<PAGE>
 
                                                                   EXHIBIT 10.36
 
                               ANGELIKA THEATRE
                               ----------------

                       ASSET PURCHASE AND SALE AGREEMENT
                       ---------------------------------


          This Purchase and Sale Agreement (this "Agreement") is made and
entered into as of this 1st day of July, 1996 by and among READING INVESTMENT
COMPANY, INC., a Delaware corporation ("Reading"), ANGELIKA FILM CENTERS, INC.,
a New York corporation ("Seller"), and HOUSTON CINEMA, INC., a New York
corporation ("Houston").

                                    RECITALS
                                    --------


          A.   Seller owns certain Assets (as hereafter defined) consisting of,
among other things, the assets used in connection with the business operations
thereon commonly known as the Angelika Film Center Theatre and Cafe (the
"Angelika Theatre").

          B.   Houston was the original tenant of and owned a leasehold interest
in certain property in which the Angelika Theatre is located (namely the
building located at 18 W. Houston Street, New York, New York), pursuant to that
certain Agreement of Lease made as of March 4, 1988 between Cable Building
Association as landlord and Houston as tenant and as modified by that certain
Amendment of Lease dated December 26, 1989, which leasehold interest is more
particularly described on Exhibit A attached hereto (collectively, the
"Leasehold").

          C.   Houston previously assigned all of its right, title and interest
as tenant in and to the Leasehold to Seller, as well as all of its right, title
and interest in and to any of the assets used in connection with the business or
operations of the Angelika Theatre (collectively, the "Houston Assignment").
From and after the Houston Assignment, Seller solely owned, operated and managed
the Angelika Theatre; paid all rent, additional rent and other sums due under
the lease on the Angelika Theatre to the Landlord thereunder and otherwise
performed or satisfied all of the terms and conditions on the part of tenant to
be performed or satisfied under or pursuant to the Angelika Theatre Lease
subsequent to the Houston Assignment to and including the date hereof.

          D.   Reading or its designee ("Purchaser") desires to purchase, and
Seller desire to sell, the Assets described in Section 1.01 on the terms and
conditions hereinafter set forth.

          E.   Houston is joining into and signing this Agreement at the request
of Purchaser not only so as to confirm and ratify its prior Houston Assignment,
but also to formally waive any 
<PAGE>
 
conceivable right, title or interest which anyone might claim Houston may have
in or to any of the Assets being sold by Seller to Purchaser.

          F.   This Agreement is being entered into by Seller and Houston
through and with the consent of each of Joseph J.M. Saleh, Angelika T. Saleh,
Jessica Saleh Hunt and Eva Saleh.

                                   AGREEMENT
                                   ---------

          NOW, THEREFORE, in consideration of the foregoing recitals and
representations, warranties and covenants herein set forth, the parties hereto
agree as follows:

                                   ARTICLE I

                          Purchase and Sale of Assets
                          ---------------------------

          1.01 Purchase of Assets.  On the terms and subject to the conditions
               ------------------                                             
set forth herein, Seller (and Houston, but only to the extent Houston has any
right, title or interest in and to any of the Assets; for convenience, any
reference to "Seller" herein shall be deemed to refer also to Houston) hereby
agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from
Seller, at the Closing (as that term is hereinafter defined in Section 1.06),
all of Seller's right, title and interest in and to the business known as the
Angelika Theatre and its property and assets (collectively, the "Assets") as
follows:

          (a) Personal Property. Other than certain sculptures, paintings and
              -----------------                                              
posters presently in the Angelika Theatre, but not owned by Seller, all tangible
personal property owned by Seller and used exclusively for the operation,
maintenance and management of the Angelika Theatre (collectively, the "Personal
Property"), including all structures and fixtures located on, and all
improvements to, the Leasehold property (collectively, the "Improvements").  The
Personal Property and Improvements (are sometimes collectively referred to as
the "Theatre Property"), are more fully described in the form of Bill of Sale
(the "Bill of Sale") attached hereto as Exhibit B and incorporated herein by
reference.

          (b) Contracts.  All of Seller's right, title and interest in all
              ---------                                                   
contracts and agreements in effect and designated by Purchaser as contracts to
be assumed by Purchaser (the "Designated Contracts") at or on the "Closing Date"
(as hereafter defined), if any (collectively, the "Contracts"), as described in
the form of Assignment of Contracts (the "Assignment and Assumption of
Contracts") attached hereto as Exhibit C.

                                       2
<PAGE>
 
          (c) Good Will and Intellectual Property.  All of Seller's right, title
              -----------------------------------                               
and interest in and to the good will of the Angelika Theatre, all of Seller's
right, title and interest in the tradename and trademark "Angelika" for motion
picture theatre and food service purposes (the "Trademark") in the form of the
Assignment of Trademarks (the "Assignment of Trademarks") attached hereto as
Exhibit D; subject, however, to the licenses to use the Trademark from Purchaser
in favor of the Saleh Family Members and Angelika 57, Inc., in the form annexed
as Exhibits E and F (the "Trademark Licenses").

          (d) Leasehold.  All of Seller's right, title and interest in and to
              ---------                                                      
the Leasehold and all appurtenant rights, privileges and easements related or
used incidental thereto.

          (e) Improvements.  All of Seller's right, title and interest in and to
              ------------                                                      
the Improvement in, on or to the Leasehold.

          The purchase price for the Assets shall be determined and paid in
accordance with the terms and provisions of Sections 1.02 through 1.04 hereof.

          1.02  Purchase Price.  The aggregate purchase price (the "Purchase
                --------------                                              
Price") to be paid by Purchaser for the Assets shall be an amount equal to:

          (a) Twelve Million Five Hundred Thousand Dollars ($12,5000,000.00),
   plus interest thereon from March 1, 1996 through the Closing Date at the
   "Reference Rate" (as used herein, "Reference Rate" shall mean the thirteen
   [13] week Treasury Bill rate, as it changes and is published in the Wall
   Street Journal from time to time), plus

          (b) the amount shown on Schedule 1 attached hereto for till cash and
   inventory on hand at the Angelika Theatre and other appropriate closing
   adjustments as of the Closing Date and, minus

          (c) the amount shown on Schedule 1 attached hereto for the liabilities
   shown thereon as of the Closing Date and specifically assumed by Purchaser,
   minus

          (d) a sum equal to Seller's "Estimated Pre-Closing Earnings".  As used
   herein, "Estimated Pre-Closing Earnings" shall be determined as follows:

                                       3
<PAGE>
 
               (i)   Seller will prepare an income statement in accordance with
                     generally accepted accounting principles for the two (2)
                     month period beginning January 1, 1996 and ending 
                     February 29, 1996 (the "Interim Statement");

               (ii)  the gross operating revenues derived from all Angelika
                     Theatre business and operations (including box office
                     receipts, concession revenues, theatre rental revenues and
                     membership sales) for the period beginning March 1, 1996
                     through the Closing Date (the "Computation Period") shall
                     be multiplied by the "Gross Profit Percentage" (i.e., the
                     ratio of gross profit -- excluding, however, the
                     expenditures excluded under (iii) below -- to gross
                     operating revenues) derived from the Interim Statement,
                     less

               (iii) an amount equal to one-half (1/2) of all other operating
                     expenses as shown in the Interim Statement not included in
                     computing "Gross Profit Percentage" excluding, however,
                     interest, depreciation, taxes on income, amortization and
                     any (x) executive or management compensation, including any
                     payments to any stockholders of Seller or (y) any
                     professional fees for any attorneys or accountants paid by
                     Seller to the extent the annualized sum of (x) plus (y)
                     exceeds $225,000;

               (iv)  Multiply the amount determined in (iii) by the number of
                     whole and fractional months included in the Computation
                     Period and then subtract that product from (ii).

The final result of the calculations in (d) above are Seller's "Estimated Pre-
Closing Earnings".

                                       4
<PAGE>
 
          Notwithstanding anything to the contrary in this Agreement, within
five (5) business days after Purchaser receives a copy of the final
determination of the Seller's actual Pre-Closing Earnings by the Pre-Closing
Earnings Auditors (as provided in Section 1.03 below), Purchaser shall have the
exclusive right and unilateral option, exercisable by sending written notice to
Seller within such five (5) business day period, to elect to delete from the
Purchase Price and make no adjustment for:  (x) any addition for interest on the
$12,500,000 from March 1 1996 through the Closing Date, as provided for in
Section 1.02(a) and (y) any subtraction for Seller's "Estimated Pre-Closing
Earnings" provided for in subparagraphs (d) of this Section 1.02 -- in which
event, all corresponding references in Section 1.03 to Seller's "Estimated Pre-
Closing Earnings" or Seller's "actual Pre-Closing Earnings" shall also be
deleted.

          1.03  Closing Audit of Seller.  For purposes of determining the final
                -----------------------                                        
adjustments to the Purchase Price pursuant to Section 1.02 (b) through (d)
above, on the Closing Date, Purchaser and Seller shall initially use the figures
set forth on Schedule 1 and (unless the parties in writing agree upon the actual
Pre-Closing Earnings) shall initially use the Seller's calculation of Estimated
Pre-Closing Earnings.  The Purchase Price shall be paid based on these estimates
(the "Closing Estimates") subject to any necessary reconciliation as determined
by the closing audit to be performed in accordance with this Section 1.03 (the
"Closing Audit").  On or immediately after the Closing Date, the accounting firm
of Ernst & Young (the "Closing Auditors"), with the assistance and cooperation
of Seller's personnel, shall perform a complete review and, where appropriate,
an audit of the Angelika Theatre assets on hand as of the Closing Date, and
shall prepare, within thirty (30) days of the Closing Date, (1) a statement
setting forth the dollar amount as of the Closing Date of each of the assets and
liabilities listed on Schedule 1 and (2) a statement setting forth the Seller's
unpaid film rentals, if any.  For purposes of this last statement,  the amount
of film rentals due and owing shall be calculated by reference to the statements
provided by the lessor of such films; provided, however, for ten (10) days after
                                      --------  -------                         
the Closing Date or ten (10) days after the amount of any film rental becomes
due and owing, whichever is later, Seller shall have the sole right to negotiate
settlements with respect to amounts due and owing to film lessors and thereafter
Purchaser shall do so; provided, however, that in the event that Purchaser is
                       --------  -------                                     
able to negotiate a reduction in such rentals, the Seller shall be entitled to a
credit in an amount equal to such reduction.  If within thirty (30) days of the
Closing Date the parties are unable to agree in writing upon the actual Pre-
Closing Earnings, then Seller shall have the sole right to designate a "Big 6"
accounting firm (the "Pre-Closing Actual Earnings Auditor") who shall be
retained by the parties to finally determine the actual Pre-Closing Earnings who
shall follow the method set forth in Section 1.02(d); provided, however, if
Seller 

                                       5
<PAGE>
 
fails to name the Pre-Closing Actual Earnings Auditors within forty-five (45)
days of the Closing Date, then Purchaser shall have the right to name a "Big 6"
accounting firm to act as the Pre-Closing Actual Earnings Auditors. The
foregoing statements as finally determined pursuant to this Section 1.03 are
hereinafter referred to as the "Closing Statement." The Purchaser and Seller
shall each equally pay one-half of (i) all of the fees and disbursements of the
Pre-Closing Actual Earnings Auditors in determining Seller's actual Pre-Closing
Earnings, (ii) the first $5,000 of all other fees and disbursements of the
Closing Auditors and (iii) Purchaser alone shall pay all of the fees and
expenses of the Closing Auditors in excess of $5,000.

          1.04  Payment of the Purchase Price.  The purchase price for the
                -----------------------------                             
Assets shall be paid as follows:

          (a)  On the Closing Date, Purchaser shall make, execute and deliver to
   Seller a non-negotiable promissory note in the original principal amount of
   $2,000,000 dated as of the Closing Date, which promissory note shall bear
   interest at the Reference Rate; provided, however, with respect to any
   principal amount above $1,500,00, the interest rate shall be greater of the
   Reference Rate or nine percent (9%) per annum, shall automatically be reduced
   by $1,500,000 on April 1, 1997 and shall be otherwise substantially in the
   form of Exhibit K/1/ attached hereto (the "Holdback Note").  On or before the
   Closing Date, Purchaser shall establish an interest bearing escrow account
   (the "Escrow Account") with Paine Webber, as escrow and Seller's agent (the
   "Escrow Agent"), provided Seller shall pay any fees which the Escrow Agent
   may charge, over and above its usual brokerage fees for buying short-term
   U.S. Treasury obligations.  On the Closing Date Purchaser shall deposit Two
   Million Dollars ($2,000,000) in the Escrow Account and Purchaser, Seller and
   Escrow Agent shall enter into an escrow agreement (the "Escrow Agreement")
   substantially in the form attached hereto as Exhibit L.  Purchaser hereby
   grants, effective as of the Closing date and subject to the Closing of the
   transactions contemplated hereby, to Seller a security interest in the Escrow
   Account for the purpose of securing Purchaser's obligations under the
   Holdback Note.  Purchaser shall take all necessary and appropriate steps to
   create a perfected security interest in favor of Seller in 


-----------------------
      /1/  Exhibits G through J have been intentionally deleted.

                                       6
<PAGE>
 
   and to the Escrow Account. On the Closing Date, the Escrow Agent shall be
   authorized to invest funds in the Escrow Account only in short-term U.S.
   Treasury obligations earning at least the Reference Rate. On April 1, 1997,
   provided there has been no Seller default under this Agreement, $1,500,000
   under the Holdback Note shall become due and payable on April 1, 1997 and in
   order to satisfy such Purchaser payment obligations, $1,500,000 in the Escrow
   Account shall be released and transferred to Seller on such date, provided,
                                                                     --------
   however, if Purchaser claims Seller is in default under this Agreement and
   -------
   Escrow Agent has received Seller's Notice of Indemnity Dispute and as a
   result thereof, Escrow Agent does not release and transfer the $1,500,000 to
   Seller, then Seller shall have all of its rights and remedies, provided for
   in the Holdback Note subject to Purchaser's right of offset thereunder. All
   interest on escrowed funds shall be delivered to Purchaser promptly upon
   receipt, so long as there has been no default by Purchaser under the Holdback
   Note.


          Subject to the provisions of Section 8.05, Purchaser shall be entitled
   to first offset against the Holdback Note and simultaneously therewith assert
   against the Escrow Account any claims it may have under Article VIII of this
   Agreement. In addition, Purchaser shall be entitled to receive with respect
   to all transactions after the Closing Date an amount equal to the difference
   between the regular admission or concession price as the case may be, and the
   price at which any patron purchases such admission or concession with the
   benefit of any discount, guest or club card issued prior to the Closing Date
   calculated without reference to any amounts paid to the Seller with respect
   to such discount, guest or club card; provided, however, Purchaser shall not
   be entitled to receive any amount with respect to single use, free admission
   passes which, in accordance with generally accepted movie theatre practice,
   Seller has given to certain religious groups, motion picture distributors and
   the like, without receiving in exchange any payment or other consideration.

                                       7
<PAGE>
 
          (b)  On the Closing Date, Purchaser shall pay to Seller by certified
   check or bank check either of which shall be drawn on a bank which is a
   member of the New York Clearinghouse, an amount equal to the difference
   between the Purchase Price (based on the Closing Estimates), minus the sum of
   (y) $2,000,000, plus (z) the Judgment Satisfaction Amount if the Judgment is
   assigned to Seller in accordance with the provisions of Section 6.12.

          (c)  Within five (5) business days of receipt by Purchaser of the
   Closing Statement, Purchaser shall pay to Seller an amount equal to the
   difference, if positive, between the Closing Estimates and the results of the
   Closing Audit. Within five (5) business days of receipt by Seller of the
   Closing Statement, the Seller shall pay to Purchaser an amount equal to the
   difference, if negative, between the Closing Estimates and the results of the
   Closing Audit. Any payment required to be made pursuant to this Section
   1.04(d) shall be made by certified or bank check drawn on a bank which is a
   member of the New York Clearinghouse.

          (d)  In the event that there is any dispute as to the Closing Audit,
   the parties reserve the right to contest the results of such Closing Audit
   through an action for declaratory relief. However, in the event that the
   court approves the Closing Audit, or approves the Closing Audit with
   adjustments representing a no greater than five percent (5%) adjustment, then
   the party or parties challenging such Closing Audit shall be jointly and
   severally responsible for the reasonable costs of defense (including, without
   limitation, reasonable attorney's fees) of both the Auditors and the party or
   parties defending such action. In the event the court finds that adjustments
   representing a greater than five percent (5%) adjustment are necessary, then
   the party or parties defending such action shall be jointly and severally
   responsible for the reasonable litigation costs (including, without
   limitation, reasonable attorney's fees) of both the Auditors in defending
   such action, and the party or parties challenging such Closing Audit in
   litigating such action. Any funds not timely paid under Section 1.04(d) shall
   bear interest at the fluctuating rate from time to time published in the Wall

                                       8
<PAGE>
 
   Street Journal as the "prime rate" plus 150 basis points or the maximum
   amount allowed by law, whichever is less (the "Contract Rate").

          1.05  Review Period.  In the event and to the extent any required
                -------------                                              
Exhibits or Schedules have not been completed by Seller and attached to this
Agreement upon signing, then Seller hereby covenants and agrees to deliver to
Purchaser complete copies of any required Exhibits or Schedules not yet attached
to this Agreement, on or before the date which is ten (10) business days after
the date hereof, which still-to-be attached Exhibits and Schedules, Seller
represents and warrants will not contain any information or terms and provisions
materially and adversely affecting the business and operations of the Angelika
Theatre or the Assets being purchased hereunder not previously disclosed in
writing to Purchaser.  Notwithstanding the fact that this Agreement is being
executed without some or all of the Exhibits or Schedules to be attached hereto
having been completed, Seller hereby agrees and acknowledges that this Agreement
shall constitute a binding obligation on the part of Seller to sell the Assets,
subject to the attachment of a complete set of Exhibits and Schedules in
accordance with the representations and warranties set forth in the immediately
preceding sentence.  On or before the tenth (10th) business day after (i)
execution of this Agreement by Seller, (ii) the attachment of all Exhibits and
Schedules hereto and (iii) satisfaction or waiver by both the Seller and
Purchaser of the Marital Court Order set forth in Article V hereto, but not
earlier than July 23, 1996, Purchaser shall seek to obtain the approval of its
Board of Directors to this Agreement, including the completed Schedules, and the
transactions contemplated hereby.  If Board approval (as evidenced by a notice
from Purchaser to Seller of such approval) is not obtained within such period,
provided Seller is not then in default under this Agreement, Seller may at any
time thereafter terminate this Agreement by sending a five (5) business day
written notice to Purchaser, which shall be effective to terminate this
Agreement five (5) business days after Purchaser's receipt of the Seller's
notice, unless Purchaser sends Seller notice of Purchaser's Board approval
within such five (5) business day period.

          1.06  Closing.  The Closing of the transactions contemplated by this
                -------                                                       
Agreement (the "Closing") shall take place at the offices of Baer Marks & Upham
LLP, 805 Third Avenue, New York, New York at 10:00 a.m., on the first business
day after 30 days of the date hereof (as it may be accelerated or extended, the
"Closing Date") with any date earlier or later than the first business day after
30 days of the date hereof to be mutually agreed upon by the parties.

                                       9
<PAGE>
 
          1.07  Transfer of Title.
                ----------------- 

          (a) On the Closing Date, Seller shall convey to Purchaser all of
Seller's right, title and interest to the Leasehold by execution and delivery of
the Assignment and Assumption of Lease substantially in the form of Exhibit M
attached hereto (the "Assignment and Assumption of Lease").

          (b) On the Closing Date, Seller shall transfer to Purchaser title to
the Personal Property, the Theatre Property and Seller's interest in the
Designated Contracts by execution and delivery of the Bill of Sale and the
Assignment of Contracts.

          (c) On the Closing Date, Seller shall transfer to Purchaser its
interest in the Angelika name and trademark for motion picture theatre and food
services purposes by execution and delivery of the Assignment of Trademarks.

          1.08  Allocation of Purchase Price.  The parties hereto agree that the
                ----------------------------                                    
Purchase Price, unless the parties otherwise agree prior to the Closing Date,
shall be allocated among the Assets being transferred by using the Seller's "net
book value" of the Assets transferred, as computed and determined by Miller &
Company, CPAs, in the manner set forth on Exhibit N, such allocation to be
adjusted in a manner consistent with the adjustments to the Purchase Price as
set forth in Section 1.02(b) through (d).

                                   ARTICLE II

                         Representations and Warranties
                                  of Purchaser
                         ------------------------------

          Except as expressly set forth in this Article II, Purchaser makes no,
and has made no, representations and warranties in connection with this
Agreement, the subject matter hereof or the transactions contemplated hereby.
Purchaser represents and warrants to Seller that:

          2.01  Organization, Good Standing and Authority.  Purchaser is
                -----------------------------------------               
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.  This
Agreement and all other agreements herein contemplated to be executed in
connection herewith by Purchaser have been (or upon execution shall have been)
duly executed and delivered by Purchaser, have been effectively authorized by
all necessary action, corporate or otherwise, and constitute (or upon execution
shall constitute) legal, valid and binding obligations of Purchaser subject only
to the Board of Directors of Purchaser approving the terms of this Agreement as
provided in Section 6.08.

                                       10
<PAGE>
 
          2.02  No Broker.  No broker or finder has acted for Purchaser in
                ---------                                                 
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fees or other
commission in respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of Purchaser.

          2.03  Agreement Not in Violation of Law.  The execution and delivery
                ---------------------------------                             
of this Agreement, the consummation of the transaction contemplated hereby and
the fulfillment of the terms hereof shall not result in a material violation of
any law, rule or regulation applicable to Purchaser.

          2.04  Seller's Future Movie Bookings.  After the Closing, Purchaser
                ------------------------------                               
shall either (a) honor the movies bookings previously arranged by Seller through
Jeffrey Jacobs, the Angelika Theatre's present film programmer, as more
particularly shown on Schedule 2.04 or (b) to the extent Purchaser decides not
to exhibit one or more of the movies at the Angelika Theatre shown on Schedule
2.04, then Purchaser shall indemnify and hold Seller harmless from and against
any claims, losses or damages which Jeffrey Jacobs, any distributor or any other
party may assert or recover against Seller; provided, however, Purchaser shall
have the sole right to settle or defend any such claims or litigation, and
provided further, Seller shall assign to Purchaser all defenses, offsets, rights
or claims Seller may have against Jeffrey Jacobs, any distributor or any other
party.

                                  ARTICLE III

                         Representations and Warranties
                                   of Seller
                         ------------------------------

          For purposes of this Article III, the phrase "to the best knowledge of
Seller" means no stockholder, officer or director of Seller has actual
knowledge, actual belief or implied knowledge that the statement made is not
true and correct.  Implied knowledge as used in the preceding sentence means
knowledge of facts discoverable from all information available in the books,
records and files of Seller.  Except as expressly set forth in this Article III,
Seller makes no, and has made no, representations and warranties in connection
with this Agreement, the subject matter hereof or the transactions contemplated
hereby.  The representations and warranties in this Article III shall survive
for a period of eighteen months after the Closing Date.  Seller hereby
represents and warrants to Purchaser that:

          3.01  Organization, Good Standing and Authority.  Each of Seller and
                -----------------------------------------                     
Houston is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York.  Seller has full corporate power and
authority to own, operate and convey the Assets and to enter into and otherwise

                                       11
<PAGE>
 
perform and comply with the terms of this Agreement.  This Agreement and all
other agreements herein contemplated to be executed by Seller in connection
herewith have been (or upon execution shall have been) duly executed and
delivered by Seller, have been effectively authorized by all necessary action,
corporate (including Board of Directors and stockholders approvals) or otherwise
and constitute (or upon execution shall constitute) legal, valid and binding
obligations of Seller.

          3.02  No Broker.  No broker or finder has acted for Seller in
                ---------                                              
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fees or other
commissions in respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of Seller.

          3.03  Financial Statements.  Included in Schedule 3.03 are the balance
                --------------------                                            
sheets of Seller as of December 31, 1995, and the related statements of income
and retained earnings and changes in financial position for the fiscal years
then ended, each such financial statement having been audited by an independent
certified public accountant and prepared in accordance with generally accepted
accounting principles consistently applied.  If not available at the time of
signing this Agreement, Seller hereby covenants and agrees to use its
commercially reasonable efforts to deliver to Purchaser by no later than July
20, 1996 (i) the audited balance sheet of Seller as of December 31, 1995, and
the related statements of income and retained earnings and changes in financial
position for the fiscal year then ended, as well as (ii) unaudited comparative
quarterly financial statements for the three month periods ending March 31, 1995
and June 30, 1995; provided, however, it being understood that with respect to
each of the quarterly financial statements for the three months ending March 31,
1995 and June 30, 1995, no such separate financial statement was previously
prepared in the ordinary course and Seller, in cooperation with its accountant,
will review its own and its accountant's "workpapers" and use its good faith
efforts to reconstruct what Seller believes is the most accurate semi-annual
financial statement for the three month period ending March 31, 1995 and June
30, 1995.  Seller hereby represents that the sum of its gross revenues
attributable to ticket sales, concession sales and its gross receipts  generated
by the cafe located on the Leasehold premises was not less than $7,035,630 for
1994, $7,422,806 for 1995 and not less than $1,295,580 for the three month
period from January 1, 1996 through March 31, 1996.  Seller further represents
and warrants that all books and records of the Seller requested by, and
presented to Purchaser constitute the books and records of the Seller and there
are no other books and records of the Seller which conflict with the books and
records presented to the Purchaser.

                                       12
<PAGE>
 
          3.04  Absence of Certain Changes.  Except as disclosed in Schedule
                --------------------------                                  
3.04 or as provided for or contemplated in this Agreement and to the best
knowledge of Seller, since December 31, 1995 (the "Balance Sheet Date") there
has not been (i) any transaction not in the ordinary course of business; (ii)
any material adverse change in the results of operations, condition (financial
or otherwise), assets, liabilities (whether absolute, accrued, contingent or
otherwise), business or prospects of Seller; (iii) any damage, destruction or
loss, whether or not covered by insurance, which has had or may have a material
and adverse effect on the Assets; (iv) any sale or transfer of the Assets, or
any portion thereof, except sales in the ordinary course of business of
inventory; (v) any mortgage, pledge or subjection to lien, charge or encumbrance
of any kind, except liens for taxes not due, of the Assets, or any portion
thereof; (vi) any material amendment, modification or termination of any
material contract or agreement relating in any way to the Assets to which Seller
is a party; (vii) any material alteration in the manner of keeping the books,
accounts or records of Seller relating to the Assets, or in the accounting
practices therein reflected; or (viii) any other event or condition of any
character which has had or may have a material and adverse effect on the Assets.
Purchaser acknowledges that changes in gross receipts due to fluctuations in
attendance at the Angelika Theatre in the ordinary course of business do not
constitute material adverse changes for purposes of clause (ii) above.

          3.05  Leasehold. Except as indicated in Schedule 3.05:
                ---------                                       

          (a) Seller has good marketable title to the Assets, free and clear of
   all mortgages, liens, encumbrances, leases, equities, claims, charges,
   easements, rights-of-way, covenants, conditions and restrictions, except for
   liens, if any, for property taxes not due;

          (b) Other than the failure of Houston to have obtained the prior
   written consent of the Landlord to the Houston Assignment, Seller is not in
   default with respect to any material term or condition of any lease, contract
   or other agreement relating to the Assets to which Seller is a party, nor has
   any event occurred which through the passage of time or the giving of notice,
   or both, would constitute a default thereunder by Seller or would cause the
   acceleration of any obligation of Seller or the creation of a lien or
   encumbrance upon the Assets, or any portion thereof; and

                                       13
<PAGE>
 
          (c) The Assets are in good operating condition, ordinary wear and tear
   excepted, and have been maintained in accordance with reasonable industry
   practices, and Seller has not received any notice of a violation of any
   applicable building code, zoning ordinance or other law or regulation in
   respect of the Assets.

          3.06  Tangible Personal Property.  There is listed on Schedule 3.06
                --------------------------                                   
(i) a description of each item of tangible personal property owned by Seller and
located on the Real Property having on the date hereof either a depreciated book
value or estimated fair market value per unit in excess of $10,000 or not owned
by Seller but located on the Real Property; and (ii)  a description of the owner
of, and any agreement relating to the use of, each such item of tangible
personal property not owned by Seller and the circumstances under which such
property is used.  Except as indicated in Schedule 3.06:

          (a) Seller has good and marketable title to each item of such tangible
   personal property free and clear of all liens, leases, encumbrances, claims
   under bailment and storage agreements, equities, conditional sales contracts,
   security interests, charges and restrictions, except for liens, if any, for
   personal property taxes not due;

          (b) Each item of such tangible personal property not owned by Seller
   is in such condition that upon the return of such property to its owner in
   its present condition at the end of the relevant lease term or as otherwise
   contemplated by the applicable agreement between Seller, and the owner or
   lessor thereof, the obligations of Seller to such owner or lessor shall be
   discharged;

          (c) Each item of tangible personal property listed in Schedule 3.06 is
   in good operating condition, ordinary wear and tear excepted and repair and
   is fit for its intended purposes; and

          (d) Seller owns or otherwise has the right to use all of the tangible
   personal properties now used by it in the operation of the Angelika Theatre.

          3.07  Intangible Personal Property.  There is listed on Schedule 3.07
                ----------------------------                                   
(i) a description of the items of intangible personal property owned by Seller
and comprising part of the Assets, including, but not limited to, United States
and foreign 

                                       14
<PAGE>
 
patents, patent applications, tradenames, trademarks, tradename and
trademark registrations, copyright registrations and applications for any of the
foregoing and (ii) a true and complete list of all licenses or similar
agreements or arrangements to which Seller, or any of its directors, officers or
shareholders, is a party either as licensee or licensor for each such item of
intangible personal property.  Except as indicated on Schedule 3.07(ii):

          (a) Seller is the owner of all right, title and interest in and to
   each such item of intangible personal property, free and clear of all liens,
   security interests, charges, encumbrances, equities and other adverse claims;

          (b) No officer, director, stockholder or employee of Seller, nor any
   spouse, child or other relative or affiliate thereof, owns directly or
   indirectly, in whole or in part, any of the items of intangible personal
   property described on Schedule 3.07(i);

          (c) No interference actions or other judicial or adversary proceedings
   concerning any of such items of intangible personal property have been
   initiated, there is no basis for any such action or proceeding and, to the
   best knowledge of Seller, no such action or proceeding is threatened;

          (d) Seller has the right and authority to use said items of intangible
   personal property in connection with the conduct of its business in the
   manner presently conducted, and such use does not conflict with, infringe
   upon or violate any rights of any other person, firm or corporation; and

          (e) There are no outstanding, nor to the best knowledge of Seller, any
   threatened disputes or other disagreements with respect to any licenses or
   similar agreements with respect to any licenses or similar agreements or
   arrangements described on Schedule 3.07(i).

          3.08  Agreement Not in Breach of Other Instruments.  Neither the
                --------------------------------------------              
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby or thereby, will violate, or result in a breach
of, any of the terms and provisions of, or constitute a default under, or
conflict with, any agreement, indenture or other instrument to which Seller is a
party or by which Seller or any of the Assets is bound, the Articles or
Certificate of Incorporation or Bylaws of Seller, or 

                                       15
<PAGE>
 
by any judgment, decree, order or award of any court, governmental body or
arbitrator applicable to Seller, subject to the consent of the landlord under
the lease of the Angelika Theatre to the transfer of the Assets and the
assignment of such lease as contemplated hereby.

          3.09  Insurance.  Schedule 3.09 sets forth a true and correct list of
                ---------                                                      
all insurance policies of any nature whatsoever maintained by Seller as of the
date hereof in respect of the Assets and the annual or other premiums payable
from time to time thereunder.  To the best knowledge of Seller, there are no
outstanding requirements or recommendations by any insurance company that issued
any such policy or by any Board of Fire Underwriters or other similar body
exercising similar functions or by any governmental authority exercising similar
functions which requires or recommends any changes in the conduct of Seller's
business relating to, or any repairs or other work to be done on or with respect
to, the Assets.  Seller has not received any notice or other communication from
any such insurance company within the three (3) years preceding the date hereof
canceling or materially amending such insurance policies or materially
increasing the annual or other premiums payable under any of said insurance
policies, and to the best knowledge of Seller, no such cancellation or amendment
of such insurance policies or increase of premiums under such insurance policies
is threatened.  There are no audits presently pending with respect to such
insurance policies.

          3.10  Litigation.  Except as listed on Schedule 3.10:
                ----------                                     

          (a) There is no action, suit or proceeding pertaining to any of the
   Assets, or the operation thereof, pending before any court or governmental
   agency, authority or body or arbitrator; to the best knowledge of Seller,
   there is no such action, suit or proceeding threatened; and to the best
   knowledge of Seller, there is no basis for any such action, suit or
   proceeding;

          (b) Neither Seller nor, to the best knowledge of Seller, any officer,
   director or employee of Seller, has been permanently or temporarily enjoined
   by any order, judgment or decree of any court or any governmental agency,
   authority or body from engaging in or continuing any conduct or practice in
   connection with the operation or use of the Assets; and

                                       16
<PAGE>
 
          (c) There is not in existence on the date hereof any order, judgment
    or decree of any court or other tribunal or other agency enjoining or
    requiring Seller to take any action of any kind with respect to the Assets.

          3.11  Contracts.  Schedule 3.11 sets forth a true and correct list of
                ---------                                                      
each contract, agreement, purchase order, lease, license, indenture or
commitment, written or oral, relating to the use and operation of any of the
Assets and to which Seller is a party.

          The contracts, agreements, purchase orders, leases, licenses,
indentures or commitments which are required to be identified in Schedule 3.11
are hereinafter referred to as the "Submitted Contracts."  True and complete
copies of each of the Submitted Contracts, or where they are oral, true and
complete written summaries thereof, have been delivered by Seller to Purchaser
for its approval or disapproval.  Upon the later of (i) ten (10) business days
after Purchaser's receipt of all of the Submitted Contracts, and (ii) seven (7)
business days after the date hereof, Purchaser shall designate which of the
Submitted Contracts it approves and which of the Submitted Contracts it
disapproves.  Only those Submitted Contracts which are Designated Contracts
shall be subject to the Assignment and Assumption of Contracts.  Except as set
forth on Schedule 3.11:

          (a) Each of the Contracts is a valid and binding agreement of Seller
    and, to the best knowledge of Seller, all other parties thereto;

          (b) Seller has fulfilled all material obligations required pursuant to
    each Contract to have been performed by it prior to the date hereof, and
    Seller has no reason to believe that Seller will not be able to fulfill,
    when due, all of its obligations under the Contracts which remain to be
    performed after the date hereof;

          (c) There has not occurred any material default under any of the
    Contracts on the part of Seller, or to the best knowledge of Seller, on the
    part of any other party thereto nor has any event occurred which with the
    giving of notice or the lapse of time, or both, would constitute a material
    default on the part of Seller under any of the Contracts nor, to the best
    knowledge of Seller, has any event occurred which with the giving of notice
    or the lapse of time, or both, would constitute a material default on the
    part of any other party to any of the Contracts; and

                                       17
<PAGE>
 
          (d) No consent of any party to any of the Contracts is required by the
   execution, delivery or performance of this Agreement or the consummation of
   the transactions contemplated hereby.

          3.12  Inventory.  The inventory of Seller is good and merchantable,
                ---------                                                    
first quality material and is saleable in the ordinary course of business
without discount from the prices generally charged for like material of first
quality, and the quantities of all inventory are reasonable and warranted in the
present circumstances of the business of Seller.

          3.13  Compliance with Law.  The conduct of business by Seller in
                -------------------                                       
respect of the Assets on the date hereof does not violate any federal, state,
local or foreign laws, statutes, ordinances, rules, regulations, decrees,
orders, permits or other similar items in force on the date hereof (including,
but not limited to, any of the foregoing relating to employment discrimination,
environmental protection or conservation), the enforcement of which would
materially and adversely affect the Assets, nor has Seller received any notice
of any such violation.  Notwithstanding the foregoing, Seller has timely applied
for, but not as yet received, a renewal of its public assembly permit from the
City of New York (Department of Buildings and/or Consumer Affairs), which
renewal Seller represents will be obtained by Closing.

          3.14  Other Information.  To the best knowledge of Seller, the
                -----------------                                       
information concerning the Assets set forth in this Agreement, the Schedules
attached hereto and any document, statement or certificate furnished or to be
furnished to Purchaser pursuant hereto, does not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances in which they are made, not
false or misleading (other than the unaudited quarterly financial statement for
the three month period ending March 31, 1995, which Seller instead represents
subject to the proviso in Section 3.03, that Seller believes it to be accurate
and that it was prepared in good faith after reviewing its own and its
accountant's "work papers").  Copies of all documents heretofore or hereafter
delivered or made available to Purchaser pursuant hereto were or will be
complete and accurate copies of such documents.

          3.15  Effect of Omissions in Any Schedule.  The failure of Seller to
                -----------------------------------                           
identify a particular exception or item on a particular schedule will not
constitute a breach of the representation or warranty to which such schedule
pertains, so long as (i) the exception or item is described in another schedule
in a manner that would cause a reasonable reader to understand 

                                       18
<PAGE>
 
that such exception or item must also be applicable to such one or more other
schedules on which it was not identified, even though not specifically
identified therein, or (ii) Purchaser suffers no damage as a consequence of the
failure to so identify such exception or item.

          3.16  Survival of Representations, Warranties and Covenants.  All
                -----------------------------------------------------      
representations, warranties and covenants made in Article III hereof by Seller
shall survive the Closing for a period of 18 months.

                                   ARTICLE IV

                               Seller's Covenants
                               ------------------

          4.01  Conduct of Business.  Prior to the Closing Date, Seller shall
                -------------------                                          
conduct its business consistent with Seller's prior practices and will not do,
or permit to be done, anything which is represented and warranted not to have
occurred since the date hereof in Section 3.04 hereof, except as otherwise
permitted by this Agreement or consented to by Purchaser in writing.  Except as
otherwise permitted by this Agreement or consented to by Purchaser in writing,
prior to the Closing Date, Seller shall not:

          (a) sell, assign, mortgage, hypothecate, pledge, encumber or otherwise
   transfer any of the Assets, or any interest therein;

          (b) fail in any material respect to comply with any material laws,
   ordinances, regulations or other governmental restrictions applicable to the
   Assets, or any portion thereof;

          (c) make any alterations or capital expenditures in respect of the
   Assets in excess of $10,000.; provided, however, that if Seller makes an
   expenditure for emergency repairs in excess of the foregoing amount without
   first obtaining the written consent of Purchaser thereto, then Purchaser's
   sole remedy for such violation under this Section 4.01(c) shall be not to
   close under this Agreement;

          (d) make or entertain any solicitations with respect to the sale of,
   or cooperate with any potential bidders (other than Purchaser, or its
   designee) with respect to the sale of, any of the Assets, or any interest
   therein; or

          (e) amend or terminate the Angelika Theatre Lease without the prior
   written consent of Purchaser.

                                       19
<PAGE>
 
          4.02  Preservation of Organization.  Seller shall use commercially
                ----------------------------                                
reasonable efforts to (i) preserve its business organization intact (including
the preservation of the Assets); (ii) continue the operations of Seller at its
present level; (iii) keep available to Seller the services of the present
employees of Seller; and (iv) preserve the goodwill of the suppliers, customers
and others having business relations with Seller with respect to the Assets.
Seller shall maintain in full force and effect the insurance policies disclosed
in Schedule 3.09 (or policies providing substantially the same coverage, copies
of which shall be made available to Purchaser for its inspection)

          4.03  Reports, Taxes, etc.  Between the date hereof and the Closing
                --------------------                                         
Date (and continuing after the Closing Date, if required to comply with any of
its obligations hereunder), Seller shall duly and timely file all reports or
returns required to be filed with federal, state, local and foreign authorities,
and promptly pay all federal, state, local and foreign taxes, assessments and
governmental charges levied or assessed upon Seller or any of the Assets --
including all "Transfer Taxes" referred to in Section 6.10 below (unless
contesting any such in good faith and adequate provision has been made
therefor), and duly observe and conform to all lawful requirements of any
governmental authority relating to any of the Assets and all covenants, terms
and conditions upon or under which any of the Assets are held.

          4.04  Management Information and Access.  Seller shall give to
                ---------------------------------                       
authorized representatives of Purchaser, upon reasonable notice, full access,
during normal business hours, in such manner as not to unduly disrupt normal
business activities, to the Assets, and all contracts, commitments, books and
records of Seller relating thereto and shall cause its officers to furnish any
and all financial, technical and operating data and other information pertaining
to the Assets as Purchaser shall from time to time reasonably request.
Purchaser shall hold in confidence all information so obtained and shall use
such information only for the purpose of considering the transactions
contemplated hereby.  Purchaser further agrees that it shall not otherwise
disclose any such information to any third party except upon the written consent
of the furnishing party, or except as Purchaser may be advised by its counsel
that disclosure is required by law.  If the transactions contemplated hereby are
not consummated as contemplated herein, Purchaser shall return all returnable
data furnished to it to the party that furnished such data.  Such obligation of
confidentiality shall not extend to any information which is shown to be or to
have been generally known to others engaged in the same trade or business as the
furnishing party, or that is or shall be public knowledge through no act or
omission by Purchaser or any of its directors, officers, employees, professional
advisors or other representatives.

                                       20
<PAGE>
 
          4.05  Compliance with Bulk Sales Act.  To the full extent applicable
                ------------------------------                                
to the sale of any of the Assets, Seller shall, in all respects, comply with all
of the relevant provisions of Article 6 of the Uniform Commercial Code --
dealing with Bulk Transfers as adopted in New York (the "Bulk Sales Act") and at
least ten (10) days prior to the Closing Date, the Seller shall provide to
Purchaser an Affidavit signed by its President listing all creditors of
Purchaser and any other information necessary for Seller's compliance with all
of the relevant provisions of the Bulk Sales Act.

          4.06  Insurance; Utilities; Security Deposit on Lease.  Purchaser
                -----------------------------------------------            
acknowledges that Seller shall cause its policies of casualty and liability
insurance, if any, to be terminated with respect to the Real Property as of the
Closing Date.  Purchaser shall be responsible for obtaining its own insurance
and utilities as of the Closing Date and thereafter.  On the Closing Date all
deposits for utilities made by Seller, and subject to the assignment by Seller
to Purchaser of all of Purchaser's rights in the security deposit under the
Angelika Theatre Lease, an amount equal to the security deposit so assigned,
shall be paid to Seller by Purchaser.

          4.07 Amendment of the Existing "Angelika" License Agreement.  Prior to
               ------------------------------------------------------           
the Closing, Seller and its affiliate, Angelika Films, Inc. ("AFI") shall enter
into an amendment of that certain License Agreement dated December 19, 1995
between Seller, as LICENSOR, and AFI, as LICENSEE, so as to expressly (i)
include the Saleh Family Members, as LICENSEE, and (ii) exclude from the "Grant
of License" provided in Section 1.1 the right of the LICENSEE to use The Name
"ANGELIKA" or any of the MARKS referred to therein in connection with any
"motion picture theatre" or with any "motion picture theatre and food service
purposes".

                                   ARTICLE V

                     Condition to Obligations of Each Party
                     --------------------------------------

          5.01  The obligation of each party to sell or purchase the Assets, as
the case may be, shall be subject to the fulfillment, at or prior to the Closing
Date, of the condition that no claim, action, suit, investigation or other
proceeding shall be pending or threatened before any court or governmental
agency which, in the good faith, reasonable legal opinion of counsel for either
Seller or Purchaser, presents a substantial risk of the restraint or prohibition
of such transaction or the obtaining of material damages or other relief in
connection therewith.

          5.02  Without limiting the foregoing, neither party shall have an
obligation to sell or purchase the Assets, as the case may be, if at or prior to
the Closing Date:

                                       21
<PAGE>
 
               (i) the marital court having jurisdiction over the marital
                   proceeding between Joseph J.M. Saleh and Angelika T. Saleh
                   (the "Marital Court") shall not have either (x) approved the
                   Sale of the Assets pursuant to the terms hereof, or (y)
                   rescinded any and all orders restraining or otherwise
                   prohibiting such sale (the "Marital Court Order"); provided
                   that in the event no Marital Court Order has been entered on
                   or before the Closing Date, (a) Purchaser shall have the
                   option of extending the Closing Date for so long as and until
                   such time as such Marital Court Order is entered; or (b) both
                   Seller and Purchaser mutually agree in writing that no
                   Marital Court Order is required for the consummation of the
                   transactions contemplated by this Agreement; or

               (ii) any Court of competent jurisdiction, on application of
                   Anthony Jones, a judgment creditor of Joseph J.M. Saleh
                   (Supreme Court, N.Y. Co. Index No. 124966/95), enters an
                   order restraining or enjoining the closing of the
                   transactions contemplated hereunder; provided that in such
                   event (i) Purchaser shall have the option of extending the
                   Closing Date for so long as and until such time as the
                   restraining order or injunction precludes the closing; and,
                   pending such time, (ii) Purchaser may take such action as it
                   deems appropriate to vacate the restraining order or
                   injunction, including selling all of the shares of stock
                   which Joseph J.M. Saleh owns in the Seller and which
                   Purchaser presently holds pursuant to one or more previous
                   levies under its prior Judgment (as more particularly
                   described in Section 6.12 hereof) at a public auction

                                       22
<PAGE>
 
                   conducted by the Sheriff pursuant to Section 5233 of the
                   Civil Practice Law and Rules.

          5.03  Good Faith Efforts.  Seller and Purchaser each hereby agrees and
                ------------------                                              
covenants to use all commercially reasonable efforts to bring about the
transactions contemplated by this Agreement, including without limitation, the
obtaining of any third party approvals, agreements and/or consents necessary to
effectuate the transactions contemplated hereby.

                                   ARTICLE VI

                     Conditions to Obligations of Purchaser
                     --------------------------------------

          The obligations of Purchaser to effect the transactions contemplated
hereby shall be, at the option of Purchaser, subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions:

          6.01  Representations and Warranties True.  The representations and
                -----------------------------------                          
warranties of Seller contained in this Agreement, the Schedules hereto, or in
any other document of Seller delivered pursuant hereto, were true and correct in
all material respects on the date such representations and warranties were made,
and continue to be true and correct as of the Closing Date and at the Closing
Seller shall have delivered to Purchaser a certificate to such effect signed by
the Seller.  For purposes of this Section 6.01 only, any representation and
warranty of Seller contained in this Agreement that was qualified to the best
knowledge of Seller shall not be so qualified in determining whether such
representation and warranty was true and correct in all material respects as of
the date made.

          6.02  Seller's Performance.  Each of the obligations of Seller to be
                --------------------                                          
performed by it on or before the Closing Date pursuant to the terms of this
Agreement shall have been duly performed on or before the Closing Date, and at
the Closing Seller shall have delivered to Purchaser a certificate to such
effect signed by the President or Chief Financial Officer of Seller, as the case
may be.  For purposes of this Section 6.02 only, any obligation of Seller in
Article VI hereof for which Seller was only required to use its good faith
efforts to perform shall be deemed not to have been performed if such obligation
was not in fact performed, regardless of whether Seller used its good faith
efforts or not.

          6.03  Opinion of Seller's Counsel.  Purchaser shall have been
                ---------------------------                            
furnished at the Closing with an opinion of Seller's counsel dated as of the
Closing Date, addressed to and in form and substance satisfactory to Purchaser,
to the effect that:


                                      23
<PAGE>
 
     (a) Each of Seller and Houston is a corporation duly organized, validly
   existing and in good standing under the laws of the State of New York, and
   each has full corporate power and authority to carry on the business which it
   is now conducting and to own, lease, operate and convey the Assets;

     (b) This Agreement and each of the documents executed by Seller pursuant to
   this Agreement, including the Pledge Agreement, the Escrow Agreement and any
   Seller's Promissory Note delivered hereunder have each been duly and validly
   executed and delivered by the Seller, and each constitutes a legal, valid and
   binding obligation of Seller enforceable in accordance with their terms,
   except as enforcement thereof may be limited by bankruptcy, insolvency,
   reorganization, moratorium or other similar laws affecting the enforcement of
   creditors rights;

     (c) the consummation of the transactions contemplated hereby, assuming that
   a Naima Saleh consent to the transactions is obtained, will not:

               (1)  to the knowledge of such counsel, violate, or conflict with,
        or result in a breach of any provisions of, or constitute a default (or
        an event which, with notice or lapse of time or both, would constitute a
        default) under, or result in the termination of, or accelerate the
        performance required by, or result in the creation of any lien, security
        interest, charge or encumbrance upon any of the Assets under any of the
        terms, conditions or provisions of the Certificate or Articles of
        Incorporation of Seller or the Bylaws of Seller, or any Designated
        Contract to which Seller is a party, or by which it or any of the Assets
        may be bound or affected, except for such violations, conflicts,
        breaches or defaults as to which requisite waivers or consents shall
        have been obtained by Seller by the Closing Date;

               (2)  to the knowledge of such counsel, violate any order, writ,
        injunction, decree, statute, rule or regulation which has applicability
        to Seller or any of the Assets;


                                      24
<PAGE>
 
   In the event Naima Saleh fails to consent to the transactions contemplated in
   the Agreement then, to the knowledge of such counsel, Naima Saleh will have
   such rights, if any, in and to the Assets being transferred as may be
   declared or provided in the Final Judgment entered in that certain pending
   Supreme Court, New York County lawsuit entitled "Naima Saleh, Plaintiff, vs.
                                                    ---------------------------
   Angelika Films, Inc., Houston Cinema, Inc. and Angelika Film Centers, Inc.,
   ---------------------------------------------------------------------------
   Defendants." (Index No. 109393/94) and to the knowledge of such counsel,
   -----------                                                             
   Naima Saleh has not asserted any other claims to the Assets;

       (d) to the knowledge of such counsel, except for (i) the failure of
   Seller to have previously obtained the consent of the Landlord to an
   assignment of the lease on the Angelika Theatre from Houston to Seller and
   thereafter, if Purchaser waives the delivery of Landlord's consent, the
   assignment of the lease from Seller to Purchaser, (ii) the claims asserted in
   the Gourmet Deli Litigation and (iii) the failure of Seller to file New York
   City Commercial Rent and Occupancy Tax Returns and to pay the taxes, interest
   and penalties in connection therewith, there is no default (or event which,
   with notice or lapse of time or both, would constitute a default) under any
   material note, bond, mortgage, indenture, deed of trust, license, agreement
   or other instrument to which any of the Assets may be subject or under any
   governmental license, franchise, permit or other governmental authorization,
   which defaults and events would, in the aggregate, have a material adverse
   effect with respect to the Assets, or a breach of any provision of the
   Certificate or Articles of Incorporation or the Bylaws of Seller; and

       (e) to the knowledge of such counsel, no consent or approval, which has
   not been obtained, by any governmental authority is required in connection
   with the consummation by Seller of the transactions contemplated by this
   Agreement.

          6.04  No Adverse Change.  There shall not have occurred between the
                -----------------                                            
date hereof and the Closing Date any material adverse changes in the Assets.

          6.05  Compliance with Law.  There shall have been obtained any and all
                -------------------                                             
permits, approvals and consents of all governmental bodies or agencies which
counsel for Purchaser may 


                                      25
<PAGE>
 
reasonably deem necessary or appropriate so that consummation of the
transactions contemplated by this Agreement shall be in compliance with
applicable laws.

          6.06  Consent of Landlord under Angelika Theatre Lease.  The landlord
                ------------------------------------------------               
with respect to the Angelika Theatre Lease (the "Landlord") shall have consented
to the assignment of the Angelika Theatre Lease initially from Houston to Seller
and then from Seller to Purchaser as contemplated by this Agreement.  Seller
shall use all commercially reasonable efforts to obtain the consent of the
Landlord to the assignment of the Angelika Theatre Lease to Purchaser.  In the
event that any consent required from the Landlord under this Section 6.06 is not
obtained prior to August 15, 1996 then Purchaser may notify Seller that it
waives such consent (in which event, Purchaser shall have no claim against
Seller by reason of the failure to obtain Landlord's consent) and if Purchaser
does not waive such consent by July 30, 1996, then either party may thereafter
terminate this Agreement, provided such party is not then in default under this
Agreement and upon such termination Purchaser shall have no claim against Seller
arising out of such inability to obtain Landlord's consent.

          6.07  INTENTIONALLY OMITTED
                ---------------------

          6.08  Purchaser Board Approval.  The Board of Directors of Purchaser
                ------------------------                                      
shall have approved the terms of this Agreement, including the Schedules to be
attached hereto, and the transactions contemplated hereby.

          6.09  Delivery of Financial Statements.  Purchaser shall have received
                --------------------------------                                
(a) the financial statements required pursuant to Section 3.03 hereof and (b)
the written consent of the Seller's accountants reporting on such financial
statements, as well as (c) the written consent of the Seller's independent
certified public accountants who audited the previously delivered financial
statements as of December 31, 1993 and December 31, 1994 to the use of such
financial statements and reports in public filings made with the Securities and
Exchange Commission and/or other regulatory agencies or bodies.  In the event
that any financial statement required to be delivered under this Section 6.09 is
not obtained prior to August 15, 1996, Purchaser may waive such condition or if
Purchaser fails to waive such condition by August 30, 1996, then either party
may terminate this Agreement, provided such party is not then in default under
this Agreement and upon such termination, Purchaser shall have no claim against
Seller arising out of such inability to deliver any such financial statements.

          6.10  Transfer Taxes.  All New York State and New York City transfer
                --------------                                                
taxes and transfer gains taxes applicable to the transactions contemplated
hereby shall have been paid, or a mechanism acceptable to Purchaser shall be in
place for the 


                                      26
<PAGE>
 
payment of such taxes through the Closing, and all materials and information
required to be filed with the New York State Department of Taxation and Finance,
or other governmental authority, by Seller and Purchaser shall have been timely
filed provided, however, that Purchaser shall use its reasonable
      --------  -------                                         
commercial efforts in assisting Seller in compiling any such material or
information and, shall not unreasonably delay the execution by Purchaser of such
forms or documents necessary for Seller to file all necessary tax forms and
related questionnaires.

          6.11  Delivery of Closing Documents.  Purchaser shall have received
                -----------------------------                                
each of the following closing documents executed by Seller:  (i) the Assignment
of Lease, (ii) the Bill of Sale, (iii) the Assignment of Contracts, (iv) the
Assignment of Trademarks and (v) a Non-Foreign Affidavit satisfying the
requirements of Section 1445 of the United States Internal Revenue Code of 1986,
as amended, substantially in the form attached hereto as Exhibit O and
incorporated herein by reference.

          6.12  Satisfaction or Assignment of Judgment.  Joseph J.M. Saleh and
                --------------------------------------                        
Angelika Saleh shall have simultaneously satisfied that certain judgment entered
in the Supreme Court, New York County Clerk's Office on December 20, 1994 (Index
No. 32147/92) in favor of Citibank, N.A. currently held by Reading jointly and
severally against Joseph J.M. and Angelika Saleh (the "Judgment") for a total
satisfaction price equal to $1,285,000 plus interest at the rate of 9% per annum
from November 8, 1995 to the date of satisfaction (the "Judgment Satisfaction
Amount").  If, for any reason, Joseph J.M. and Angelika Saleh have not satisfied
the Judgment on or before the Closing Date as herein provided, then in lieu of
paying the full amount, as provided in Section 1.04(b), Reading may instead
assign the Judgment to Seller, without any representation, warranty or recourse
and the value of the Judgment, for purposes of such assignment, shall equal the
Judgment Satisfaction Amount.  Until the Closing or earlier termination of this
Agreement, Reading agrees to take no actions or pursue any collection or
enforcement remedies with respect to the Judgment or any property previously
levied upon or obtained from others in connection with the Judgment and Reading
shall promptly vacate all existing restraining notices affecting any property or
assets of Angelika T. Saleh.

          6.13  Certain Shareholders Deliveries.  Purchaser shall have received
                -------------------------------                                
(i) from each of Angelika Saleh, Eva Saleh, Jessica Hurt and Joseph J.M. Saleh
and each of their affiliates a quit claim assignment of their entire rights,
title and interest, if any, in the name "Angelika" for motion picture exhibition
and cafe purposes, except as set forth in the Trademark Licenses, and (ii)
either evidence, reasonably acceptable to Purchaser, that final Marital Court
approval has been obtained or evidence, reasonably 


                                      27
<PAGE>
 
acceptable to Purchaser, that no Marital Court approval or action is required
for the consummation of the transactions contemplated by this Agreement.

          6.14  Seller's Authority.  All actions required to be taken by, or on
                ------------------                                             
the part of, Seller to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by the Seller's Board of Directors and
Stockholders.  Seller shall deliver at Closing a Certificate by an officer of
Seller certifying that corporate resolutions were duly adopted by the Board of
Directors and Stockholders of Seller authorizing Seller to execute, deliver and
perform the Agreement, as well as all related documents to be signed by
Purchaser hereunder and to consummate the transactions contemplated by the
Agreement.  Such certificate shall also provide that the resolutions are in full
force and effect without modification or rescission on and as of the Closing
Date.

          6.15  Occurrence of Closing.  Purchaser may at its sole option
                ---------------------                                   
terminate this Agreement if the Closing shall not have occurred on or prior to
September 1, 1996 provided, however, that neither Purchaser nor Seller shall be
                  --------  -------                                            
relieved of any obligation to the other which arises prior to such termination
and further provided, that if the Closing shall not have occurred on or prior to
    ------- --------                                                            
September 1, 1996 due to the failure of Purchaser to fulfill the conditions
contained in Article VII (other than the approval of Purchaser's Board),
Purchaser may not terminate this Agreement without the consent of Seller.

                                  ARTICLE VII

                      Conditions to Obligations of Seller
                      -----------------------------------

          The obligations of Seller to effect the transactions contemplated
hereby shall be, at the option of Seller, subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions:

          7.01  Representations and Warranties True.  The representations and
                -----------------------------------                          
warranties of Purchaser contained in this Agreement or in any document delivered
by Purchaser pursuant hereto were true and correct in all material respects on
the date such representations and warranties were made, and at the Closing
Purchaser shall have delivered to Seller a certificate to such effect.

          7.02  Opinion of Purchaser's Counsel.  Seller shall have been
                ------------------------------                         
furnished at the Closing with an opinion of Purchaser's counsel dated as of the
Closing Date, addressed to and in form and substance satisfactory to Seller, to
the effect that:


                                      28
<PAGE>
 
     (a) Reading is a corporation duly organized, validly existing and in good
   standing under the laws of the State of Delaware, and has full corporate
   power and authority to acquire the Assets;

     (b) This Agreement and each of the documents executed by Purchaser pursuant
   to the Agreement, including the Payment Note, the Pledge Agreement, the
   Holdback Note, the Escrow Agreement, the Assignment and Assumption of Lease,
   as well as the Assignment and Assumption of Contracts, have been duly and
   validly executed and delivered by Reading, and constitute legal, valid and
   binding obligations of Reading enforceable in accordance with their terms,
   except as enforcement thereof may be limited by bankruptcy, insolvency,
   reorganization, moratorium or other similar laws affecting the enforcement of
   creditors' rights;

     (c) the consummation of the transactions contemplated hereby shall not:

         (1) to the knowledge of such counsel, violate, or conflict with, or
     result in a breach of any provisions of, or constitute a default (or an
     event which, with notice or lapse of time or both, would constitute a
     default) under any of the terms, conditions or provisions of the
     Certificate or Articles of Incorporation of Reading or the Bylaws of
     Reading, or any agreement to which Reading is a party, or by which it may
     be bound or affected.

         (2) to the knowledge of such counsel, violate any order, writ,
     injunction, decree, statute, rule or regulation (including, without
     limitation, Regulations U and X of the Board of Governors of the Federal
     Reserve System) which has applicability to Reading;

     (d) to the knowledge of such counsel, no consent or approval, which has not
   been obtained, by any governmental authority is required and no consent of
   any other party (including shareholders of Purchaser) is required in
   connection with the consummation by Purchaser of the transactions
   contemplated by this Agreement.


                                      29
<PAGE>
 
          7.03  Performance of Covenants.  Each of the obligations of Purchaser
                ------------------------                                       
to be performed by it on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed on or before the Closing Date, and
at the Closing Purchaser shall have delivered to Seller a certificate to such
effect.

          7.04  Purchaser's Authority.  All actions required to be taken by, or
                ---------------------                                          
on the part of, Purchaser to authorize the execution, delivery and performance
of this Agreement, and the consummation of the transactions contemplated hereby
shall have been duly and validly taken by the Purchaser's Board of Directors.
Purchaser shall deliver at Closing a Certificate by an officer of Purchaser
certifying that corporate resolutions were duly adopted by the Board of
Directors of Purchaser authorizing Purchaser to execute, deliver and perform the
Agreement, as well as all related documents to be signed by Purchaser hereunder
and to consummate the transactions contemplated by the Agreement.  Such
certification shall also provide that the resolutions are in full force and
effect without modification or rescission on and as of the Closing Date.

          7.05  Trademark Licenses.  Seller shall have received, on behalf of
                ------------------                                           
the named Licensees, the Trademark Licenses duly executed by Purchaser in the
form of Exhibits E and F.

          7.06  Occurrence of Closing.  Seller may at its sole option terminate
                ---------------------                                          
this Agreement if the Closing shall not have occurred on or prior to September
1, 1996 provided, however, that neither Purchaser nor Seller shall be relieved
        --------  -------                                                     
of any obligation to the other which arises prior to such termination and
                                                                         
further provided, that if the Closing shall not have occurred on or prior to
------- --------                                                            
September 1, 1996 due to the failure of Seller to fulfill the conditions
contained in Article VI (other than Sections 6.06, 6.08 or 6.09), Seller may not
terminate this Agreement without the consent of Purchaser.

          7.07 Termination of the Agreement between Reading and Joseph J.M.
               ------------------------------------------------------------
Saleh.  At or prior to the Closing and at the written request of Joseph J.M.
-----                                                                       
Saleh, Reading shall cause its affiliate Reading Cinemas, Inc. to enter into a
Termination Agreement with Joseph J.M. Saleh (the "Termination Agreement")
pursuant to which the parties to the Termination Agreement shall, effective upon
the Closing of the transactions provided for herein, terminate all of their
respective rights, duties or obligations of any kind, nature of description
under that certain prior Agreement dated October 13, 1995 as amended and
extended, between the parties to the Termination Agreement and that certain
Letter Agreement dated October 13, 1995 between the same parties executed in
connection therewith.


                                      30
<PAGE>
 
                                  ARTICLE VIII

                           Indemnification by Seller
                           -------------------------

          8.01  General.  From and after the Closing Date, Seller shall
                -------                                                
indemnify and hold harmless Purchaser in respect of any and all claims, losses,
damages and liabilities arising within 18 months after the Closing Date and
regardless of when they are paid or incurred, together with all expenses paid or
incurred by Purchaser (including, without limitation, settlement costs and any
legal or other expenses for investigating or defending any actions or threatened
actions -- collectively, "Defense Costs"), together with interest thereon at the
Contract Rate, compounded annually, from the date incurred until reimbursed,
reasonably incurred by Purchaser in connection with or as a result of each and
all of the following (a "Breach of Warranty"):

          (a) any misrepresentation or breach of any warranty made by Seller in
   Article III hereof.  For purposes of this Section 8.01(a) only (and not for
   purposes of Section 8.07(b), any representation and warranty of Seller
   contained in Article III hereof that was qualified to the best knowledge of
   Seller shall not be so qualified in determining whether such representation
   and warranty was true and correct as of the date made;

          (b) the breach of any covenant, agreement or obligation of Seller
   contained in this Agreement or any other instrument contemplated by this
   Agreement. For purposes of this Section 8.01(b) only (and not for purposes of
   Section 8.07(b)), any covenant, agreement or obligation of Seller contained
   in this Agreement or any other instrument contemplated by this Agreement for
   which Seller was only required to use its good faith and/or commercially
   reasonable efforts to perform shall be deemed to have been breached if such
   covenant, agreement or obligation was not in fact performed, regardless of
   whether Seller used its good faith and/or commercially reasonable efforts or
   not provided, however, that in the event Purchaser elects to close
       --------  -------                                             
   notwithstanding any failure by the Seller to obtain Landlord's consent to the
   assignment of the lease, then Seller shall have no obligation to Purchaser
   with respect to such assignments so long as Seller has used its good faith
   and/or commercially reasonable efforts to acquire such Landlord's consent and
   continues to cooperate with Purchaser in its efforts to obtain such consent;
   and


                                      31
<PAGE>
 
          (c) any misrepresentation contained in any statement or certificate
   furnished by Seller pursuant to this Agreement or in connection with the
   transactions contemplated by this Agreement.  For purposes of this Section
   8.01(c) only (and not for purposes of Section 8.07(b)), any representation
   contained in any statement or certificate furnished by Seller pursuant to
   this Agreement or in connection with the transactions contemplated by this
   Agreement that was qualified to the best knowledge of Seller shall not be so
   qualified in determining whether such representation was true and correct as
   of the date made.

          8.02  Special Claims.  From and after the Closing Date, without any
                --------------                                               
limitation of time other than the applicable statute of limitations governing
the right to assert any such claims, Seller shall indemnify and hold Purchaser
harmless from and against any and all claims, losses, damages or liabilities,
including Defense Costs arising out of:

          (a) Any governmental assertion that Purchaser is liable for any unpaid
   taxes owed by Seller; or

          (b) any person's assertion that (i) Purchaser is liable for any
   fraudulent transfer by Seller or (ii) Purchaser does not have good title to
   the Assets purchased, or (iii) Purchaser is otherwise responsible for any
   unpaid debts of Seller under New York's Bulk Sales Act or Debtor and Creditor
   Laws.

          8.03  Claims for Indemnification.  Whenever any claim shall arise for
                --------------------------                                     
indemnification under this Article VIII, Purchaser shall promptly notify Seller
(with copy to Pledgeholder or Escrow Agent, as the case may be) of the claim
and, when known, the facts constituting the basis for such claim.  In the event
of any claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by a third party, such notice shall specify, if
known, the amount or an estimate of the amount of the liability arising
therefrom.  In no event shall the failure to give prompt notice of any such
claim to Seller relieve Seller from liability hereunder except to the extent,
and only to the extent, that actual prejudice from such delay is shown provided,
                                                                       -------- 
however, that any notice of claims for indemnification or to be held harmless
-------                                                                      
under this Agreement arising within 18 months after the Closing Date must be
made (i) during the period from the Closing Date to a date 18 months from the
Closing Date or (ii) 15 days 


                                      32
<PAGE>
 
after Purchaser learns of the claim for indemnification, but in no event
subsequent to 20 months from the Closing Date, whichever is later.

          8.04  Manner of Indemnification.  Subject to the further provisions of
                -------------------------                                       
this Agreement, all indemnification by Seller under this Article VIII may be
effected, at the option of Purchaser, by claim against the Escrow Account first,
pursuant to the Escrow Agreement, or by delivery of cash by Seller.

          8.05  Seller's Right to Dispute Any Purchaser Claim For
                -------------------------------------------------
Indemnification.  Within fifteen (15) days after Seller receives any
---------------                                                     
notification from Purchaser of any claim for indemnification under or pursuant
to Section 8.03, Seller may send notification to Purchaser (with copy to
Pledgeholder or Escrow Agent as the case may be) indicating that Purchaser
disagrees with and objects to Seller's claim for indemnification and further
stating all of the reasons or bases for such disagreement and objection
("Seller's Notice of Indemnity Dispute").  Pending the resolution of such
dispute either (i) by a final determination of a Court of competent jurisdiction
(a "Final Judgment") or (ii) Purchaser and Seller settling such dispute by a
written agreement signed by both Purchaser and Seller (a "Settlement
Agreement"), the Pledge Holder or the Escrow Agent, as the case may be, shall
take no action with respect to the disputed claim until it receives a copy of
the Final Judgment or Settlement Agreement directing how it should act and any
sums otherwise due and payable under either the Holdback Note or the Payment
Note to the extent of the disputed claim shall not become due and payable until
the entry of the Final Judgment of the signing of the Settlement Agreement, at
which time the proper amount due and payable under the Holdback Note or the
Payment Note, together with interest on such amount, shall be automatically
amended so as to comply with the determinations made in the Final Judgment or
the directions provided in the Settlement Agreement.

          8.06  INTENTIONALLY OMITTED
                ---------------------

          8.07  Limitation on Liability.
                ----------------------- 

          (a) The aggregate liability of Seller under this Article VIII shall be
limited to the Purchase Price paid to Seller hereunder.  For purposes of this
Section 8.07, liabilities of Seller which have been satisfied out of the Escrow
Account shall not be included in determining the aggregate liability of Seller
under this Article VIII.  Likewise, for purposes of this Section 8.07, the
portion of the Purchase Price attributable to the funds in the Escrow Account
shall not be deemed to have been paid to Seller until such time as, and to the
extent that, Seller actually receives monies from the release of any remaining
funds from the Escrow Account.


                                      33
<PAGE>
 
          (b) The limitations of this Section 8.07 do not apply to the
following:

             (i)    liability for any willful or fraudulent misconduct on the
                    part of Seller; and

             (ii)   liability for any conduct on the part of Seller after the
                    Closing.

                                   ARTICLE IX

                                 Miscellaneous
                                 -------------

          9.01  Notices.  All notices, requests, demands and other
                -------                                           
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by telecopy transmission or mailed by certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:


   If to Purchaser:      Reading Investment Company, Inc.
                         103 Springer Building
                         3411 Silverside Road
                         Wilmington, Delaware 19810
                         Fax No. (302) 478-3667
                         Attention:  President
                         ---------            

   With copies to:       Reading Investment Company, Inc.
                         One Penn Square West
                         30 South Fifteenth Street, Suite 1300
                         Philadelphia, Pennsylvania  19102-4813
                         Fax No. (215) 569-2862
                         Attention:  Mr. James A. Wunderle
                         ---------                        

                         Donald S. Snider, Esq.
                         Baer Marks & Upham LLP
                         805 Third Avenue
                         New York, New York  10022-7513
                         Fax No. (212) 702-5941
 
   If to Seller:         Angelika Film Centers, Inc.
                         Houston Cinema, Inc.
                         c/o Skolnick & Hochberg, P.C.
                         122 East 42nd Street
                         New York, New York  10017
                         Fax No. (212) 986-0931
                         Attention:  Ralph R. Hochberg, Esq.
                         ---------                          


                                      34
<PAGE>
 
     With copies to:     Angelika T. Saleh
                         1261 Madison Avenue, Apartment 5S
                         New York, New York  10128
                         Fax No. (212) 876-4365

                         Jessica Saleh Hunt
                         330 West End Avenue, Apartment 8A
                         New York, New York  10023
                         Fax No. (212) 986-0931

                         Eva Saleh
                         35 West 90th Street
                         New York, New York  10021
                         Fax No. (212) 986-0931

                         Joseph J.M. Saleh
                         240 Central Park South, Apartment 15D
                         New York, New York  10019
                         Fax No. (212) 265-6542

                         David B. Bernfeld, Esq.
                         Hoffinger Friedland Dobrish Bernfeld &
                          Stern, P.C.
                         110 East 59th Street
                         New York, New York  10022
                         Fax No. (212) 223-3857

                         Michael S. Mullman, Esq.
                         Tenzer Greenblatt LLP
                         405 Lexington Avenue
                         New York, New York  10174
                         Fax No. (212) 885-5001

          9.02  Successors and Assigns. This Agreement shall inure to the
                ----------------------                                   
benefit of and be binding upon the parties hereto and their respective
successors.

          9.03  Governing Law.  This Agreement shall be governed by, and
                -------------                                           
construed and enforced in accordance with, the internal laws, and not the laws
pertaining to choice or conflicts of laws, of the State of New York.

          9.04  Counterparts.  This Agreement may be executed simultaneously in
                ------------                                                   
one or more counterparts, each of which shall be deemed an original, but all of
which shall constitute but one and the same instrument.

          9.05  Further Assurances.  Each of Seller and Purchaser shall use
                ------------------                                         
their respective commercially reasonable efforts to bring about the transactions
contemplated by this Agreement and agree to take such further actions as are
necessary to effectuate the intent of the parties hereto.  Seller hereby agrees
to fully 


                                      35
<PAGE>
 
cooperate with Purchaser with respect to the obtaining and preparation of
certified financial statements that Purchaser, or its affiliates, may need in
connection with public reports to be filed by such entities.

          9.06  Complete Agreement.  This Agreement, the exhibits hereto and the
                ------------------                                              
Schedules hereto delivered pursuant to this Agreement contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and, except as provided herein, supersede all previous oral
and written and all contemporaneous oral negotiations, commitments, writings and
understandings.  Neither Seller nor Purchaser is relying on any inducement
whatsoever other than that represented by this Agreement in executing and
delivering this Agreement.

          9.07  Modifications, Amendments and Waivers.  At any time prior to the
                -------------------------------------                           
Closing Date or termination of this Agreement, Purchaser, on the one hand, and
Seller (through unanimous action taken by all of the shareholders of Seller), on
the other hand, may, by written agreement:

          (a) extend the time for the performance of any of the obligations or
   other acts of the other parties hereto;

          (b) waive any inaccuracies in the representations and warranties made
   by the other parties contained in this Agreement or in the Schedule hereto or
   any other document delivered pursuant to this Agreement; and

          (c) waive compliance with any of the covenants or agreements of the
   other parties contained in this Agreement.

          9.08  Headings.  The headings contained in this Agreement are for
                --------                                                   
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

          9.09  Severability.  Any provision of this Agreement which is invalid,
                ------------                                                    
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.

          9.10  Investigation of the Parties.  All representations and
                ----------------------------                          
warranties contained herein which are made to the best knowledge of a party
shall require that such party make reasonable investigation and inquiry with
respect thereto to ascertain the correctness and validity thereof.


                                      36
<PAGE>
 
          9.11  Payment of Expenses.  Purchaser, on the one hand, and Seller, on
                -------------------                                             
the other hand, shall pay all fees and expenses (including, without limitation,
legal and accounting fees and expenses) incurred by them in connection with the
transactions contemplated hereunder.  Seller shall be responsible for the
payment of all taxes, including transfer taxes arising out of the conveyance of
the Assets as contemplated hereby, except Purchaser shall pay all sales taxes.

          9.12  Termination for Failure of Certain Conditions. Notwithstanding
                ---------------------------------------------                 
anything herein to the contrary, no party shall have the right or privilege to
terminate this Agreement if and during any period of time when such party is in
breach of this Agreement.  In the event either party properly terminates this
Agreement by reason of Sections 6.06, 6.08 or 6.09, then except as provided in
Section 9.13 below, neither party shall have any further obligation or liability
hereunder of any kind to the other party.

          9.13  Rights Upon Termination.  In the event this Agreement is
                -----------------------                                 
terminated (i) by Purchaser by reason of Seller's default or (ii) by Seller for
any reason other than Purchaser default or failure of Purchaser to satisfy any
condition on its party to be satisfied, then, in either event, Seller hereby
grants to Purchaser until January 1, 1997 or six months after Seller's
termination, whichever is later, a right of first refusal with respect to the
acquisition of the Angelika Theatre.  Such right of first refusal shall give
Purchaser or its designee the right to acquire the Angelika Theatre on the same
terms and conditions (except as set forth below) set forth in any bona fide
offer which Seller is willing to accept (the "Third Party Offer").  Seller shall
not accept any Third Party Offer except making such acceptance expressly subject
to Purchaser's right of first refusal and Seller shall immediately send
Purchaser a copy of any Third Party Offer.  If Purchaser wishes to exercise its
right of first refusal, then Purchaser must within ten (10) business days of
receipt of the Third Party Offer notify Seller of its decision to match the
Third Party Offer; provided, however, in such event Purchaser shall pay a
                   --------  -------                                     
purchase price five percent (5%) higher than stated in the Third Party Offer;
provided, further, that any Seller financing specified in such Third Party Offer
will be by the issuances of similar notes of Purchaser, or its designee
(guaranteed by Purchaser), having similar terms and that any other non-cash
consideration in such offer shall be reduced to its fair market value in dollars
for purposes of such right of first refusal and, at Seller's option, Purchaser
shall pay such fair market value either in cash or by the further issuance of
additional promissory notes in the amount of the fair market value of such non-
cash consideration.  If the Purchaser fails to notify Seller of its election to
exercise its right of first refusal within ten (10) business days of receipt of
the Third Party Offer, then Purchaser shall have waived such right.



                                      37
<PAGE>
 
          9.14  Upon Whom Binding.  This Agreement shall be binding upon and
                -----------------                                           
inure to the benefit of the parties and their respective successors, assigns and
legal representatives.

          9.15  Counterparts.  This Agreement may be signed in counterparts and
                ------------                                                   
shall be binding and enforceable when signed by all parties.

          9.16  All Parties Represented by Independent Counsel.  The parties
                ----------------------------------------------              
acknowledge that this Agreement is the product of negotiations by the parties
represented by independent counsel of their choice.  The parties represent that
they consulted with counsel prior to the execution of this Agreement.

          9.17  Interpretation of This Agreement.  This Agreement shall be
                --------------------------------                          
deemed (a) to have been fully negotiated by independent counsel for each party
of their own selection and (b) to have been drafted by counsel for each of the
parties so that in the event of any ambiguity no negative inference of any kind
shall be drawn against any drafter for either party.  The captions have been
added solely for convenience and shall not be used or referred to in
interpreting this Agreement.

          9.18  Attorneys Fees.  Each party shall be responsible for and pay
                --------------                                              
their own attorneys in connection with the negotiations and drafting of this
Agreement.  Notwithstanding the foregoing, the prevailing party shall be
entitled to recover any and all attorneys' fees and other costs paid or incurred
in connection with any action or proceeding to interpret or declare the rights,
duties or obligations of the parties or to enforce this Agreement.


                                      38
<PAGE>
 
                                   ARTICLE X

                            Assignment by Purchaser
                            -----------------------

          10.01  Assignment by Purchaser.  Purchaser may assign its rights under
                 -----------------------                                        
this Agreement to an entity jointly owned by Purchaser, or its affiliates, and
City Cinemas, or its affiliates, provided such assignee expressly assumes in
writing Purchaser's obligations under this Agreement and such assignment shall
not relieve Purchaser of its obligations under this Agreement.

          IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the date first above written.


                                  Purchaser:
                   
                   
                                      READING INVESTMENT COMPANY, INC., a 
                                      Delaware corporation
                   
                   
                   
Witnessed: /s/ Donald S. Snider        By: /s/ James A. Wunderle
                                          -------------------------- 
                                       Title: V.P.
                                             ---------------------- 
                   
                                  Seller:
                   
                   
                                      ANGELIKA FILM CENTERS, INC., a New York
                                      corporation
                   
                   
Witnessed: /s/ David B. Bernfeld            By: /s/ Joseph J.M. Saleh
                                               -------------------------------
                                            Joseph J.M. Saleh, its authorized
                                            agent
                   
                   
                                            By: /s/ Angelika T. Saleh
                                               -------------------------------
                                            Angelika T. Saleh, its authorized
                                            agent

                                      39
<PAGE>
 
Witness: /s/Ralph R. Hochberg    By: /s/ Jessica Saleh Hunt
                                    -------------------------------
                                 Jessica Saleh Hunt, its authorized
                                 agent
                                 
                                 
Witness: /s/Ralph R. Hochberg    By: /s/ Eva Saleh
                                    -------------------------------
                                 Eva Saleh, its authorized agent



                          HOUSTON CINEMA, INC., a

                            New York corporation


                                 By: /s/ Joseph J.M. Saleh
                                    --------------------------------
                                 Joseph J.M. Saleh, its
                                 authorized agent
                              
                              
Witness: /s/David B. Bernfeld    By: /s/ Angelika T. Saleh
                                    --------------------------------
                                 Angelika T. Saleh, its
                                 authorized agent
                              
                              
Witness: /s/Ralph R. Hochberg    By: /s/ Jessica Saleh Hunt
                                    --------------------------------
                                 Jessica Saleh Hunt, its
                                 authorized agent
                             
                             
Witness: /s/Ralph R. Hochberg    By: /s/ Eva Saleh
                                    ---------------------------------
                                 Eva Saleh, its authorized agent

 

                                Solely in their capacity as shareholders of the
                                Seller and for the sole purpose of consenting
                                that the Seller may enter into this Agreement
                                and effectuate the transactions contemplated
                                thereby.


<PAGE>
 
                                       Saleh Family Members:
                            
                            
                                        /s/ Joseph J.M. Saleh
                                       --------------------------------
                                       Joseph J.M. Saleh
                            
                                       Address:________________________
                                               ________________________
                                               ________________________
                                                
                            
                            
Witness: /s/ David B. Bernfeld         /s/ Angelika T. Saleh  
                                       --------------------------------
                                       Angelika T. Saleh
                            
                                       Address:________________________
                                               ________________________
                                               ________________________
                            
Witness: /s/ Ralph R. Hochberg         /s/ Jessica Saleh Hunt
                                       --------------------------------
                                       Jessica Saleh Hunt
                            
                                       Address:________________________
                                               ________________________
                                               ________________________
                            
Witness: /s/ Ralph R. Hochberg         /s/ Eva Saleh
                                       --------------------------------
                                       Eva Saleh
                            
                                       Address:________________________
                                               ________________________
                                               ________________________


<PAGE>
 
                                   Schedule 1

                              CLOSING ADJUSTMENTS
                              -------------------

 
 
Additions to Purchase Price
-------------------------------------

Estimated Till Cash                    $____________
Estimated Inventory                    $____________
Prorated Rent                          $____________
Total                               $____________
 
Deductions to Purchase Price
-------------------------------------
Estimated CAM Adjustment                 $____________
Estimated Accrued Union Liabilities      $____________
Accrued Vacation Pay and Benefits        $____________
  for Continuing Employees
Total                               $____________
 
Net Purchase Price Adjustment            $____________
 

                                       42