Document:

<PAGE>

                                                                    EXHIBIT 10.3

                                PROMISSORY NOTE

TWO MILLION TWO
HUNDRED FIFTY THOUSAND DOLLARS                              New York, New York

$2,250,000                                                  July 28, 2000

     FOR VALUE RECEIVED, CITADEL CINEMAS, INC., a Nevada corporation (the
"Maker"), hereby promises to pay to MICHAEL R. FORMAN (the "Holder"), at such
place as the Holder may designate in writing, the principal amount of Two
Million Two Hundred Fifty Thousand Dollars ($2,250,000), payable on the second
anniversary of the date of this Note (the "Maturity Date"), together with
interest thereon at the rate of eight and one-quarter percent (8.25%) per annum,
calculated on the basis of a year of 360 days and the actual number of days
elapsed, such interest to be payable in arrears on a quarterly basis on the
first day of September, December, March and June of each year, commencing on
September 1, 2000.

     Capitalized terms used but not otherwise defined herein shall have the
meanings given to them in the Agreement of Purchase and Sale of Membership
Interest, dated as of the date hereof, among the Maker, the Holder, and James J.
Cotter (the "Other Holder"), as the same may be amended, modified, supplemented
or extended (the "Agreement of Purchase and Sale"). This Note and a similar note
issued to the Other Holder (the "Other Note") are made and delivered pursuant to
the Agreement of Purchase and Sale, representing the Purchase Price payable in
accordance with the terms thereof.

     1.   Payments and Prepayments.  "All payments of principal and interest
          ------------------------
hereunder shall be payable in lawful money of the United States and in same day
funds.  If any payment on this Note becomes due and payable on a Saturday,
Sunday or other day on which commercial banks in New York, New York are
authorized or required by law to close, the maturity thereof shall be extended
to the next succeeding business day and, with respect to payments of principal,
interest thereon shall be payable during such extension at the then applicable
rate.

     2.   Events of Default; Remedies.  (a)  The Maker shall be in default
          ---------------------------
hereunder upon the occurrence of any of the following events:

          (i)  Failure of the Maker to pay any installment of principal or
     interest, as and when due and payable, whether by reason of maturity,
     acceleration or otherwise, provided, in the case of interest, that such
     failure continues for ten (10) business days after notice from the Holder;

          (ii) The entry of a decree or order for relief in respect of the Maker
     or Guarantor by a court having jurisdiction in the premises, or the
     appointment of a receiver, liquidator, assignee, custodian, trustee,
     sequestrator (or other similar official) of the Maker or Guarantor or of
     any substantial part of their respective property, or ordering the
<PAGE>

     winding up or liquidation of their affairs, in an involuntary case under
     the Federal bankruptcy laws, as now or hereafter constituted, or any other
     applicable Federal or state bankruptcy, insolvency or other similar law; or
     the commencement against the Maker or Guarantor of an involuntary case
     under the Federal bankruptcy laws, as now or hereafter constituted, or any
     other applicable Federal or state bankruptcy, insolvency or other similar
     law, and the continuance of any such case unstayed and in effect for a
     period of sixty (60) consecutive days;

          (iii)  The commencement by the Maker or Guarantor of a voluntary case
     under the Federal bankruptcy laws, as now or hereafter constituted, or any
     other applicable Federal or state bankruptcy, insolvency or other similar
     law, or the consent by either of them to the entry of an order for relief
     in an involuntary case under any such law or the consent by it to the
     appointment of or taking possession by a receiver, liquidator, assignee,
     custodian, trustee, sequestrator (or other similar official) of the Maker
     or Guarantor or of any substantial part of their respective property, or
     the making by either of them of a general assignment for the benefit of
     creditors, or the taking of any action in furtherance of any of the
     foregoing;

          (iv)   A default by the Maker shall have occurred and not been cured
     after the giving of any notice of default required and passage of any time
     for cure permitted under the Other Note or the Lease entered into or
     contemplated to be entered into between the Maker and Sutton Hill Capital,
     L.L.C.

          (v)    A default by the Guarantor under the Citadel Guarantee in favor
     of the Holder past notice and time to cure if required or if the Citadel
     Guarantee ceases to be in full force and effect.

     (b)  Upon the occurrence of any event or condition of default hereunder, or
any time thereafter, the Holder at its option may, by notice to the Maker
(except that, in the case of a default described in Section 2(a)(ii) or (iii),
no such notice shall be required), accelerate the maturity of this Note and
declare all of the indebtedness or any portion thereof to be immediately due and
payable together with accrued interest thereon, and payment thereof may be
enforced by suit or other process of law.

     (c)  From and after acceleration or upon the maturity hereof (whether at
the Maturity Date or otherwise), this Note shall bear interest, until repaid in
full, at the rate of 9:%.

      3.  Collection Expenses. If the Holder shall institute any proceedings to
          -------------------
enforce payment of all or any part of any sum due the Holder hereunder, or if
this Note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, the Maker agrees to pay all costs,
expenses and fees incurred by the Holder, including reasonable attorney's fees.

     4.   Obligation Absolute.  The obligations under this Note are absolute and
          -------------------
<PAGE>

unconditional obligations of the Maker and no modification, release, consent,
waiver, rearrangement or amendment shall impair the obligations of the Maker
hereunder.

     5.   Governing Law.  THIS NOTE SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING
          -------------
AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS RULES THEREOF.

     6.   Waivers.  Except as otherwise provided herein or in the Citadel
          -------
Guarantee, the Maker and each surety, guarantor, endorser and other party ever
liable for payment of any sum of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace, and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before and after maturity,
all without prejudice to the Holder. The Maker waives the right to interpose
counterclaims (other than mandatory counterclaims) of any kind or description in
any litigation between the Maker and the Holder relating to this Note, provided
that the foregoing shall not limit set-off rights any party may have.  THE MAKER
WAIVES THE RIGHT, IN ANY LITIGATION INVOLVING THIS NOTE, TO TRIAL BY JURY.

     The Holder shall similarly have the right to deal in any way, at any time,
with one or more of the foregoing parties without notice to any other party, and
to grant any such party any extensions of time for payment of said indebtedness,
or to release or substitute any such party, or to grant any other indulgences or
forebearances whatsoever, without notice to any party and without in any way
affecting the personal liability of any party hereunder.

     7.   Modification of Note. Any provision of this Note may be modified,
          ---------------------
altered, amended, waived, discharged or terminated if, but only if, such
modification, alteration, amendment, waiver, discharge or termination is in
writing and is signed by the Holder and Maker. Any such modification,
alteration, amendment or waiver shall constitute a modification, alteration,
amendment or waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such
modification, alteration, amendment or waiver in any other respect or at any
other time.

     8.   Successors.  The Holder may not assign, negotiate, pledge, encumber or
          ----------
otherwise transfer or grant a participation in this Note or any interest of the
Holder herein without the written consent of the Maker, which may be withheld in
its sole discretion.  The term "Maker" shall include the Maker's successors and
assigns and the term "Holder" shall include the Holder's permitted successors
and assigns.
<PAGE>

     IN WITNESS WHEREOF, the Maker has hereby caused this Note to be signed on
its behalf, in its corporate name and by its duly authorized officer, as of the
date first written above.

                                      CITADEL CINEMAS, INC.

                                      By: /s/ Andrzej Matyczynski
                                          --------------------------
                                          Name:  Andrzej Matyczynski
                                          Title: Chief Financial Officer<PAGE>

                                                                    EXHIBIT 10.4

                     CITADEL HOLDING CORPORATION GUARANTY

     GUARANTY AGREEMENT (this "Guaranty"), dated as of July 28, 2000, between
CITADEL HOLDING CORPORATION, a Nevada corporation (together with its successors,
the "Guarantor"), and JAMES J. COTTER (a "Beneficiary").

                                   RECITALS

     A.   The Guarantor is the indirect owner of all of the outstanding common
stock of Citadel Cinemas, Inc. (the "Company").

     B.   Pursuant to an Agreement of Purchase and Sale of Membership Interest,
dated as of July 28, 2000 ("Purchase Agreement"), the Company is on the date
hereof purchasing from the Beneficiary the Membership Interest (as defined in
the Purchase Agreement) held by the Beneficiary in exchange for a note (the
"Note") in the principal amount equal to the Purchase Price (as defined in the
Purchase Agreement) payable to the Beneficiary and is assuming pursuant thereto
certain obligations and indemnities for the benefit of the Beneficiary.

     C.   It is a condition to the Beneficiary's obligations under the Purchase
Agreement that this Guaranty shall have been executed and delivered by the
Guarantor and shall be in full force and effect.

     NOW THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby agrees as follows:

          1.        Guaranty of Obligations. The Guarantor hereby
                    -----------------------
               unconditionally guarantees to the Beneficiary the due and
               punctual payment when due of all amounts now due or hereafter
               becoming due in respect of the Company's obligations arising
               under the Note and under the Purchase Agreement (including,
               without limitation, Section 7.2 thereof) (such obligations being
               herein called the "Obligations"), and agrees to pay any and all
               reasonable expenses incurred by the Beneficiary in enforcing any
               rights under this Guaranty. This Guaranty is a primary and
               original obligation of the Guarantor and is an absolute,
               unconditional, continuing and irrevocable guaranty of payment and
               not of collectibility or performance and is in no way conditioned
               or contingent upon any attempt to collect from the Company or to
               realize upon any property constituting security for the
               Obligations; provided, however, that, in respect of the Company's
               obligations arising under the Purchase Agreement and the
               Guarantor's obligations hereunder in respect of such obligations
               of the Company, the Guarantor shall be obligated hereunder to the
               same extent, except as otherwise specifically provided herein, as
               if the Guarantor were the Company under the Purchase Agreement;
               provided, further, however, that the immediately foregoing
               limitation on the Guarantor's Obligations
<PAGE>

               Agreement (except as set forth herein) shall not limit
               obligations of the Guarantor hereunder to the extent the
               limitations (including termination, disavowal, rejection or
               reduction) of any such obligation of the Company results from (a)
               any insolvency or bankruptcy case or proceeding (including any
               case under the U.S. Bankruptcy Code of 1978, as amended), or any
               receivership, liquidation, reorganization or other similar case
               or proceeding relative to the Company or all or substantially all
               of its assets, or (b) any liquidation, dissolution,
               reorganization or winding up of the Company, whether voluntary or
               involuntary and whether or not involving insolvency or
               bankruptcy, or (c) any assignment of all or substantially all of
               the assets of the Company for the benefit of creditors or any
               other marshalling of assets and liabilities of the Company (the
               events in clauses (a), (b) and (c) collectively referred to as an
               "Insolvency or Liquidation Proceeding"), and in such event the
               Guarantor shall be liable in respect of obligations of the
               Company pursuant to the Purchase Agreement as if no such
               Insolvency or Liquidation Proceeding had been initiated. If the
               Company shall fail to pay any of the Obligations when and as the
               same shall become due and payable, the Guarantor shall forthwith
               pay such Obligations, in immediately available funds, directly to
               the Beneficiary at his address specified herein or at such other
               place as the Beneficiary shall direct. If the Beneficiary shall
               be entitled to acceleration of payment of the Obligations and
               such acceleration is stayed, enjoined or otherwise prevented, the
               Guarantor, upon demand therefor, will pay to the Beneficiary the
               sums which would otherwise have been due to the Beneficiary in
               respect of the Obligations had such acceleration occurred. The
               Guarantor hereby waives diligence, presentment or protest. Each
               default in payment of any of the Obligations shall give rise to a
               separate cause of action hereunder and separate suits may be
               brought hereunder as each cause of action arises.

          2.          Character of Obligations Hereunder: Subrogation. (a) The
                      -----------------------------------------------
               right of the Beneficiary to enforce the obligations of the
               Guarantor hereunder by any proceedings, whether by action at law,
               suit in equity or otherwise, shall not be impaired by any right,
               claim or defense (against the Company or any other person,
               including the other Seller, as defined in the Purchase Agreement)
               of any character whatsoever, including without limitation any
               right, claim or defense of rescission, recoupment, reduction,
               limitation, termination, setoff, counterclaim, waiver,
               frustration, surrender, alteration or compromise. Without
               limiting the generality of the foregoing, such obligations of the
               Guarantor shall not be discharged, released or impaired or
               otherwise affected by: (i) any renewal, extension, amendment or
               modification of or addition or supplement to or deletion from
               this Guaranty or the Note; (ii) any inability or failure on the
               part of the Company to perform or comply with the Purchase
               Agreement; (iii) any
<PAGE>

               waiver, consent, extension, indulgence or other action or
               inaction (including, without limitation, any lack of diligence)
               under or in respect of this Guaranty, the Note, or any obligation
               or liability of the Company, or any other person, or any exercise
               or nonexercise of any right, power or remedy under or in respect
               of any such agreement or any such obligation or liability; (iv)
               any bankruptcy, insolvency, moratorium, reorganization,
               arrangement, or the like, relating to the Company; and (v) any
               limitation or any party's obligation or liability under any such
               agreement or any such obligation or liability or any termination,
               cancellation, frustration, invalidity or enforceability, in whole
               or in part, of any such agreement or any such obligation or
               liability or any term of any thereof. Notwithstanding any
               provision hereof to the contrary, the Guarantor shall be entitled
               to exercise against its liability in respect of the Obligations
               hereunder any rights of offset or recoupment which the Company
               may be entitled to exercise in accordance with the Note
               (including under the New York State Debtor and Creditor Law) as
               if the Guarantor were the Company.

     (b)  This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Beneficiary upon the insolvency, bankruptcy
or reorganization of the Company or otherwise, all as though such payment had
not been made.

     (c)  The Guarantor will not exercise any rights which it may acquire by way
of subrogation under this Guaranty, by any payment made hereunder or otherwise,
until all of the Obligations shall have been paid in full.  If any amount shall
be paid to the Guarantor on account of such subrogation rights at any time when
all the Obligations shall not have been indefeasibly paid in full, such amount
shall be held in trust for the benefit of the Beneficiary and shall forthwith be
paid to the Beneficiary and applied upon the Obligations, whether matured or
unmatured.  If (i) the Guarantor shall make payment to the Beneficiary of all or
any part of the Obligations and (ii) all the Obligations shall be paid in full
and the Note shall no longer be in effect, the Beneficiary will, at the
Guarantor's request, execute and deliver to the Guarantor appropriate documents,
without recourse and without representation or warranty, necessary to evidence
the transfer by subrogation to the Guarantor of an interest in the Obligations
resulting from such payment by the Guarantor.

          3.        Representations and Warranties of the Guarantor. The
                    -----------------------------------------------
               Guarantor represents and warrants to the Beneficiary that:

     (a)  The Guarantor is a corporation duly organized and validly existing
under the laws of Nevada and has full power, authority and legal right to carry
on its business as currently conducted, to own its properties and to enter into
and perform its obligations under this Guaranty;
<PAGE>

     (b)  The execution, delivery and performance by the Guarantor of this
Guaranty have been duly authorized by all necessary corporate action and do not
and will not contravene any presently existing law or any governmental rule,
regulation or order applicable to the Guarantor or its properties;

     (c)  The execution, delivery and performance by the Guarantor of this
Guaranty do not require the consent or approval or authorization or order of,
the giving of notice to, or the registration with, or the taking of any other
action in respect of, any governmental authority or agency, foreign or domestic,
other than such as have been duly obtained, given or taken; and

     (d)  This Guaranty has been duly executed and delivered by the Guarantor
and constitutes the legal, valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with its terms.

          4.        Miscellaneous.
                    -------------

     (a)  No failure on the part of a Beneficiary to exercise, no delay in
exercising, and no course of dealing with respect to, any right or remedy
hereunder will operate as a waiver thereof; nor will any single or partial
exercise of any right or remedy hereunder preclude any exercise of any other
right or remedy.  This Guaranty may not be amended or modified except by written
agreement of the Guarantor and the Beneficiary.

     (b)  All notices in connection with this Guaranty shall be in writing,
shall be deemed given and shall become effective when delivered by hand or
courier service or received by telex, telecopier, telegram, cable or registered
or certified first-class mail, postage prepaid, addressed as follows: if to the
Guarantor, at 550 South Hope Street, Suite 1825, Los Angeles, California 90071
if to the Beneficiary, addressed to: 120 North Robertson Blvd., Los Angeles,
California 90048 or at such other addresses which either of the foregoing shall
from time to time designate in writing.

     (c)  If the Guarantor fails to pay any amount hereunder in respect of any
of the guaranteed Obligations, a Beneficiary may (but shall not be obligated to)
pay such amount. In such case, the amount paid, and the reasonable expenses of
the Beneficiary incurred in connection therewith, shall be payable by the
Guarantor to the Beneficiary upon demand.

     (d)  The terms of this Guaranty shall be binding upon the Guarantor and its
successors and assigns and shall inure to the benefit of, and be enforceable by,
the Beneficiary and his respective successors and assigns.

     (e)  This Guaranty shall be construed in accordance with and governed by
the internal laws of the State of New York.
<PAGE>

     (f)  If any term of this Guaranty and any other application thereof shall
be invalid or unenforceable, the remainder of this Guaranty and any other
application of such terms shall not be affected thereby.

     (g)  Each of the parties hereto (i) hereby irrevocably submits to the
nonexclusive jurisdiction of the Supreme Court of the State of New York, New
York County (without prejudice to the right of any party to remove to the United
States District Court for the Southern District of New York) and to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York, for the purposes of any suit, action or other proceeding
arising out of this Guaranty or the subject matter hereof or any of the
transactions contemplated hereby or thereby brought by either of the parties
hereto or their successors or assigns, (ii) hereby irrevocably agrees that all
claims in respect of such action or proceeding may be heard and determined in
such New York State court or, to the fullest extent permitted by applicable law,
in such Federal court, (iii) hereby waives any right it may have to trial by
jury in respect of any litigation based on, arising out of, under or in
connection with this Guaranty, and (iv) to the extent permitted by applicable
law, hereby irrevocably waives, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such suit, action or proceeding any claim that it
is not subject to the jurisdiction of the above-named courts, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Guaranty or the subject
matter hereof may not be enforced in or by such court.  A final judgment
obtained in respect of any action, suit or proceeding referred to in this
Section 4 shall be conclusive and may be enforced in other jurisdictions by suit
or judgment or in any manner as provided by applicable law.  Each of the parties
hereto hereby consents to service of process by registered mail, Federal
Express, DHL or similar courier at the address to which notices to it are to be
given, it being agreed that service in such manner shall constitute valid
service upon such party or its respective successors or assigns in connection
with any such action or proceeding only; provided, however, that nothing in this
Section 4 shall affect the right of any of such parties or their respective
successors or assigns to serve legal process in any other manner permitted by
applicable law or affect the right of any of such parties or its respective
successors or assigns to bring any action or proceeding against any other one of
such parties or its respective property in the courts of other jurisdictions.
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly
executed as of the date first set forth herein.

                              GUARANTOR:

                              CITADEL HOLDING CORPORATION

                              By: /s/ Andrzej Matyczynski
                                 ------------------------------
                                 Name:  Andrzej Matyczynski
                                 Title: Chief Financial Officer

                              BENEFICIARY:

                                  /s/ James J. Cotter
                                 ------------------------------
                                 James J. Cotter

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00015-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00015-of-00352.parquet"}]]