<PAGE>
 
                                 EXHIBIT 10.41
                                 -------------

                      Limited Liability Company Agreement
                      -----------------------------------


        This Limited Liability Company Agreement of Angelika Film Centers LLC is
made and entered into as of this 27th day of August, 1996 by and between the 
Members.

        For and in consideration of the mutual covenants, rights, and
obligations set forth herein, the benefits to be derived therefrom, than other
good and valuable consideration, the receipt and sufficiency of which each
Member acknowledges, the Members agree as follows:


                                   ARTICLE I

                           DEFINITIONS, CONSTRUCTION

        1.1     Definitions.  When used herein, the following capitalized terms
                -----------
shall have the meanings indicated:

                "Act" means the Delaware Limited Liability Company Act and any 
                 ---
        successor statute, as amended from time to time.

                "Affiliate" means as to any Person, a director of such Person 
                 ---------
        or any other Person who, directly or indirectly, through one or more
        intermediaries, Controls or is Controlled by or under common Control
        with that Person.

                "Agreement" means this Limited Liability Company Agreement, as 
                 ---------
        originally executed and as amended from time to time.

                "Angelika, Inc." means Angelika Cinemas, Inc., a New York 
                 -------------
        corporation and an indirect wholly-owned subsidiary of Reading Company.

                "Angelika Theatre" means that certain multiplex cinema and cafe 
                 ----------------
        complex located at 18 W. Houston Street, New York, New York.

                "Approval of the Members" means, except as specified in Section 
                 -----------------------
        III.3, the approval, vote or written consent of those Members holding
        more than 50% of the Membership Interests.

                "Capital Account" means the capital account established and
                 ---------------
        maintained for a Member pursuant to Article IV.

                "Capital Contribution" means as to any Member the cumulative 
                 --------------------
        sum of money contributed by the Member to the capital of the Company, as
        provided in Article IV.

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        "Certificate" or "Certificate of Formation" means the certificate of 
         -----------      ------------------------
formation of the Company filed on July 16, 1996 in accordance with the Act and 
as amended from time to time.

        "City Cinemas" means City Cinemas Corporation, a New York corporation.
         ------------

        "Code" means the Internal Revenue Code of 1986 and any successor 
         ----
statute, as amended from time to time.

        "Company" means Angelika Film Centers, LLC, a Delaware limited liability
         -------
company.

        "Company Minimum Gain" has the meaning ascribed to the term "Partnership
         --------------------
Minimum Gain" in Treas. Reg. (S)1.704-2(d).

        "Control," "Controls," or "Controlled" (and derivations thereof) means 
         --------   ---------      ----------
as to a corporation the right to exercise, directly or indirectly, more than 50%
of the voting rights in the corporation, and as to any other Entity the 
possession, directly or indirectly, of the power to direct or cause the 
direction of the management or policies of the same.

        "Depreciation" means depreciation and amortization of all of the assets 
         ------------
of the Company (including, without limitation, depreciation of real and personal
property related thereto and the Lease).

        "Dispose," "Disposing," or "Disposition" means a sale, assignment, 
         --------   ----------      -----------
transfer, exchange, mortgage, pledge, grant of a security interest, or other 
disposition or encumbrance (including, without limitation, by operation of law),
or the acts thereof.

        "Dissolution Event" means a Member's resignation, removal, withdrawal, 
         -----------------
bankruptcy or dissolution.

        "Distributable Cash" means the amount of money on hand of the Company 
         ------------------
and available for distribution to the Members, taking into account all accrued 
debts, liabilities, and obligations of the Company and any amounts necessary or 
advisable to reserve, designate, or set aside for actual or anticipated costs, 
payments, liabilities, obligations, claims with respect to the Company's 
business or reinvested in any lawful activity that may be undertaken by the 
Company, as determined by a Majority in Interest of the Members.

        "Entity" means any association, corporation, estate, limited liability 
         ------
company, limited partnership, partnership, venture or other entity.

        "Income" means any item of Company economic income not includable in 
         ------
gross income for federal income tax purposes, and Company taxable income for 
federal income

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tax purposes, including Tax Items (items of income, gain, loss, deduction, or 
credit of the Company) taken into account separately by the Members.

     "Lease" means the Lease dated as of March 4, 1988, between Cable Building 
      -----
Associates, as lessor, and Houston Cinema, Inc., a New York corporation, as 
lessee, regarding the premises located at 18 W. Houston Boulevard, New York, New
York, which Lease was subsequently assigned to Angelika Film Centers, Inc., and 
then to the Company pursuant to the Assignment and Assumption of Lease dated as 
of August 27, 1996, and as such lease may be amended, modified or supplemented 
from time to time.

     "Loss" means (i) any Company deduction specially allocable to a Member, 
      ----
(ii) any Company expenditure that is neither deductible nor chargeable to 
capital account under section 705(e)(2)(B) of the Code or Treasury Regulation 
section 1.704-1(b)(2)(iv) and (d)(2), and (iii) the Company's net loss for 
federal income tax purposes, excluding deductions described in clause (i) and 
including Company Tax Items taken into account separately by the Members.

     "Majority in Interest" has the meaning specified in Section III.2.
      --------------------

     "Management Agreement" means the Management Agreement dated as of the date 
      --------------------
hereof between the Company and City Cinemas, substantially in the form of 
Exhibit A hereto.

     "Member Nonrecourse Debt" has the meaning ascribed to the term "Partner 
      -----------------------
Nonrecourse Debt" in Treas. Reg. (S) 1.704-2(b)(4).

     "Member Nonrecourse Deductions" means items of Company loss, deduction or 
      -----------------------------
Code section 705(a)(2)(B) expenditures which are attributable to Member 
Nonrecourse Debt.

     "Members" means the persons listed in Section III.1 of this Agreement and 
      -------
those persons subsequently admitted as Members pursuant to the terms of this 
Agreement, so long as they have not ceased being Members pursuant to the terms  
of this Agreement. A reference to a "Member" means any of the Members, and a 
reference to a "Majority in Interest" of the Members means a Member or Members 
owning a majority of the Membership Interest in the Company.

     "Membership Interest" means a Member's interest in income of the Company, 
      -------------------
as determined under Section V.I., together with rights and obligations of such 
Member under the provisions of this Agreement.

     "Nonrecourse Liability" has the meaning set forth in Treas. Reg. (S) 
      ---------------------
1.752-1(a)(2).

     "Person" means any individual or Entity.
      ------

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          "Secretary of State" means the Secretary of State of the State of 
           ------------------
Delaware.

          "Super Majority in Interest" has the meaning specified in Section 
           --------------------------
III.3.

          "Sutton Hill" means Sutton Hill Associates, a California general 
           -----------
partnership.

          "Tax Items" has the meaning set forth under the definition of 
           ---------
"Income".

     I.2  Directly or Indirectly.  Any provision of this Agreement which refers 
          ----------------------
to an action which may be taken by any Person, or which a Person is prohibited 
from taking, shall include any such action taken directly or indirectly by or on
behalf of such Person, including by or on behalf of any Affiliate or agent of 
such Person.

     I.3  Captions.  All captions in this Agreement are inserted for reference 
          --------
only and are not to be considered in the construction or interpretation of any 
provision hereof.

     I.4  Interpretation.  In the event any claim is made by any Person relating
          --------------
to any conflict, omission or ambiguity in this Agreement, no presumption or 
burden of proof or persuasion shall be implied by virtue of the fact that this 
Agreement was prepared by or at the request of a particular Person or its 
counsel.

     I.5  References to this Agreement.  References to numbered or lettered 
          ----------------------------
articles, sections, and subsections refer to articles, sections, and subsections
of this Agreement unless otherwise expressly stated.

                                  ARTICLE II
                                   FORMATION

     II.1 Formation.  As of the effective date of this Agreement, the Company 
          ---------
has been formed as a Delaware limited liability company under and pursuant to 
the Act. The Company has executed and filed the Certificate with the Secretary 
of State.

     II.2 Name.  The name of the Company shall be Angelika Film Centers LLC. The
          ----
business of the Company shall be conducted under that name or any other name or 
names selected by the Members.

     II.3 Principal Office.  The principal office of the Company shall be 
          ----------------
Angelika Film Centers, LLC, c/o City Cinemas Corporation, 950 Third Avenue, 26th
Floor, New York, New York 10022 or such other office as the Members may 
designate from time to time. The Company also may have such other offices within
the United States as the Members may from time to time determine.

     II.4 Agent.  The Company shall at all times maintain a registered agent as 
          -----
required under

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the Act who shall be as stated in the Certificate or as otherwise may be 
determined from time to time by the Members in the manner provided by law.

       II.5    Business; Purpose; Powers.  The business and purpose of the 
               -------------------------
Company is to develop, own and operate the Angelika Theatre and to conduct such 
other business reasonably related thereto as the Company may engage from time to
time as permitted by the Act.

       II.6    Term of the Company.  The term of the Company shall commence on 
               -------------------
the date hereof and the Company shall continue in existence as long as the Lease
is in full force and effect, or such earlier time as specified in or pursuant to
this Agreement.

                                  ARTICLE III
                       MEMBERS AND MEMBERSHIP INTERESTS

       III.1   Members.  Angelika, Inc. and Sutton Hill are hereby admitted as 
               -------
Members.  Except as otherwise specifically provided in this Agreement, after the
date hereof, no Person may be admitted as an additional Member except with the 
Approval of the Members.

       III.2   Voting Rights; Approval Required.  Except as otherwise 
               --------------------------------
specifically provided in this Agreement, the vote, consent, or approval of 
Members holding in the aggregate more than fifty percent (50%) of the Membership
Interests (a "Majority in Interest") shall be required as to all matters as to 
which the vote, consent or approval of the Members is required or permitted 
under this Agreement.  The vote, consent or approval of the Members, wherever 
required or permitted hereunder, may be obtained in any manner permitted 
hereunder or under the Act.

       III.3   Super Majority Voting Rights.
               ----------------------------

               Notwithstanding anything in this Agreement to the contrary, each 
of the following will require the approval of Members holding 85% or more of the
Membership Interests (a "Super Majority in Interest") (i) any sale of all or 
substantially all of the assets of the Company, (ii) any change in the business 
and purpose of the Company as set forth in Section II.5 hereof (including, 
without limitation, the entrance by the Company into a new line of business),
(iii) any amendment, modification or supplement to this Agreement which has an
adverse effect to any Member not holding a Majority in Interest, (iv)
acquisition of additional cinemas, (v) the issuance by the Company of a
guarantee of the indebtedness of any third party, and (vi) any transaction
involving the Company and an Affiliate of Angelika, Inc.

       III.4   Meetings of Members.
               -------------------

               III.4.1 No annual or regular meetings of the Members shall be 
required; if convened, however, meetings of the Members may be held at such 
date, time, and place as the Members may fix from time to time.

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               III.4.2  A meeting of the Members may be called at any time by 
any one or more Members representing fifteen percent (15%) or more of the 
Membership Interests for the purpose of addressing any matter on which the vote,
consent or approval of the Members is required under this Agreement.

               III.4.3  Notice of any meeting of the Members shall be sent or 
otherwise given to the Members in accordance with this Agreement not less than 
ten nor more than 60 days before the date of the meeting.  The notice shall 
specify the place, date, and hour of the meeting and the general nature of the 
business to be transacted.  Except as the Members may otherwise agree, no 
business other than that described in the notice may be transacted at the 
meeting.

               III.4.4  Attendance, in person or by proxy, of a Member at a 
meeting shall constitute a waiver of notice of that meeting, except when the 
Member objects, at the beginning of the meeting, to the transaction of any 
business because the meeting is not fully called or convened, and except that 
attendance at a meeting is not a waiver of any right to object to the 
consideration of matters not included in the notice of the meeting if that 
objection is expressly made at the meeting.  Neither the business to be 
transacted nor the purpose of any meeting of Members need be specified in any 
written waiver of notice.  The Members may participate in any meeting of the 
Members by means of conference telephone or similar means as long as both 
Members can hear one another.  A Member so participating shall be deemed to be 
present in person at the meeting.

               III.4.5  Any action that can be taken at a meeting of the Members
may be taken without a meeting if a consent in writing setting forth the action 
so taken is signed and delivered to the Company by a Majority in Interest or 
Super Majority in Interest of the Members, as the case may be.  All such 
consents shall be maintained in the books and records of the Company.

               III.4.6  Any Member entitled to vote on any matter shall have the
right to do so either in person or by one or more agents authorized by a written
proxy signed by the Member and delivered to the other Member.  The use of 
proxies in all other respects shall be governed by the provisions of the 
Delaware General Corporation Law pertaining to the use of proxies by corporate 
stockholders.

       III.5   Disposition of Interests.
               ------------------------

               III.5.1  No Member shall Dispose of all or any part of its 
Membership Interest without the approval each of the other Members, except as 
provided below.  Any attempted Disposition of a Membership Interest, or any part
thereof, other than in accordance with either Section III.6 or Section III.7 
shall be, and hereby is declared, null and void ab initio.

               III.5.2  No Member shall, directly or indirectly, sell, assign, 
transfer or otherwise dispose of (collectively, a "transfer") its Membership 
Interest or any part thereof, at any time, except for the transfers:

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                (i)     to an Entity wholly-owned (directly or indirectly) by
                        one or more Members; or

                (ii)    to the parent of any Member; or

                (iii)   in the case of Sutton Hill, to James J. Cotter and/or
                        any of his lineal descendants, any trust for the benefit
                        of such person and any trustee thereof; or any Entity
                        controlled by any of the foregoing;

                (iv)    in the case of Sutton Hill, to Michael Forman, and/or
                        any of his lineal descendants, any trust for the benefit
                        of such person and any trustee thereof; or any Entity
                        controlled by any of the foregoing;

                (v)     in the case of a Member that is a natural person, to any
                        spouse or direct lineal descendants of such Member (an
                        "Heir"), or a trust, corporation or partnership for the
                        benefit of such member and/or one or more of such
                        Member's Heirs;

                (vii)   in the case of Sutton Hill, any Entity controlled by
                        James J. Cotter and/or Michael Forman;

                (viii)  in accordance with the terms and conditions of Sections 
                        III.6 and III.7.

                III.5.3 If in connection with a permitted Disposition of a 
Membership Interest a Member purports to grant the Person to which the 
Membership Interest is Disposed the right to be admitted as a member of the 
Company, such Person shall have the right to be so admitted as a member if the 
other Members receive a document (i) executed by both the Member effecting such 
Disposition and the Person to which the Membership Interest is Disposed, (ii) 
including the notice and payment address and facsimile number of the Person to 
be admitted to the Company as a member and the written acceptance by such Person
of all the terms and provisions of this Agreement and an agreement by such 
Person to perform and discharge timely all of the obligations and liabilities in
respect of the Membership Interest being acquired, (iii) setting forth the 
respective percentage interests in Company allocations after the Disposition of 
the Member effecting the Disposition and the Person to which the Membership 
Interest is Disposed, which together shall total the percentage interest 
in Company allocations of the Member effecting such Disposition prior thereto, 
(iv) containing a representation and warranty by the Member effecting the 
Disposition and the Person to which the Membership Interest is Disposed to the 
effect that such Disposition was made in accordance with all laws and 
regulations, including securities laws, applicable to such Member or Person, as 
appropriate, and (v) setting forth the effective date of the Disposition.

        III.6   Right of First Refusal
                ----------------------

        No Member shall be entitled to transfer its Membership Interest, or any 
part thereof, except

                                    Page 7
                
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in a sale exclusively for cash in accordance with this Section III.6 or in a
transfer expressly permitted by this Agreement at any time; provided that no 
Member shall transfer its Membership Interest in a sale for cash at any time 
without first giving written notice to the Company and the other Members of its 
intention to transfer such Membership Interest.  Any such notice shall specify 
the identity of the transferee and the amount of the cash purchase price 
proposed to be paid for such Membership Interest, and shall include a copy of 
the written offer of such transferee to purchase such Membership Interest, which
offer shall be in a form legally capable of acceptance and without 
contingencies.

        Any transfer of Membership Interest requiring the giving of written 
notice under this Section III.6 shall be subject to a right of first refusal on 
the part of the Company exercisable within thirty (30) days of receipt of such 
written notice (the "Company Period").  During the Company Period, the Company, 
subject to any restrictions imposed by law, shall have the right to elect to 
purchase all or any part (subject to the condition set forth below) of the 
Membership Interest (the "Subject Membership Interest") proposed to be sold by 
the Member delivering such notice (the "Selling Member") for cash equal to the 
cash purchase price, if any, proposed to be paid for such Membership Interest.  
The Company shall exercise its election right by written notice delivered to the
Selling Member and the other Members within the Company Period. If the Company
does not elect to purchase all of the Subject Membership Interest, then such
right of first refusal shall pass to the other Members as follows:

        Upon the expiration of the Company Period, each Member, other than the 
Selling Member, shall have fifteen (15) days (the "Member Period") to elect in 
writing to purchase all or any part of the Subject Membership Interest not 
subject to purchase by the Company.  In the event that the other Members elect 
to purchase in the aggregate more Membership Interest than the Subject 
Membership Interest available for sale, the Subject Membership Interest shall be
apportioned among the other Members in accordance with their percentage 
interest in the Company.  The other Members shall exercise their election right 
by written notice delivered to the Selling Member and the Company within the 
Member Period.  If the Company and the other Members entitled to this right of 
first refusal decline to purchase in the aggregate an amount equal to all of 
the Subject Membership Interest, the Selling Member may thereafter transfer all,
but not less than all, the Subject Membership Interest in accordance with the 
terms set forth in the written notice to the Company and the other Members.

        If the Company elects to purchase all of the Subject Membership Interest
it shall tender payment for such interest within One Hundred Twenty Days 
following the end of the Company Period to the Selling Member.  If the Company 
does not elect to purchase all of the Subject Membership Interest, but the 
Company and/or the other Members elect to purchase all of the Subject Membership
Interest, they shall tender payment for such interest within One Hundred Twenty 
Days following the end of the Member Period to the Selling Member.  Failure to 
tender the full payment for all the Subject Membership Interest shall terminate 
the Company's and the other Members' rights to purchase and the Selling Member 
may thereafter transfer all, but not less than all, of the Subject Membership 
Interest in accordance with the terms set forth in the written notice to the 
Company and the other Members.

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          No transfer of the Subject Membership Interest shall be made after the
end of One Hundred Eighty (180) days after the original notice given to the
Company and the Members under this Section III.6 or for a price that is lower
than the price specified in the notice referred to in this Section III.6, unless
the Membership Interest are first offered again to the Company and the other
Members in accordance with this Section III.6.

   III.7  Tag Along Rights.
          -----------------

In the event that Angelika, Inc. or any successors or assigns thereof, proposes
to transfer all, or any portion of its Membership Interest to a Person (other
than a transferee pursuant to Section III.5.2), then Angelika, Inc., shall
promptly give written notice (the "Tag Along Notice") to the Company and the
other Members of its intention to transfer such Membership Interest at least
forty-five (45) days prior to the closing of such transfer.  Any such Tag Along
Notice shall specify in reasonable detail the proposed transfer, including the
identity of the transferee and the amount of the purchase price to be paid for
such Membership Interest or portion thereof, and shall include a copy of the
documentation evidencing such transaction and the date such proposed transfer is
expected to be consummated.  It is understood by the parties hereto that
transfers of any interest in Angelika, Inc. by the shareholders thereof shall
constitute a transfer pursuant to this Section III.7.

Each Member shall have the right, exercisable upon written notice delivered to
Angelika, Inc., within twenty (20) days after receipt of such notice, to
participate in such sale on substantially the same terms and conditions set
forth in the Tag Along Notice, and to sell all of its Membership Interest for
the same consideration (adjusted to reflect such Member's percentage interest in
the Company) received by Angelika, Inc. It is understood by each of the Members
that, in the event the transferee in a transfer contemplated by this Section
III.7, will not agree to purchase such Member's interest on the terms and
conditions described above, Angelika, Inc. shall not be entitled to sell its
Membership Interest pursuant to this Section III.7.

The non-exercise of the rights of the Members hereunder to participate in one or
more transfers of the Membership Interest of Angelika, Inc., shall not adversely
affect their rights to participate in subsequent sales of the Membership
Interest of Angelika, Inc.


   III.8  Amendment of Agreement to Reflect New Members.  If a Person is to be
          ---------------------------------------------                       
admitted to the Company as a new member, the Person to be admitted as a new
member shall execute appropriate amendments to this Agreement to take into
account the Person's admission as a new member.  In the case of any admission
pursuant to Section III.5.2,  amendment shall provide, among things, that the
admission of the new member shall be deemed to occur immediately before any
withdrawal of the transferor Member.

   III.9  No Resignation or Removal.  Except as otherwise specifically
          -------------------------                                   
provided in this Agreement, a Member does not have the right or power to resign
or withdraw from the Company as a Member and shall be entitled to do so only
with the approval of the other Members.

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     III.10  No Liability to Third Parties.  No Member shall have any personal
             ------------------------------                                   
obligation for any liabilities of the Company, whether liabilities arise in
contract, tort or otherwise, except to the extent that any liabilities are
expressly assumed in a separate writing by the Member.

     III.11  Indemnification by Members.  To the fullest extent permitted by
             --------------------------                                     
law, each Member shall indemnify the Company, the other Members, and their
respective members, trustees, officers, directors, shareholders, employees,
associates, agents, and Affiliates, and hold them harmless from and against, any
and all losses, costs, liabilities, damages, and expenses (including, without
limitation, costs of suit and reasonable attorney's fees) (collectively referred
to herein as "Damages") they may incur on account of any material breach by the
Member of any provision of this Agreement.

     III.12  Rights of Assignees.  In the event the Company is required to
             -------------------                                          
recognize the validity of a Disposition notwithstanding the provisions of this
Article III to the contrary, the assignee of a Membership Interest who has not
been admitted to the Company in accordance with this Article III shall be
entitled only to allocations and distributions with respect to  Membership
Interest as provided in this Agreement, but shall have no right to any
information or accounting of the affairs of the Company, or to inspect the books
or records of the Company, and shall not have any rights of a Member under the
Act or this Agreement.

                                  ARTICLE IV
                  CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS

     IV.1    Capital Contributions.  Angelika, Inc. hereby agrees to make, on
             ---------------------                                           
an as needed basis, an initial Capital Contribution of $10,340,683.  Sutton Hill
hereby agrees to make, on an as needed basis, an initial Capital Contribution of
$2,068,137.  The initial membership interests will be as follows:  Angelika,
Inc., 83.34% and Sutton Hill, 16.66%.  The Members agree to fund timely their
capital commitments on a pro-rata basis in accordance with the above
percentages.

     IV.2    No Return of Capital Contribution; No Interest. Except as otherwise
             ----------------------------------------------
specifically provided in this Agreement, a Member shall not be entitled to
demand or receive the return of all or any portion of the Member's Capital
Contribution or to be paid interest in respect of either its Capital Account or
Capital Contribution. Under circumstances permitting or requiring a return of a
Member's Capital Contribution, the Member shall have no right to receive
property other than cash. No Member shall be required to contribute or to lend
any money or property to the Company to enable the Company to return any other
Member's Capital Contribution.

     IV.3    Capital Accounts.  A Capital Account shall be established and
             ----------------                                             
maintained for each Member.  Each Member's Capital Account (a) shall be
increased by (i) the amount of money contributed by or on behalf of that Member
to the Company, (ii) the fair market value of property contributed by or on
behalf of that Member to the Company (net of liabilities secured by  contributed
property that the Company is considered to assume or take subject to under
section 752 of the Code), and (iii) allocations to that Member of Company Income
and gain (or items thereof), including 

                                    Page 10
<PAGE>
 
income and gain exempt from tax and income and gain described in Treas. Reg. (S)
1.704-1(b)(2)(iv)(g), but excluding income and gain described in Treas. Reg. (S)
1.704-1(b)(4)(i), and (b) shall be decreased by (i) the amount of money
distributed to that Member by the Company, (ii) the fair market value of
property distributed to that Member by the Company (net of liabilities secured
by the distributed property that the Member is considered to assume or take
subject to under section 752 of the Code), (iii) allocations to that Member of
expenditures of the Company described in section 705(a)(2)(B) of the Code, and
(iv) allocations of Company loss and deduction (or items thereof), including
loss and deduction described in Treas. Reg. (S) 1.704-1(b)(2)(iv)(g), but
excluding items described in clause (b)(iii) of this sentence and loss or
deduction described in Treas. Reg. (S) 1.704-1(b)(4)(i) or 1.704-1(b)(4)(iii).
The Capital Accounts shall also be maintained and adjusted as permitted by the
provisions of Treas. Reg. (S) 1.704-1(b)(2)(iv)(f) and as required by the other
provisions of Treas. Reg. (S)(S) 1.704-1(b)(2)(iv) and 1.704-1(b)(4), including
adjustments to reflect the allocations to the Members of depreciation,
depletion, amortization, and gain or loss as computed for book purposes rather
than the allocation of the corresponding items as computed for tax purposes, as
required by Treas. Reg. (S) 1.704-1(b)(2)(iv)(g). On the transfer of all or part
of a Membership Interest, the Capital Account of the transferor that is
attributable to the transferred Membership Interest or part thereof shall carry
over to the transferee in accordance with the provisions of Treas. Reg. (S)
1.704-1(b)(2)(iv)(l).

     IV.4  No Obligation to Restore Deficits.  No Member shall have any 
           ---------------------------------                           
Liability or obligation to the Company, the other Members or any creditor of the
Company to restore at any time any deficit balance in  Member's Capital Account.

     IV.5  Additional Capital Contributions.
           -------------------------------- 

               (a)   Member Preemptive Rights:  To the extent that additional
                     ------------------------                                
           capital is required, the Members will have a forty-five day
           preemptive right (the "Rights Period") to provide such capital, with
           the intention that each Member will have the opportunity to preserve
           such Member's proportionate Membership Interest through the provision
           of such further capital.

               (b)   Contribution Right:  So long as it is a Member with a
                     ------------------                                   
           Membership Interest representing at least 50% of the aggregate
           Membership Interests, Angelika, Inc. will have the right, but not the
           obligation, to provide capital to the Company to meet the obligations
           of the Company. This right is subject to the preemptive rights of the
           other Members, as set forth in subsection (a), immediately above.
           However, such contributions may be made immediately, subject to
           repayment (with interest at the rate of 30 Day LIBOR plus 2.25 basis
           points) from the proceeds of any such exercise of preemptive rights
           within forty-five (45) days of notice to the Members of such capital
           contribution by Angelika, Inc. Such contributions will be treated as
           contributions to capital by Angelika, Inc. effective on the date
           funded, and Angelika, Inc.'s Membership Interest will be increased
           proportionately by the 

                                    Page 11
<PAGE>
 
           amount of such contributions, except to the extent such
           contributions, if any, are repaid from the proceeds of an exercise by
           Members of preemptive rights during the Rights Period.

     IV.6  Member Guarantees.  No member will be required to issue any 
           -----------------                                       
guarantee.

                                   ARTICLE V
                         ALLOCATIONS AND DISTRIBUTIONS

     V.1   Allocations of Income and Loss.  Income and Loss for each year shall
           ------------------------------         
be allocated as follows:

           V.1.1  After giving effect to the special allocations set forth in
Section V.2, Income shall be allocated to the Members, 83.34% to Angelika, Inc.
and 16.66% to Sutton Hill.

           V.1.2  After giving effect to the special allocations set forth in
Section V.2, Loss shall be allocated to the Members, 83.34% to Angelika, Inc.
and 16.66% to Sutton Hill.

     V.2   Special Allocations.
           ------------------- 

           V.2.1  Notwithstanding the provisions of Section V.1, if there is a
net decrease in Company Minimum Gain during any taxable year, each Member shall
be specially allocated items of Company income and gain for  year (and, if
necessary, in subsequent years) in an amount equal to the portion of  Member's
share of the net decrease in Company Minimum Gain that is allocable to the
disposition of Company property subject to a Nonrecourse Liability, which share
of  net decrease shall be determined in accordance with Treas. Reg. (S) 1.704-
2(g)(2).  Allocations pursuant to this Section V.2.1 shall be made in proportion
to the amounts required to be allocated to each Member under this Section V.2.1.
The items to be so allocated shall be determined in accordance with Treas. Reg.
(S) 1.704-2(f).  This Section V.2.1 is intended to comply with the minimum gain
chargeback requirement contained in Treas. Reg. (S) 1.704-2(f) and shall be
interpreted consistently therewith.

           V.2.2  Notwithstanding the provisions of Section V.1, if there is a
net decrease in Minimum Gain attributable to a Nonrecourse Liability during any
taxable year, each Member who has a share of Company Minimum Gain attributable
to  Nonrecourse Debt (which share shall be determined in accordance with Treas.
Reg. (S) 1.704-2(i)(5)) shall be specially allocated items of Company income and
gain for  taxable year (and, if necessary, in subsequent years) in an amount
equal to that portion of  Member's share of the net decrease in Company Minimum
Gain attributable to  Nonrecourse Liability that is allocable to the disposition
of Company property subject to  Nonrecourse Debt (which share of  net decrease
shall be determined in accordance with Treas. Reg. (S) 1.704-2(i)(5)).
Allocations pursuant to this Section V.2.2 shall be made in proportion to the
amounts required to be allocated to each Member under this Section V.2.2.  The
items to be so allocated shall be determined in accordance with Treas. Reg. (S)
1.704-2(i)(4). This Section V.2.2 is 

                                    Page 12
<PAGE>
 
intended to comply with the minimum gain chargeback requirement contained in
Treas. Reg. (S) 1.704-2(i)(4) and shall be interpreted consistently therewith.

          V.2.3  Notwithstanding the provisions of Section V.1, any nonrecourse
deductions (as defined in Treas. Reg. (S) 1.704-2(b)(1)), other than
depreciation and amortization deductions specially allocated pursuant to Section
V.2.8, for any taxable year or other period shall be specially allocated to the
Members in accordance with their respective percentage interests in Income and
Member Nonrecourse Deductions shall be allocated to the Member to whom the
Member Nonrecourse Debt is allocated.

          V.2.4  Notwithstanding the provisions of Section V.1, those items of
Company loss, deduction, or expenditures under section 705(a)(2)(B) of the Code
which are attributable to Member Nonrecourse Debt for any taxable year or other
period shall be specially allocated to the Member who bears the economic risk of
loss with respect to the Member Nonrecourse Debt to which  items are
attributable in accordance with Treas. Reg. (S) 1.704-2(i).

          V.2.5  Notwithstanding the provisions of Section V.1, if a Member
unexpectedly receives any adjustments, allocations, or distributions described
in Treas. Reg. (S) 1.704-1(b)(2)(ii)(d)(4), (5) or (6), or any other event
creates a deficit balance in  Member's Capital Account in excess of  Member's
share of Minimum Gain, items of Company income and gain shall be specially
allocated to  Member in an amount and manner sufficient to eliminate  excess
deficit balance as quickly as possible.  Any special allocations of items of
income and gain pursuant to this Section V.2.5 shall be taken into account in
computing subsequent allocations of income and gain pursuant to this Article V
so that the net amount of any item so allocated and the income, gain, and losses
allocated to each Member pursuant to this Section V.2.5 to the extent possible,
shall be equal to the net amount that would have been allocated to each  Member
pursuant to the provisions of this Article V if  unexpected adjustments,
allocations, or distributions had not occurred.

          V.2.6  Notwithstanding any other provision in this Article V, in
accordance with section 704(C) of the Code, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Company shall,
solely for tax purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of  property to the Company for federal
income tax purposes and its fair market value on the date of contribution.
Allocations pursuant to this Section V.2.5 are solely for purposes of federal,
state, and local taxes; as , they shall not affect or in any way be taken into
account in computing a Member's Capital Account or share of Income, Loss, or
items of distribution pursuant to any provision of this Agreement.

          V.2.7  In the event any Member has a deficit Capital Account at the
end of any Company taxable year which is in excess of the sum of (i) the amount,
if any,  Member is obligated to restore and (ii) the amount  Member is deemed to
be obligated to restore pursuant to the next to the last sentences of Treas.
Reg. (S)(S) 1.704-2(g)(1) and 1.704(2)(i)(5), each  Member shall be specially
allocated items of Company income and gain in the amount of  excess as quickly
as possible, provided that an allocation pursuant to this Section V.2.7 shall be
made if and only to the extent that  

                                    Page 13
<PAGE>
 
Member would have a deficit Capital Account in excess of sum after all other
allocations provided for in this Article V have been tentatively made as if this
Section V.2.7 and Section V.2.5 hereof were not in this Agreement.

          V.2.8  100% of the Company's Depreciation deductions shall be
allocated to Sutton Hill, up to an amount equal to its initial Capital
Contribution. Thereafter, 100% of the Company's Depreciation deductions shall be
allocated to Angelika, Inc. up to an amount equal to its initial Capital
Contribution. Thereafter, Depreciation deductions will be allocated 16.66% to
Sutton Hill and 83.34% to Angelika, Inc.

     V.3  Allocation of Income and Loss in Respect of a Transferred Interest.
          ------------------------------------------------------------------

          V.3.1  If a Member's Membership Interest is transferred, or is
adjusted by reason of additional Capital Contributions, the admission of a new
Member, or otherwise, during any taxable year, each item of income, gain, loss,
deduction, or credit of the Company for  taxable year shall be assigned pro rata
to each day in the particular period of  year to which  item is attributable
(i.e., the day on or during which it is accrued or otherwise incurred) and the
amount of each  item so assigned to any  day shall be allocated to the Member
based upon its percentage interest in Company allocations at the close of  day.
For the purpose of accounting convenience, except as provided below, the Company
may treat a transfer of, or an adjustment in, a Membership Interest which occurs
at any time during a semi-monthly period (commencing with the semi-monthly
period including the date hereof) as having been consummated on the first day of
semi-monthly period, regardless of when during  semi-monthly period  transfer or
adjustment actually occurs.

          V.3.2  Notwithstanding any provision to the contrary in this
Agreement, gain or loss of the Company realized in connection with a Disposition
of any of the assets of the Company shall be allocated solely to the Members as
of the date  Disposition occurs (or to any particular Member or Members as
required by Code section 704(c), if applicable to  Disposition).

     V.5  Distributions.
          ------------- 

          V.5.1  Subject to any restrictions under applicable law, the Company
shall periodically distribute Distributable Cash to the Members not less
frequently than quarterly, with the amount and timing of  distributions to be
determined by the Members.

          V.5.2  Except as otherwise provided in the case of the Company's
liquidation and termination, all distributions of Distributable Cash shall be
made 83.34% to Angelika, Inc. and 16.66% to Sutton Hill.

     V.6  Form of Distributions.  A Member has no right to demand or receive any
          ---------------------                                     
distribution from the Company in any form other than cash. Likewise, except in
connection with the dissolution of the Company as provided herein, no Member
shall be compelled to accept from the Company a distribution of any asset in
kind.

                                    Page 14
<PAGE>
 
                                   ARTICLE VI
                            MANAGEMENT AND OPERATION

     VI.1  Management of Company by Members.
           -------------------------------- 

           The business, property, and affairs of the Company shall be managed
exclusively by the Members.  The full, complete, and exclusive authority to
manage and control the business, affairs, and properties of the Company in
accordance with the terms of this Agreement, to make all decisions regarding the
same, and to perform any and all other acts or activities consistent therewith
which are customary or incidental to the management of the Company's business is
subject to the Approval of the Members.

     VI.2  Administration.
           -------------- 

           VI.2.1  Officers and Employees.  In order to provide for the orderly
                   ----------------------                                      
administration of the Company, the Members may designate from time to time an
administrative committee and/or may appoint officers to administer the business
and affairs of the Company, as set forth in a resolution executed by a Majority
in Interest of the Members.  Initially, James J. Cotter, Robert Smerling  and S.
Craig Tompkins will serve as Managing Directors of the Company, but will not
receive any separate compensation from the Company for their services in such
capacities.  The execution of any document by two or more Managing Directors
will bind the Company in its affairs with all persons other than the Members and
their Affiliates.   At the direction of the Members, the Company may also retain
employees to carry out the business of the Company.

           VI.2.2  Management Agreement.  Simultaneously with the execution of
                   --------------------                                       
this Agreement, the Company is entering into the Management Agreement.
     VI.3 Other Theatres.
          -------------- 

Each of the Members hereby acknowledge and agree  that Angelika, Inc. and/or one
or more of its Affiliates may develop, own, lease or operate, as applicable,
movie theatres located outside New York City  including, without limitation,
theatres that exhibit specialty art films (collectively, "Reading Theatres").
Subject to the Executive Sharing Agreement  dated as of November 1, 1993    by
and between Reading Company and City Cinemas, each of the Members acknowledge
and agree that Sutton Hill and/or its Affiliates has and may develop, own, lease
or operate, as applicable, other movie theatres located inside and outside of
New York City. It is further acknowledged and agreed that neither Sutton Hill,
Angelika, Inc. nor any of their respective Affiliates shall have any right to
contribute capital with respect to or acquire any ownership interest in,
participate in any profits generated by, or manage, other theatres that are
developed, owned, leased or operated by the other party.  It is further
acknowledged and agreed by the Members that Angelika, Inc. may use the tradename
"Angelika" in connection with its development, ownership, lease or operation, as
applicable, of such Reading Theatres, subject to the documentation of a
reasonable royalty-free license agreement, approval of which will not be
unreasonably withheld or delayed; provided it is understood that, in no event
may Angelika, Inc. use the tradename "Angelika" in New York City without the
written approval of Sutton Hill.

                                    Page 15
<PAGE>
 
     VI.4 Financing.
          --------- 

Each of the Members acknowledge and agree that it is the Company's current
intention to seek third party financing (collectively "Indebtedness") secured by
the Angelika Theatre in an amount at least equal to the initial Capital
Contribution of Angelika, Inc. Each of the Members agree that the portion of
such financing proceeds equal to Angelika, Inc.'s initial Capital Contribution
shall be lent by the Company to Angelika, Inc., and the remainder of such
proceeds shall be lent by the Company to Sutton Hill, up to the amount of Sutton
Hill's initial Capital Contribution. These loans will be evidenced by promissory
notes reflecting the economics of the underlying loan to the Company. It is
further acknowledged and agreed that Angelika, Inc. may pledge its Membership
Interest in connection with borrowings by Angelika, Inc. and/or its Affiliates
and that such indebtedness may be in excess of the initial Capital Contribution
of Angelika Inc.

     VI.5 Subordination.
          ------------- 

In connection with any indebtedness of the Company or Angelika, Inc. described
in Section VI.4 above pursuant to which either the Angelika Theatre or Angelika
Inc.'s Membership Interest serves as security (collectively, "Indebtedness"),
Sutton Hill hereby agrees that it shall execute any reasonable agreement,
instrument or other document evidencing that Sutton Hill shall subordinate
solely the rights incident to its Membership Interest to the lenders extending
such Indebtedness to the extent the portion of such Indebtedness secured by such
Membership Interest does not exceed Angelika, Inc.'s initial Capital
Contribution; provided that Sutton Hill is provided commercially reasonable
notice and cure rights with respect to any such Indebtedness.  To the fullest
extent permitted by law, Angelika, Inc. shall indemnify Sutton Hill and its
partners, officers, directors, employees, associates, agents and Affiliates
harmless from and against any Damages they may incur on account of any default
by the Company or Angelika, Inc., as the case may be, in connection with any
such Indebtedness.


                                  ARTICLE VII
                                  TAX MATTERS

     VII.1 Tax Returns.  The Company shall prepare or cause to be prepared
           -----------                                                    
and filed all necessary federal, state, and local income tax returns for the
Company.  The Company shall furnish to each Member copies of all returns that
are actually filed and shall keep them informed of any and all pending or
threatened tax proceedings regarding the Company.

     VII.2 Tax Matters Partner.  Angelika, Inc. shall be the "tax matters
           -------------------                                           
partner" of the Company pursuant to section 6231(a)(7) of the Code.  Angelika,
Inc. shall take  action as may be necessary to cause each other Member to become
a "notice partner" within the meaning of section 6231(a)(8) of the Code, and
shall inform each other Member of all significant matters that may come to its
attention in its capacity as "tax matters partner" and, shall forward to each
Member copies of all significant written communications it may receive in
capacity.  Angelika, Inc. shall not take any 

                                    Page 16
<PAGE>
 
action contemplated by sections 6222 through 6231 of the Code without the
consent of the Members.

     VII.3  Tax Elections.  The Company shall make the following elections on
            -------------                    
the appropriate tax returns:

            VII.3.1  to adopt the calendar year as the Company's fiscal year;

            VII.3.2  to adopt an appropriate method of accounting and to keep
the Company's books and records on that method; and

            VII.3.3  any other election Angelika, Inc. deems appropriate and in
the best interests of the Company and the Members.  It is the intent of the
Members that the Company be treated as a partnership for United States federal
income tax purposes and, to the extent permitted by applicable law, for state
and local franchise and income tax purposes.  Neither the Company nor any other
Member may make an election for the Company to be excluded from the application
of the provisions of subchapter K of chapter 1 of subtitle A of the Code or any
similar provisions of applicable state or local law, and no provision of this
Agreement shall be construed to sanction or approve  an election.

     VII.4  Withholding.  With respect to any Member who is not a United States
            -----------                                                        
person within the meaning of the Code, any tax required to be withheld under
section 1446 or other provisions of the Code, or under state law, shall, unless
already reflected by an appropriate charge to that Member's Capital Account, be
charged to that Member's Capital Account as if the amount of  tax had been
distributed to  Member.  The amount so withheld shall be treated as a
distribution of Distributable Cash to  Member for all purposes of this
Agreement.

                                 ARTICLE VIII
                                  INFORMATION

     VIII.1 Information.  In addition to the other rights specifically set forth
            -----------                                                   
in this Agreement, each Member shall have access to all information to which a
Member is entitled to have access pursuant to the Act and other information
regarding the Company, as it may reasonably request from time to time.

                                  ARTICLE IX
                  BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS

     IX.1   Maintenance of Books.  The books of account for the Company shall be
            --------------------                                       
maintained on an accrual basis in accordance with the terms of this Agreement,
except that Capital Accounts shall be maintained in accordance with Article IV.
The calendar year shall be the accounting year of the Company.

     IX.2   Financial Information.  The Company shall prepare, or shall cause to
            ---------------------                                      
be prepared, as 

                                    Page 17
<PAGE>
 
soon as practicable after the end of each fiscal year of the Company, and in any
event on or before the 90th day thereafter, a balance sheet, an income statement
and a statement of changes in Members' capital in the Company for, or as of the
end of, that year. In addition, the Company shall deliver to each Member within
90 days after each fiscal year a copy of the Company's federal income tax return
for that year and a Schedule K-1 setting forth Member's distributions and
allocations.

     IX.3  Bank Accounts.  The Company shall establish and maintain one or more
           -------------                                                  
separate bank and investment accounts for the Company's funds in the Company's
name with financial institutions and firms as the Members may select and
designate signatories thereon. The Company's funds may not be commingled with
other funds of any other Person.

                                   ARTICLE X
                          DISSOLUTION AND WINDING UP

     X.1   Conditions of Dissolution.  The Company shall be dissolved, its 
           -------------------------                                      
assets shall be disposed of, and its affairs wound up on the first to occur of
the following:

                 (a)   the vote, consent or approval of a Majority in Interest
           of the Members at any time to dissolve the Company;

                 (b)   the occurrence of a Dissolution Event, unless within
           ninety (90) days after the occurrence, the remaining Members (other
           than the Member as to which Dissolution Event occurred) consent to
           continue the Company;

                 (c)   the Disposition of all of the property and assets of the
           Company;

                 (d)   the entry of a decree of judicial dissolution under the
           Act; or

                (e)    the expiration of the term of existence of the Company.

     X.2   Liquidation and Termination.
           --------------------------- 

           X.2.1  Upon the dissolution of the Company as provided in Section
X.1, the Company shall continue solely for the purpose of winding up its affairs
in an orderly manner, liquidating its assets, and satisfying the claims of its
creditors. The Members shall act as liquidators or may appoint one or more other
Persons to act as liquidator. The liquidator shall oversee the winding up and
liquidation of the Company, take full account of the liabilities of the Company
and assets, either cause the Company's assets to be sold as promptly as is
consistent with obtaining fair market value therefor (or, with the consent of
the Members, distributed to the Liquidation Member) and, if sold, shall cause
the proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed as provided in paragraph (c) below. Until final distribution, the
liquidator shall manage 

                                    Page 18
<PAGE>
 
the Company's business and other property and assets with all of the power and
authority of the Members. The steps to be accomplished by the liquidator are as
follows:

                (a)  as promptly as possible after dissolution and again after
          final liquidation, the liquidator shall cause a proper accounting to
          be made of the Company's assets, liabilities, and operations through
          the last day of the calendar month in which the dissolution shall
          occur or the final liquidation shall be completed, as applicable;

                (b)  during the period commencing on the first day of
          dissolution pursuant to Section X.1 hereof and ending on the date on
          which all of the assets of the Company have been distributed to the
          Members in accordance with this Section X.2, the Members shall
          continue to share Income, Loss, and other items of Company income,
          gain, loss or deduction in the manner provided in Article V, provided
          that no distributions shall be made pursuant to Section V.4;

                (c)  the liquidator shall pay or discharge from Company funds
          all of the debts, liabilities and obligations of the Company
          (including, without limitation, but subject to the provisions of
          applicable law, all expenses incurred in liquidation) or otherwise
          make reasonably adequate provision therefor (including, without
          limitation, the establishment of a cash escrow fund for contingent
          liabilities in amount and for terms as the liquidator may reasonably
          determine);

                (d)  all remaining assets of the Company shall be distributed to
          the Members in accordance with the positive balances of their Capital
          Accounts; and

                (e)  the liquidator may sell any or all Company property,
          including to the Members for fair market value.

          X.2.2  Any distributions in kind to the Members shall be made subject
to the liability of  distributee for costs, expenses, and liabilities
theretofore incurred or for which the Company has committed prior to the date of
termination.

     X.3  Cancellation of Filings.  Upon completion of the distribution of
          -----------------------                                         
Company assets as provided herein, the Company is terminated, and the liquidator
shall take actions as may be necessary to terminate the Company.

                                  ARTICLE XI
                         INDEMNIFICATION AND INSURANCE

                                    Page 19
<PAGE>
 
     XI.1   Indemnification by Company
            --------------------------

            XI.1.1  The Company shall indemnify and defend each Member or 
officer or employee of the Company who was or is a party or is threatened to be 
made a party to any threatened, pending or completed action, suit or proceeding 
(a "Proceeding") by reason of the fact that it is or was a Member, manager,
    ----------                                                             
officer, or other agent of the Company or that, being or having been a Member,
manager, officer or agent, it is or was serving at the request of the Company as
a manager, director, officer, employee, or other agent of another Person (all
Persons being referred to hereinafter as an "agent"), to the fullest extent
                                             -----      
permitted by applicable law in effect on the date hereof and to greater extent
as applicable law may hereafter from time to time permit; provided, however,
that no Person shall be entitled to indemnification hereunder for any act or
omission constituting gross negligence, willful misconduct or material breach of
this Agreement. Furthermore, the Company may, but shall not be obligated to,
indemnify any other Person who was or is a party or is threatened to be made a
party to, or otherwise becomes involved in, a Proceeding by reason of the fact
that person is or was an agent to the same extent as is provided for in the
preceding sentence with respect to a Member or agent.

            XI.1.2  The indemnification provided by, or granted pursuant to, the
provisions of this Article XI shall not be deemed exclusive of any other rights
to which any Person seeking indemnification may be entitled under any agreement,
vote of Members, or otherwise, both as to action in  Person's capacity as an
agent of the Company and as to action in another capacity while serving as an
agent.  All rights to indemnification under this Article XI shall be deemed to
be provided by a contract between the Company and each Member and officer who
serves in capacity at any time while this Agreement and relevant provisions of
the Act and other applicable law, if any, are in effect.  Any repeal or
modification hereof or thereof shall not affect any rights then existing.

                                  ARTICLE XII
                              GENERAL PROVISIONS

     XII.1  Notices  All notices and other communications provided for or
            -------                                                      
permitted to be given under this Agreement shall be in writing and shall be
given by depositing the notice in the United States mail, addressed to the
Person to be notified, postage paid, and registered or certified with return
receipt requested, or by notice being delivered in person or by facsimile
communication to party.  Notices given or served pursuant hereto shall be
effective upon receipt by the Person to be notified.  All notices to be sent to
a Member shall be sent to or made at, and all payments hereunder shall be made
at, the address given for that Member or other address as that Member may
specify by notice to the Company and the other Members.

     XII.2  Entire Agreement; Waivers and Modifications.
            -------------------------------------------  

            XII.2.1 The Certificate and this Agreement constitute the entire
agreement of the Members and their respective Affiliates relating to the Company
and supersedes any and all prior contracts, understandings, negotiations, and
agreements with respect to the Company and the subject 

                                    Page 20
<PAGE>
 
matter hereof, whether oral or written.

            XII.2.2  The Certificate and this Agreement may be amended or
modified from time to time only by a written instrument executed by the Members.

            XII.2.3  In the event of an inconsistency or conflict between the
provisions of this Agreement and any resolution adopted by the Members,
resolution shall be deemed an amendment to this Agreement and a waiver by the
Members of the inconsistent or conflicting provision of this Agreement. Any
waiver or consent, express, implied or deemed to or of any breach or default by
any Person in the performance by that Person of its obligations with respect to
the Company or any action inconsistent with this Agreement is not a consent or
waiver to or of any other breach or default in the performance by that Person of
the same or any other obligations of that Person with respect to the Company or
any other action. Failure on the part of a Person to complain of any act of any
Person or to declare any Person in default with respect to the Company,
irrespective of how long that failure continues, does not constitute a waiver by
that Person of its rights with respect to that default until the applicable
statute of limitations period has run. Except with respect to the matters
described in the first sentence of this Section XII.2.3, all waivers and
consents hereunder shall be in writing and shall be delivered to the Company and
the Members in the manner set forth in Section XII.1. A Member may grant or
withhold any waiver or consent in its absolute sole discretion.

     XII.3  Binding Effect; No Third-Party Beneficiaries.  Subject to the
            --------------------------------------------                 
restrictions on Dispositions set forth herein, this Agreement is binding on and
inures to the benefit of the Members and their respective successors and
assigns.  Nothing in this Agreement shall provide any benefit to any third party
or entitle any third party to any claim, cause of action, remedy or right of any
king, it being the intent of the parties that this Agreement shall not be
construed as a third-party beneficiary contract.

     XII.4  Governing Law.  This Agreement is governed by and shall be construed
            -------------                                                       
in accordance with the law of the State of Delaware, excluding any conflict-of-
laws rule or principle that might refer the governance or construction of this
agreement to the law of another jurisdiction.  If any provision of this
Agreement or the application thereof to any Person or circumstance is held
invalid or unenforceable to any extent, the remainder of this Agreement and the
application of that provision to other Persons or circumstances is not affected
thereby, and that provision shall be enforced to the greater extent permitted by
law.

     XII.5  Further Assurances.  In connection with this Agreement and the
            ------------------                                            
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.

     XII.6  Waiver of Certain Rights.  Each Member irrevocably waives any right
            ------------------------                                           
it might have to maintain any action for partition of the property of the
Company.

                                    Page 21
<PAGE>
 
     XII.7  Multiple Counterparts; Facsimile Transmissions.  This Agreement may
            ----------------------------------------------                     
be executed in multiple counterparts with the same effect as if the signing
parties had signed the same document.  All counterparts shall be construed
together and constitute the same instrument.  Delivery of an executed
counterpart of this Agreement by facsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement.  Upon the request
of any party, any party who shall have delivered an executed counterpart of this
Agreement by facsimile shall deliver a manually executed counterpart as well,
but the failure to so deliver a manually executed counterpart shall not affect
the validity, enforceability and binding effect of this Agreement.

     XII.8  Submission to Jurisdiction.  Each of the Members hereby consents to
            --------------------------                                         
the jurisdiction of any state or federal court located within the State of
Delaware, and, subject to the provisions of Section XII.8, irrevocably agrees
that all actions or proceedings relating to this Agreement shall be instituted
and heard by the courts of jurisdiction.  Each Member hereby waives any
objection that it may have based on improper venue or forum non conveniens to
the conduct of any proceeding in any court and personal service of any and all
process upon it, and consents to any service of process made in the manner
provided herein for the giving of notices under this Agreement.

     IN WITNESS WHEREOF, the parties hereto executed this Agreement effective as
of the date first above written.


                                      MEMBERS:
                                      ------- 
                            
                            
                                      ANGELIKA CINEMAS, INC.
                            
                            
                                      By:    /s/ Charles S. Groshon
                                           -------------------------------------
                                      Name:  Charles S. Groshon
                                      Title:  Vice President
                            
                            
                            
                                      SUTTON HILL ASSOCIATES, a California
                                      General Partnership
                            
                            
                            
                                      By:    /s/ Bradley J. Neel
                                           -------------------------------------
                                      Name:  Bradley J. Neel
                                      Its:  Secretary

                                    Page 22