then constituted, assuming a willing buyer and a willing seller
dealing at arms-length and unaffiliated with the other.

                                       5
<PAGE>
 
          (e) All Real Estate Assets may be transferred to Reading Entertainment
subject to all debt encumbering or related to such assets, which shall, in such
event, be taken into consideration in connection with the valuation of the Real
Estate Assets.

          (f) Citadel shall pay and be responsible for any transfer taxes or
fees or prepayment penalties payable as a result of the transfer of the Citadel
Assets.  Reading Entertainment shall reimburse Citadel at the Closing or credit
Citadel in computing the Citadel Asset Valuation for the amount of any liability
incurred by Citadel for assumption fees relating to the assumption of any debt
encumbering the Citadel Assets.

     1.3  Common Stock Valuation.
          ---------------------- 

          (a) Subject to Section 1.3(b), the "Common Stock Value" shall be
                                              ------------------          
calculated as follows:

              (i)   The Common Stock Value with respect to the first $20,000,000
     of Existing Assets Valuation shall be (A) $11.75 per share if the Exchange
     Notice is given on or before October 31, 1997 or (B) $12.25 per share if
     the Exchange Notice is after October 31, 1997.

             (ii)   The Common Stock Value with respect to the excess of the
     Existing Assets Valuation over $20,000,000, and with respect to the After
     Acquired Asset Valuation up to $5,000,000, shall be the average of the
     Closing Prices for the thirty (30) consecutive trading days in which
     trading of Common Stock occurs immediately preceding the Closing Date (the
     "FMV Value")
      ---------

            (iii)   Unless Reading Entertainment shall consent, Citadel shall
     not be entitled to exchange After Acquired Assets to the extent the After
     Acquired Asset Valuation is in excess of $5,000,000.

             (iv)   Unless Reading Entertainment shall consent, Citadel shall
     not be entitled to exchange Citadel Assets to the extent the Citadel Asset
     Valuation exceeds $30,000,000.

          (b) In the event the average of the Closing Price over any sixty (60)
consecutive calendar days exceeds 130% of the Common Stock Value then in effect
under Section 1.3(a)(i), Reading Entertainment may, at its option, give Citadel
notice of such event.  If Citadel does not deliver the Exchange Notice within
120 days of such notice, the Common Stock Value for all purposes shall then be
the FMV Value.

     1.4  Conditions to Asset Put Closing.
          ------------------------------- 

          (a) The obligation of Citadel to convey the Citadel Assets to Reading
Entertainment as provided in Section 1.1 of this Agreement is subject to the
fulfillment, on or before the Closing Date, of each of the following conditions
(unless waived by the written consent of Citadel):

              (i)   Reading Entertainment shall deliver to Citadel a stock
     certificate representing the Exchange Shares and such shares shall be
     validly issued, fully paid and non-assessable, not subject to any
     preemptive or similar right (other than as set forth in Reading
     Entertainment's Certificate of Incorporation), and free and clear of any
     adverse claims whatsoever;

             (ii)   Reading Entertainment shall deliver to Citadel certificates
     representing the Debt Securities, if any, and the Debt Securities, when
     delivered and paid for in accordance with

                                       6
<PAGE>
 
     the Agreement, will be legal, valid and binding obligations of Reading
     Entertainment, enforceable in accordance with their terms, and free and
     clear of any liens, charges or other encumbrances;

              (iii)  Reading Entertainment shall deliver to Citadel the Cash
     Portion, if any;

               (iv)  Reading Entertainment shall deliver to Citadel such
     assumption agreements, acknowledgments and other documents as Citadel may
     reasonably request, in such form as shall be reasonably satisfactory to
     Citadel, to transfer the Citadel Assets to Reading Entertainment and for
     Reading Entertainment to assume the debt encumbering the Citadel Assets,
     including without limitation, any currently existing mortgages and then
     existing leases;

              (v)    The representations and warranties of Reading Entertainment
     contained in Article Three shall be true in all material respects at and as
     of the date hereof and as of the Closing Date as if made at and as of the
     Closing Date and as if made with respect to the issuance of the Exchange
     Shares and Debt Securities, if any, except for any changes therein which
     (x) have been disclosed by Reading Entertainment in reports or statements
     filed by it under the Exchange Act, prior to the date of the Exchange
     Notice or (y) have otherwise been disclosed by Reading Entertainment to
     Citadel and, in the case of this clause (y), are reasonably acceptable to
     Citadel; Reading Entertainment shall have duly performed and complied in
     all material respects with all agreements, covenants and conditions
     required by this Article One to be performed or complied with prior to or
     at the Closing Date; and Reading Entertainment shall have delivered to
     Citadel a certificate dated the Closing Date and signed by its President or
     Chief Financial Officer to the effect set forth in this subparagraph;

              (vi)   There shall not be in effect (x) any order or decision of a
     court of competent jurisdiction or governmental agency or authority or (y)
     any action or proceeding commenced by or before any court, governmental
     agency or authority or threatened by any governmental agency or authority
     that enjoins, restrains or prohibits or seeks to enjoin, restrain or
     prohibit the consummation of the transactions provided in Section 1.1 of
     this Agreement;

              (vii)  All consents to the assignment of any contracts to be
     assigned to Reading Entertainment requiring the consent of the other party
     thereto shall have been obtained pursuant to written instruments
     satisfactory to Citadel or waived by Reading Entertainment; and

              (viii) If required, the consummation of the Asset Put shall have
     been validly adopted at the Meeting by the affirmative vote of the holders
     of at least a majority of the votes cast by the Citadel stockholders
     entitled to vote on the matter, and the Meeting shall have been duly called
     with a quorum present.

          (b) The obligation of Reading Entertainment to issue the Exchange
Shares and Debt Securities, if any, to Citadel as provided in Section 1.1 of
this Agreement is subject to the fulfillment, on or before the Closing Date, of
each of the following conditions (unless waived by the written consent of
Reading Entertainment):

              (i)    Citadel shall deliver to Reading Entertainment such stock
     powers, assignments, bills of sale, deeds, title insurance policies,
     consents, cash by wire transfer and other instruments of transfer and
     conveyance as Reading Entertainment may reasonably request, in such form as
     shall be reasonably satisfactory to Reading Entertainment;

              (ii)   The representations and warranties of Citadel contained in
     Article Three shall be true in all material respects at and as of the date
     hereof and as of the Closing Date as if

                                       7
<PAGE>
 
     made at and as of the Closing Date; Citadel shall have duly performed and
     complied in all material respects with all agreements, covenants and
     conditions required by this Article One to be performed or complied with by
     Citadel prior to or on the Closing Date; and Citadel shall have delivered
     to Reading Entertainment a certificate dated the Closing Date and signed by
     its President or its Chief Financial Officer to the effect set forth in
     this subparagraph;

            (iii)   There shall not be in effect (x) any order or decision of a
     court of competent jurisdiction or governmental agency or authority or (y)
     any action or proceeding commenced by or before any court, governmental
     agency or authority or threatened by any governmental agency or authority
     that enjoins, restrains or prohibits or seeks to enjoin, restrain or
     prohibit the consummation of the transactions provided in Section 1.1 of
     this Agreement;

             (iv)   All consents to the assignment of any contracts to be
     assigned to Reading Entertainment requiring the consent of the other party
     thereto shall have been obtained pursuant to written instruments
     satisfactory to Reading Entertainment or waived by Citadel;

              (v)   Citadel shall have made such filing with, and obtained such
     consents of, such governmental agencies as shall be required to be made or
     obtained by Citadel to effect the transfer of the Citadel Assets to Reading
     Entertainment; and

             (vi)   All title insurance policies on the Real Estate Assets, as
     Reading Entertainment shall reasonably determine as necessary (and which
     shall be obtained at Reading Entertainment's expense), shall not be subject
     to any encumbrances other than encumbrances disclosed to and taken into
     account by the Appraisers in determining the Citadel Asset Valuation.

       (c)    (i) In the event Citadel's acquisition of the Exchange Shares and
     Debt Securities, if any, shall be in connection with a plan of distribution
     of such Exchange Shares and Debt Securities to Citadel's stockholders or
     the reorganization, restructuring, recapitalization, liquidation,
     dissolution or winding up of Citadel, Reading Entertainment shall, at its
     own expense, prepare a registration statement, information statement or
     other documents and take such actions covering or otherwise relating to the
     Exchange Shares and Debt Securities, if any, as may be required under the
     Act and any other applicable state or federal securities law for Citadel to
     consummate such plan of distribution, reorganization, restructuring,
     recapitalization, liquidation, dissolution or winding up.

              (ii) In the event Citadel's acquisition of the Exchange Shares and
     Debt Securities, if any, are not in connection with such a plan,
     reorganization, restructuring, recapitalization, liquidation, dissolution
     or winding up, Citadel shall deliver an investment representation by
     Citadel with respect to the Exchange Shares and Debt Securities, if any, in
     form and substance equivalent to the investment representation made by CAC
     with respect to the Series A Preferred Stock set forth in Section 5.7 of
     the Exchange Agreement.

                                  ARTICLE TWO

                              REGISTRATION RIGHTS

     2.1  Definitions.  For purposes of this Article Two only, the following
          -----------                                             
definitions shall apply.

          (a) The terms "register," "registered," and "registration" refer to a
                         --------    ----------        ------------            
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the SEC.

                                       8
<PAGE>
 
          (b) The term "Registrable Securities" refers to the Conversion Shares
and the Exchange Shares owned by (or issuable upon conversion of shares of
Series A Preferred Stock owned by) the Holders, except that the Conversion
Shares and the Exchange Shares shall cease to be Registrable Securities at the
earliest date when (i) a registration statement with respect to the sale of such
shares has become effective under the Act and the shares have been disposed of
in accordance with such registration statement; (ii) such shares may be sold to
the public pursuant to paragraph (k) of Rule 144 under the Act ("Rule 144") or
                                                                 --------     
any successor provision; (iii) such shares shall have been transferred (under
Rule 144 or otherwise), new certificates for the shares not bearing a legend
restricting further transfer (other than as provided in Reading Entertainment's
Certificate of Incorporation) shall have been delivered by Reading Entertainment
and subsequent disposition of the shares does not require registration or
qualification under the Act or state law then in force in the opinion of legal
counsel for Reading Entertainment; or (iv) such shares cease to be outstanding.

          (c) The term "Holder" means a holder of record of Registrable
                        ------                                         
Securities on the books and records of Reading Entertainment which is either
CAC, Citadel (if it exercises the Asset Put), or an assignee of a Holder who
succeeds to the rights as a Holder in accordance with Section 2.9 hereof.

          (d) The number of shares of "Registrable Securities then outstanding"
                                       --------------------------------------- 
shall be determined by the number of shares of Common Stock which are
Registrable Securities and the number of shares of Common Stock issuable
pursuant to then convertible securities which are convertible into Registrable
Securities.

     2.2  Request for Registration.
          ------------------------ 

          (a) Subject to Sections 2.2(b) and 2.2(c), if Reading Entertainment
shall receive a written request (specifying that it is being made pursuant to
this Article Three), from Holders of a majority of the Registrable Securities
then outstanding, that Reading Entertainment file a registration statement under
the Act, or a similar document pursuant to any other statute then in effect
corresponding to the Act, covering the registration of at least a majority of
the Registrable Securities then outstanding, then Reading Entertainment shall,
within ten (10) business days of the receipt thereof, give written notice of
such request to all Holders at their respective addresses and shall file as soon
as practicable, and in any event within sixty (60) days of the receipt of such
request, a registration statement under the Act covering all Registrable
Securities which the Holders request to be registered within 30 days of the
mailing of such notice to all Holders.

          (b) Notwithstanding the foregoing, (i) Reading Entertainment shall not
be obligated to effect a registration pursuant to this Section 2.2 during the
period starting with the date 60 days prior to Reading Entertainment's estimated
date of filing of, and ending on a date six months following the effective date
of, a registration statement pertaining to an underwritten public offering of
securities for the account of Reading Entertainment, provided that Reading
Entertainment is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that Reading
Entertainment's estimate of the date of filing such registration statement is
made in good faith; (ii) if Reading Entertainment shall furnish to the Holders
initiating the registration request hereunder (the "Initiating Holders") a
                                                    ------------------    
certificate signed by the President of Reading Entertainment stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to Reading Entertainment or its shareholders for a registration statement to be
filed in the near future, then Reading Entertainment's obligation to file a
registration statement shall be deferred for a period not to exceed six months;
provided, however, that Reading Entertainment may furnish such a certificate to
the Initiating Holders only once in any one-year time period, and (iii) if the
managing underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Initiating Holders shall so advise all Holders which would otherwise be
underwritten pursuant hereto, and the

                                       9
<PAGE>
 
number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof in proportion to the
amount of Registrable Securities owned by each Holder; provided, however, that
the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.

          (c) Reading Entertainment shall be obligated to effect only two
registrations pursuant to this Section 2.2, provided however, that if the
Holders who demand registration under this Section 2.2 are unable to register at
least ninety percent (90%) of the Registrable Securities requested to be
included in such registration, then the number of registrations which Reading
Entertainment shall be obligated to effect under this Section 2.2 shall be
increased by one.

     2.3  "Piggyback" Registration.
           ----------------------- 

          (a) Subject to Section 2.3(b), if at any time Reading Entertainment
determines to register (including for this purpose a registration effected by
Reading Entertainment for stockholders other than the Holders) any shares of
Common Stock under the Act in connection with the public offering of such
securities solely for cash on an SEC Form that would also permit the
registration of the Registrable Securities (other than Forms S-4 and S-8),
Reading Entertainment shall, each such time while Registrable Securities are
outstanding, promptly give each Holder written notice of such determination.
Upon the written request of each Holder given within 20 days after mailing of
any such notice by Reading Entertainment, Reading Entertainment shall, subject
to the provisions of Section 2.7, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested be registered;
provided however, that Reading Entertainment shall not be required to proceed
with such registration if the offering is abandoned in its entirety and no other
securities are offered for sale.

          (b) Reading Entertainment shall not be required under this Section 2.3
to include any Registrable Securities in such underwriting unless the Holders
accept reasonable and customary terms of the underwriting as agreed upon between
Reading Entertainment and the underwriters selected by it.

     2.4  Obligations of Reading Entertainment.  Notwithstanding any other
          ------------------------------------                            
provision hereof, whenever required under this Article Two to effect the
registration of any Registrable Securities, Reading Entertainment shall, as
expeditiously as reasonably possible:

          (a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, to keep such registration statement effective for up to 90 days.

          (b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.

          (c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.

          (d) Use its commercially reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be necessary for the
Holders to dispose of the Registrable Securities, provided that Reading
Entertainment shall not be required in connection therewith or as a condition
thereto to qualify to do

                                      10
<PAGE>
 
business or to file a general consent to service of process or subject itself to
taxation in any such states or jurisdictions.

          (e) Enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter, if any,
of such offering.  Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.

          (f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.

          (g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Article Two, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Article Two, (i) an opinion, dated such
date, of the counsel representing Reading Entertainment for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of Reading
Entertainment, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters and to the Holders requesting registration of
Registrable Securities.

          (h) Make generally available to its stockholders an earnings statement
satisfying the provisions of Section 11(a) of the Act (including by means of
satisfying the provisions of Rule 158 under the Act) as soon as reasonably
practical covering the 12-month period beginning with the first month of Reading
Entertainment's first fiscal quarter commencing after the effective date of the
registration statement.

          (i) Whenever any notice is required to be given under this Article
Two, such notice may be given personally or by mail.  Any notice given to a
Holder shall be sufficient if given to the Holder at the last address set forth
for such Holder on the stock transfer records of Reading Entertainment.  Any
notice given by mail shall be deemed to have been given when deposited in the
United States mail with postage thereon prepaid.

     2.5  Furnish Information.  The selling Holders shall furnish to
          -------------------                                       
Reading Entertainment such information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such
securities as shall be required to effect the registration of the Registrable
Securities.

     2.6  Expenses of Registration.  All expenses other than underwriting
          ------------------------                                       
discounts and commission incurred in connection with any registration, filing or
qualification pursuant to Sections 2.2 and 2.3, including, without limitation,
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for Reading Entertainment, and the reasonable
fees and disbursements of a single counsel for the selling Holders selected by
the Holders of a majority of the Registrable Securities then outstanding shall
be borne by Reading Entertainment; provided, however, that Reading Entertainment
shall not be required  to pay for any expenses of any registration proceeding
begun pursuant to Section 2.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating Holders shall bear
such expenses), unless, at the time of such withdrawal, the Holders have learned
of a material adverse change in the condition, business or prospects of Reading
Entertainment from that known to the Holders

                                      11
<PAGE>
 
at the time of their request, in which case the Holders shall not be required to
pay any such expenses and shall retain all rights pursuant to Section 2.2.

     2.7  Underwriting Requirements.  In connection with any offering
          -------------------------                                  
involving an underwriting of shares being issued by Reading Entertainment,
Reading Entertainment shall not be required under Section 2.3 to include any of
the Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between Reading Entertainment and the underwriters
selected by it, and then only in such quantity as will not, in the reasonable
opinion of the underwriters, jeopardize the success of the offering by Reading
Entertainment.  If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities to be sold other than by Reading Entertainment that
the underwriters reasonably believe compatible with the success of the offering,
then Reading Entertainment shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders); provided, however, that in no event
shall any securities of selling Holders be excluded until all securities of
selling employees of, or consultants and advisors to, Reading Entertainment are
excluded.

     2.8  Indemnification and Contribution.  In the event any Registrable
          --------------------------------                               
Securities are included in a registration statement under this Article Two:

          (a) To the extent permitted by law, Reading Entertainment will
indemnify and hold harmless each Holder, the officers and directors of each
Holder, any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act or the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
 ---------                                                                      
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by Reading
Entertainment of the Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Act, the Exchange Act or any state
securities law; and Reading Entertainment will reimburse each such Holder,
officer or director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that Reading Entertainment shall not be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon (x) a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, officer, director or controlling person of such
Holder or underwriter or (y) any untrue statement or alleged untrue statement
made in, or omission or alleged omission from, any preliminary prospectus or
final prospectus, if the final prospectus or the final prospectus as amended or
supplemented, respectively, which shall have been furnished, to the underwriter
or Holder claiming indemnification, prior to the time such underwriter sent
written confirmation of or the Holder made such sale to the person alleging such
statement, alleged statement, omission or alleged omission, does not contain
such statement, alleged statement, omission or alleged omission and a copy of
such final prospectus or such prospectus as amended or supplemented,
respectively, shall not have been sent or given to such person; and provided,
further, that in no case shall Reading Entertainment be liable for amounts paid
in settlement of any such loss, claim, damage, liability,

                                      12
<PAGE>
 
or action if such settlement is effected without the written consent of Reading
Entertainment, which consent shall not be unreasonably withheld.

          (b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless Reading Entertainment, each of its directors, each of its
officers who have signed the registration statement and any underwriters,
against any losses, claims, damages or liabilities (joint or several) to which
Reading Entertainment or any such director, officer, controlling person or
underwriter may become subject, under the Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by or on behalf of
such Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred by
Reading Entertainment or any such director, officer, controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this Section 2.8(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided further that, in no event shall any indemnity
under this Section 2.8(b) exceed the net proceeds from the offering received by
such Holder.

          (c) Promptly after receipt by an indemnified party under this Section
2.8 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
reasonably satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding.

          (d) In order to provide for just and equitable contribution under the
Act in any case in which (i) any indemnified party makes claim for
indemnification pursuant to this Section 2.8, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact the express provisions of this Section 2.8 provide for indemnification, or
(ii) contribution under the Act may be required on the part of any indemnified
party; then the indemnifying party in lieu of indemnifying such indemnified
party hereunder shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect the relative fault of the
indemnifying parties on the one hand and of the indemnified parties on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.  The relative fault of the indemnifying parties and of the
indemnified parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party, or by the indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

          The parties further agree that it would not be just and equitable if
contribution pursuant to this Section 2.8(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.

                                      13
<PAGE>
 
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim.  Notwithstanding the provisions of this Section 2.8(d), in no
event shall any contribution under this Section 2.8(d) exceed the net proceeds
from the offering received by such Holder.  No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.

          (e) The obligations of Reading Entertainment and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Article Two.

     2.9  Assignment of Registration Rights.  The rights to cause Reading
          ---------------------------------                              
Entertainment to register Registrable Securities pursuant to this Article Two
may be assigned by a Holder to any transferee or assignee of any amount of such
securities; provided, in each case that (i) Reading Entertainment is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (ii) such assignment shall be
effective only if, immediately following such transfer, the further disposition
of such securities by the transferee or assignee is restricted under the Act and
(iii) the transferee or assignee agrees in writing to assume all the obligations
of the transferor under this Article Two.

    2.10  Limitations on Subsequent Registration Rights.  From and after
          ---------------------------------------------                 
the date of this Agreement, Reading Entertainment shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of Reading Entertainment which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Section 2.2 hereof, unless, under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
to the extent that the inclusion of its securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective within 120 days of the effective date of any registration
effected pursuant to Section 2.2.

    2.11  Amendment of Registration Rights.  Any provision of this Article
          --------------------------------                                
Two may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of Reading Entertainment and the holders of a majority of
the Registrable Securities then outstanding.  Any amendment or waiver effected
in accordance with this Section 2.11 shall be binding upon each Holder of
Registrable Securities, each future holder of all such securities and Reading
Entertainment.

                                 ARTICLE THREE

                         REPRESENTATIONS AND WARRANTIES

     3.1  Representations and Warranties of Reading Entertainment.  Reading
          -------------------------------------------------------          
Entertainment hereby represents and warrants to each of Citadel and CAC as
follows:

          (a) The representations and warranties of Reading Entertainment set
forth in Section 3 of the Exchange Agreement are hereby incorporated by
reference and are true and correct in all respects; and

                                      14
<PAGE>
 
          (b) The representations and warranties of Reading Entertainment set
forth in Section 3 of the Exchange Agreement relating to the Exchange Agreement
and the consummation of the transactions contemplated thereby are true and
correct in all respects as if made with respect to this Agreement and the
consummation of the transactions contemplated hereby, other than, with respect
to Section 3.6 of the Exchange Agreement, as required by Article Two hereof and
other than any consent, approval, order, authorization, registration,
declaration, or filing with a governmental authority which may be required to
consummate the transactions contemplated by Article One hereof.

     3.2  Representations and Warranties of Citadel and CAC.  Citadel and
          -------------------------------------------------              
CAC hereby jointly and severally represent and warrant to Reading Entertainment
as follows:

          (a) The representations and warranties of each of Citadel and CAC set
forth in Section 5 of the Exchange Agreement (except Section 5.5) are hereby
incorporated by reference and are true and correct in all respects; and

          (b) The representations and warranties of Citadel and CAC set forth in
Section 5 of the Exchange Agreement relating to the Exchange Agreement and the
consummation of the transactions contemplated thereby are true and correct in
all respects as if made with respect to this Agreement and the consummation of
the transactions contemplated hereby, other than, with respect to Sections 5.1
and 5.3 of the Exchange Agreement, representations and warranties relating to
or necessary in connection with approval of the stockholders of Citadel, which
if required, will be obtained on or prior to the Closing Date.

                                  ARTICLE FOUR

                    READING ENTERTAINMENT CHANGE OF CONTROL

     4.1  Redemption By Reading Entertainment.  In the event of any "Change
          -----------------------------------                              
in Control" (as defined in Reading Entertainment's Certificate of Designation,
Preferences and Rights of the Series A Preferred Stock and Reading
Entertainment's Series B Voting Cumulative Convertible Preferred Stock (the
"Certificate")), Reading Entertainment shall not be entitled to redeem any
 -----------                                                              
Series A Preferred Stock held by Citadel, CAC or any of their respective
affiliates pursuant to the first sentence of Section 5.1(a) of the Certificate
unless, prior to or simultaneously with such redemption, Craig assumes, pursuant
to an assumption agreement in form and substance satisfactory to Citadel in its
reasonable discretion, all obligations of Reading Entertainment under Articles
One, Two (as it relates to the Exchange Shares) and Five hereunder.
Notwithstanding the foregoing, such assumption agreement by Craig shall provide:

     (a) In lieu of Common Stock, Citadel will be entitled to exchange the
Citadel Assets (to the extent it would otherwise have been entitled to exchange
the Citadel Assets for Common Stock) for Craig's Class A Common Preference
Stock, par value $0.01 per share ("Craig Stock"),
                                   -----------   
     (b) For purposes of Section 1.3(a)(i), the Common Stock Value shall be
determined by multiplying: (i) the average of the Closing Prices of the Craig
Stock for the twenty (20) consecutive trading days on which trading of the Craig
Stock occurs immediately prior to the date of the event which results in such
Change of Control (the "Change of Control Date") by (ii) a fraction, the
                        ----------------------                          
denominator of which shall be the Closing Price of the Common Stock on the
Change of Control Date and the numerator of which shall be the applicable Common
Stock Value of the Common Stock under Section 1.3(a)(i).  For all other
purposes, in determining the "Common Stock Value" with respect to the Craig
Stock, Craig and the Craig Stock shall be deemed substituted for Reading
Entertainment and the Common Stock.

                                      15
<PAGE>
 
     (c) Craig shall represent and warrant to Citadel and CAC as to the
matters covered by the representations and warranties of Reading Entertainment
set forth in Article Three as if made by Craig with respect to such assumption
agreements, this Agreement and the consummation of the transactions covered
thereby and hereby.

     (d) References to the representations and warranties of Reading
Entertainment in Section 1.4(a)(v) shall refer to representations and warranties
of Craig as if made by Craig with respect to Craig.

                                  ARTICLE FIVE

                               GENERAL PROVISIONS
     5.1  General Provisions.
          ------------------ 

          (a) Subject to Section 2.4(i), all notices, requests, demands or other
communications required or authorized or contemplated to be given by this
Agreement shall be in writing and shall be deemed to have been duly given, made
and received when delivered against receipt, upon receipt of a facsimile
transmission, when deposited in the United States mails (first class postage
prepaid) or when deposited with Federal Express, and addressed as provided in
Section 10.2 of the Exchange Agreement or to such other address and fax number
as any of the parties hereto may from time to time designate in writing, prior
to the giving of such notice.

          (b) Except as set forth in Article Two, no amendment or waiver of any
provision of this Agreement shall in any event be effective, unless the same
shall be in writing signed by the parties hereto, and then such amendment,
waiver or consent shall be effective only in a specific instance and for the
specific purpose for which given.

          (c) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.

          (d) Except as set forth in Article Two, this Agreement shall not be
assigned by any party without the prior written consent of the other party
hereto.

          (e) This Agreement and the documents and agreements referred to herein
contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.

          (f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, notwithstanding any Delaware or other
conflict-of-law provisions to the contrary.

          (g) Each party hereto shall execute and deliver such further
agreements and instruments, and take such further actions, as the other party
may reasonably request in order to carry out the purpose and intent of this
Agreement.

          (h) Except as provided in Section 1.2, should any party institute any
arbitration, action, suit or other proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to receive from the losing
party reasonable attorneys' fees and costs incurred in connection therewith.

                                      16
<PAGE>
 
          (i) Other than as specifically provided herein, each party shall bear
its own costs and expenses (including fees and disbursements of legal counsel)
incurred in connection with the consummation of the transactions provided for
herein.

          (j) No party, nor its respective counsel, shall be deemed the drafter
of this Agreement for purposes of construing the provisions of this Agreement,
and all language in all parts of this Agreement shall be construed in accordance
with its fair meaning, and not strictly for or against any party.

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
                         READING ENTERTAINMENT, INC.

                         By: /s/ S. Craig Tompkins
                            ------------------------------------
                         Name: S. Craig Tompkins
                              ----------------------------------
                         Its:  President
                             -----------------------------------

                         CITADEL ACQUISITION CORP., INC.

                         By: /s/ Steve Wesson
                            ------------------------------------
                         Name: Steve Wesson
                              ----------------------------------
                         Its:  President
                             -----------------------------------

                         CITADEL HOLDING CORPORATION

                         By: /s/ Steve Wesson
                            ------------------------------------
                         Name: Steve Wesson
                              ----------------------------------
                         Its:  President
                             -----------------------------------

Acknowledged and agreed, as to the matters set forth in Section 1.1(e)(iv) and
Article Four:

CRAIG CORPORATION


By: /s/ S. Craig Tompkins
   -------------------------
Name: S. Craig Tompkins
     -----------------------
Its:  President
    ------------------------

                                      17