HARVEY ENTERTAINMENT CO
EXHIBIT 10.83
<DOCUMENT>
<TYPE>EX-10.83
<SEQUENCE>2
<FILENAME>ex10-83.txt
<DESCRIPTION>EXHIBIT 10.83
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.83


                                LETTER OF INTENT

                           PREFERRED STOCK INVESTMENT


     The following is a summary of the principal terms with respect to a
proposed investment transaction in which Classic Media LLC ("Investor") will
purchase shares of a newly designated series of preferred stock of The Harvey
Entertainment Company (the "Company"). The parties intend for this Letter of
Intent (the "LOI") to be binding agreement, and each of the parties shall
negotiate reasonably and in good faith toward the completion and execution and
delivery of definitive transaction documents as hereinafter provided.

          1.   CONSIDERATION. Investor will invest $26 million in cash and
               contribute Investor's ownership interests in the UPA/Mr. Magoo
               library (to be valued at approximately $4 million, equal to
               Investor's aggregate expenditures as described in the next
               sentence), for total consideration of approximately $30 million.
               Investor will represent and warrant to its aggregate book value
               for the UPA/Mr. Magoo library asset ($3 million acquisition price
               plus booked direct and indirect expenses and subsequent costs).

          2.   SECURITIES. For Investor's investment, Investor will be issued
               the securities described in clauses (a) and (b) below:

               (a) approximately $30 million in face amount of a new series of
               participating preferred stock ("New Preferred"). The New
               Preferred will have a conversion price equal to $3.00 per share.
               It will provide for a seven percent (7%) per annum pay-in-kind
               ("PIK") dividend and will rank (i) pari passu to the currently
               outstanding Series A and Series B Preferred Stock (collectively,
               "Existing Preferred") of the Company (which, to simplify the
               capital structure, will probably be recapitalized into new
               securities with terms paralleling the New Preferred except as
               described below), and (ii) senior in all respects to all other
               classes and series of capital stock of the Company. PIK dividends
               will be payable quarterly whether or not declared by the Board of
               Directors. New Preferred and Existing Preferred will be subject
               to automatic conversion at the then applicable conversion price
               if the weighted average closing sale price of the Common Stock on
               its principal trading market (provided such market is NASDAQ-NMS
               or a national securities exchange) during any period of six
               calendar months is at least $7.50. In addition, commencing seven
               (7) years following the issuance of the New Preferred, the cash
               or PIK dividend will cease to be payable and cease to cumulate if
               the weighted average closing sale price of the Common Stock on
               its principal trading market (provided such market is NASDAQ-NMS
               or a national securities exchange) during any period of six
               calendar months (commencing after the expiration of such
               seven-year period) is at least $6.00; provided, that any
               cessation of PIK dividends in accordance with this provision will
               likewise apply to the Existing Preferred. In addition, the New
               Preferred will be callable by the Company at face plus
               accumulated dividends

<PAGE>   2

               commencing five years following its issuance (i.e., similar
               mandatory redemption provision as provided for in Existing
               Preferred), subject to the right of holders to convert prior to
               redemption. The New Preferred will have a liquidation preference
               over junior capital stock (to be defined) equal to the original
               purchase price of the New Preferred plus all declared and unpaid
               dividends plus all PIK dividends (whether or not declared). Terms
               of the New Preferred will be designed to ensure that it qualifies
               as "permanent equity" for NASDAQ listing purposes (provided, that
               Investor shall not be required to agree to any term inconsistent
               with those described in this LOI). The conversion price of the
               New Preferred will be subject to weighted average anti-dilution
               adjustment if the Company issues additional equity securities
               (other than customary "permitted issuances" to be specified,
               including issuance and exercise of the financing and performance
               warrants to be issued to Investor in connection with this
               transaction) at a purchase price less than the then applicable
               conversion price, as well as customary anti-dilution adjustment
               in the event of stock splits, stock dividends and the like.
               Existing registration rights in favor of Existing Preferred to
               remain in place and apply to recapitalized Existing Preferred,
               and Investor will obtain same registration rights on a pari passu
               basis.

               (b) Financing warrants and performance warrants as follows (all
               warrants to contain anti-dilution protection substantially
               identical to the New Preferred):

                    (i) Financing warrants to purchase 3,270,000 shares at $4.50
               per share (150% premium to conversion price of the New Preferred)
               with a term of seven years following closing and financing
               warrants to purchase 4,200,000 shares at the 30-day average
               trading price preceding the closing (but not less than $2.50 or
               greater than $3.00 per share) with a term of six years following
               closing. At Investor's election, up to one-half of the financing
               warrants may be issued as management warrants to members of
               management that Investor designates post-closing; and

                    (ii) Performance warrants to purchase 3,270,000 shares at
               $6.00 per share (200% premium to conversion price of the New
               Preferred). Performance warrants will have a term of eight years
               following closing.

          3.   USES. The cash invested will be used as follows: (a) up to $2.5
               million will be used to redeem shares of Existing Preferred
               (together with a corresponding amount of financing warrants
               previously issued to the holders whose shares are redeemed) with
               a face amount of $6 million, and (b) the remaining $23.5 million
               will be used by the Company for general working capital purposes.
               Investor will satisfy itself during the Due Diligence Period (as
               defined in Section 8) as to the sufficiency of agreements or
               arrangements to ensure the redemption referred to in clause (a)
               above; if Investor is not satisfied by the end of such period and
               elects not to proceed to a definitive agreement on that basis, it
               shall so notify the Company in writing and the failure of the
               transaction to proceed shall be considered a "No Fault
               Termination" for purposes of this LOI. If Investor does not so
               notify the Company in writing and elects to proceeds toward
               definitive documentation, it will not be a condition to
               Investor's obligation to sign definitive




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               documentation or close the transaction contemplated thereby that
               holders of Existing Preferred agree to the foregoing redemption.
               To the extent funds are not used for such redemption, they shall
               remain in the Company and be used for general working capital
               purposes.

          4.   RECAPITALIZATION OF EXISTING PREFERRED. The shares of Existing
               Preferred not redeemed will be recapitalized into new series of
               securities (which will also be classified as permanent equity) in
               the same principal amount (including accrued PIK dividends) as
               the Existing Preferred, or amended, as follows:

               a. approximately $4 million in face amount of securities with
               terms paralleling the New Preferred, including conversion price
               of $3.00 per share (subject to customary anti-dilution
               provisions, including weighted average anti-dilution protection
               for issuances below $3.00 per share); and

               b. approximately $10 million (or approximately $16 million, if
               the $6 million of Existing Preferred is not redeemed) in face
               amount of securities with terms paralleling the New Preferred,
               except conversion price of $6.00 per share (subject to customary
               anti-dilution provisions, including weighted average
               anti-dilution protection for issuances below $3.00 per share).

               In addition, existing outstanding warrants (financing warrants
               and current management warrants) will remain outstanding in
               accordance with their present terms. If $6 million of Existing
               Preferred is redeemed, the financing warrants corresponding to
               the $6 million of Existing Preferred (i.e., the same proportion
               of such financing warrants as the ratio of $6 million bears to
               the total face amount of the Existing Preferred, including PIK
               dividends) retired pursuant to paragraph 3(a) above will be
               cancelled for no additional consideration. Assuming, however,
               that Investor does not give a No Fault Termination notice
               pursuant to Section 3 above, such cancellation will not be a
               condition to Investor's obligation to sign definitive
               documentation or close the transaction contemplated thereby.

               Existing Preferred will be subject to automatic conversion,
               cessation of dividend rights and call features paralleling the
               New Preferred, as described in Section 2 above.

          5.   CONTROL. It is a fundamental investment criteria for Investor to
               obtain control of the Company. Consequently, the securities
               issued to Investor will have terms that ensure that, on a
               fully-diluted and fully converted basis, Investor will own more
               than 50% of the equity of the Company. Further, the New Preferred
               issued to Investor will vote on an as-if-converted basis (except
               with respect to the directors elected by a series or class of
               capital stock voting as a separate class) and will provide for
               designated seats on the Board of Directors of the Company, which
               seats will be elected by Investor's preferred stock voting as a
               separate class. In addition, if necessary to ensure control,
               mechanisms (voting trust, etc.) will be implemented as necessary
               with the consent of counterparty shareholders selected by
               Investor to provide Investor




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<PAGE>   4


               with 51% or greater voting control at all times. Investor will
               satisfy itself during the Due Diligence Period as to its
               ownership or control (assuming completion of the transaction) of
               more than 50% of the equity of the Company as hereinabove
               provided, or, in lieu thereof, as to the sufficiency of
               agreements or commitments relating to the foregoing mechanisms
               (voting trusts, etc.); if Investor is not satisfied by the end of
               such period and elects not to proceed to a definitive agreement
               on that basis, it shall so notify the Company in writing and the
               failure of the transaction to proceed shall be considered a "No
               Fault Termination" for purposes of this LOI. If Investor does not
               so notify the Company in writing and elects to proceeds toward
               definitive documentation, it will not be a condition to
               Investor's obligation to sign definitive documentation or close
               the transaction contemplated thereby that Investor achieve such
               greater than 50% control.

               The holders of Existing Preferred will be entitled, voting as
               separate class(es), to elect one member of the Board of
               Directors. The holders of Common Stock will be entitled, voting
               as a separate class, to elect one member of the Board of
               Directors; provided, however, that the Company and Investor shall
               each seek to ensure that the composition of the Board after the
               closing will be such as to comply with the NASD's qualitative
               listing standards for inclusion in NASDAQ (i.e., composition of
               the audit committee and similar Board committee qualitative
               criteria); provided, that the foregoing provision shall not be
               construed as a covenant to maintain the Company's status as a
               listed or publicly reporting company.

               At the closing of the transaction, the Board of Directors of the
               Company will arrange for a sufficient number of directors to
               resign and/or expand the size of the Board such that Investor
               will be able to designate a number of directors consistent with
               its voting interest in the Company at that time and the
               immediately preceding paragraph.

               In connection with any proposed related party transactions, the
               Board of Directors will employ customary public company
               procedures to review and approve the same (establishment of
               committee of disinterested directors, etc.).

          6.   EARNEST MONEY. Upon execution of this LOI, Investor will post a
               $500,000 earnest money deposit to be held in a trust account of
               the Company's counsel, Sidley & Austin, with interest for the
               benefit of the party entitled to the deposit. Terms governing the
               deposit will be set forth in an escrow agreement executed by the
               parties and Sidley & Austin simultaneously with the execution and
               delivery of this LOI. If Investor gives written notice that it
               elects to proceed following the Due Diligence Period, it will
               post an additional $500,000 into the earnest money deposit as a
               condition to moving forward, to be held subject to such escrow on
               the same terms and conditions as the initial deposit.




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<PAGE>   5


          7.   DEFINITIVE DOCUMENTATION; STOCKHOLDER LOCK-UPS. If Investor
               elects in writing to proceed toward definitive documentation
               after the Due Diligence Period, the parties will promptly proceed
               in good faith to negotiate and execute within 15 business days
               following the end of the Due Diligence Period (the "Negotiation
               Period") a definitive agreement containing the terms set forth in
               this LOI and such other customary terms and conditions as are
               appropriate and reasonable for a transaction of this type,
               including maintenance of the Company's current D&O insurance for
               at least three (3) years after the closing, subject to a cap on
               premium expense of 250% of the current premium expense (the
               "Definitive Agreement"). A condition to the Company's obligation
               to negotiate and sign the Definitive Agreement will be the
               demonstration to the reasonable satisfaction of the Board of
               Directors of the Company that Investor has committed capital
               sufficient to complete the transactions set forth herein, which
               Investor agrees to provide to the Company on a confidential basis
               during the Due Diligence Period. The Definitive Agreement will
               contain standard and customary mutual representations and
               warranties and indemnification provisions for a control
               investment transaction. As a condition to Investor's obligation
               to proceed to definitive documentation and to close, among other
               things, there shall be no material adverse change in the
               business, properties, operations, condition (financial or
               otherwise), prospects, assets or liabilities of the Company or
               its business (for this purpose, excluding any ordinary business
               risk associated with media and other business projects in
               progress that have been identified by the Company to Investor,
               whether or not the result of such risk materializing in a
               particular instance is materially adverse) (a "MAC") after the
               date of this LOI. Conditions to the Company's obligations to
               close shall be receipt of all necessary SEC approvals,
               shareholder votes required under California law and NASD rules
               and regulations, and compliance by Investor and the Company with
               Hart-Scott-Rodino requirements, if applicable. The Company agrees
               that it will obtain a fairness opinion to the extent that its
               Board of Directors deems that to be advisable before the end of
               the Due Diligence Period, such that obtaining such an opinion
               shall not constitute a condition to the Company's obligation to
               move forward towards a Definitive Agreement or close the
               transaction contemplated by the Definitive Agreement; if the
               Company advises Investor prior to the end of the Due Diligence
               Period that it has been unable to obtain an affirmative fairness
               opinion for this transaction, then the Company will be obligated
               to reimburse Investor for its actual out-of-pocket expenses in
               connection with this transaction (including, without limitation,
               attorney's fees and costs), but such event shall otherwise be
               considered a No Fault Termination for purposes of this LOI.
               Assuming the closing of the transactions contemplated by the
               Definitive Agreement, Investor's deposit will be applied to the
               purchase price for its investment at the closing.

               Simultaneously with the execution of this LOI, but subject to
               constraints imposed by SEC and NASD rules and regulations,
               Investor shall use commercially reasonable efforts to cause
               certain of the Company's current stockholders holding at least a
               majority of the voting power necessary to




                                      -5-
<PAGE>   6


               approve all aspects of the proposed transaction to provide
               customary voting lock-up agreements to Investor, whereby, among
               other things, such stockholders will agree to vote all of their
               shares in favor of the approval of the proposed transaction; and
               the Company will cooperate with Investor in this regard. Investor
               will satisfy itself during the Due Diligence Period as to the
               adequacy of the voting lock-up agreements or other arrangements
               that can be obtained, if any; if Investor is not satisfied by the
               end of such period and elects not to proceed towards a Definitive
               Agreement on that basis, it shall so notify the Company in
               writing and the failure of the transaction to proceed shall be
               considered a "No Fault Termination" for purposes of this LOI.
               Risk of breach of these voting agreements or other arrangements
               by the counterparty stockholders shall be borne by Investor.

               The Definitive Agreement will reflect that it is not a condition
               to Investor's obligation to close that the Company's current bank
               facility with Chase Bank be rolled over at the closing or
               otherwise refinanced with Chase Bank at the closing. Among other
               things, Investor will covenant in the Definitive Agreement to
               provide information concerning itself and its owners and
               controlling persons as required by SEC disclosure rules and
               NASDAQ requirements.

          8.   DUE DILIGENCE. The terms outlined in this LOI are subject to the
               completion of due diligence by Investor to its satisfaction in
               its sole discretion. Subject to scheduling and the timely
               provision of the Company's information, due diligence will be
               completed on or before September 26, 2000 (the period from the
               date of this LOI through September 26, 2000 being the "Due
               Diligence Period"), and at such time Investor will either notify
               the Company in writing that it has satisfied itself with respect
               to due diligence (its "Due Diligence Condition") and each other
               matter that may be the subject of a No Fault Termination notice
               under the terms of this LOI (collectively, but excluding the Due
               Diligence Condition, "No Fault Conditions"), or will give written
               notice to the Company that it is not satisfied with the results
               of its due diligence or a Due Diligence Condition and thereby
               terminate its and the Company's obligations hereunder (except as
               otherwise expressly provided herein).

               Between the date of this LOI and the closing, Investor's
               attorneys, accountants, representatives and other agents shall be
               given full access to the accounting books and other business and
               financial records, reports and documents of the Company and its
               business, including corporate records, SEC filings and tax
               returns. Such due diligence will also include the inspection and
               examination of the Company's facilities. The officers and
               management of the Company agree to cooperate fully with
               Investor's representatives and agents and to make themselves
               available to the extent necessary to complete the due diligence
               process and the closing of the transaction.

          9.   BREAK-UP FEES/DEPOSIT. The following provisions indicate the
               parties' respective obligations to one another in the event that
               the transaction




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<PAGE>   7


               contemplated by this LOI does not close, in each case as a result
               of the indicated events or circumstances occurring or prevailing
               during the time period specified. Except as so indicated,
               termination of this LOI or the Definitive Agreement as a result
               of such events or circumstances shall terminate all rights and
               obligations of the parties hereunder.

               9.1  DURING THE DUE DILIGENCE PERIOD:

                    (1) Investor provides written notice during the Due
               Diligence Period that it is not satisfied with and is not waiving
               its Due Diligence Condition or a No Fault Condition, for any
               reason other than a MAC: Deposit promptly refunded to Investor;
               or

                    (2) Investor provides written notice during the Due
               Diligence Period that it is not satisfied with and is not waiving
               its Due Diligence Condition, due to a MAC specified in such
               written notice: Deposit promptly refunded to Investor; or

                    (3) The Company's Board of Directors invokes the "fiduciary
               duty" exception provided in paragraph 10 and the transaction
               contemplated by this LOI is abandoned during the Due Diligence
               Period for any reason: (a) Deposit promptly refunded to Investor,
               (b) Company obligated to pay a $1,150,000 fee to Investor upon
               the closing of a Sale Transaction (as defined in paragraph 10
               below) involving a sale of more than twenty-five percent (25%) of
               the equity or voting power of the Company or a sale of all or any
               substantial part of the assets of the Company other than in the
               ordinary course of business, in a single transaction or series of
               related transaction (an "Alternative Transaction") during the
               twelve month period following the end of the Due Diligence
               Period. In the event that clause (1) and/or (2) and/or (4) of
               this Section 9.1, on the one hand, and this clause (3), on the
               other hand, are each applicable, then this clause (3) shall
               control; or

                    (4) The Company breaches this LOI and the transaction
               contemplated by this LOI is abandoned during the Due Diligence
               Period for any reason: (a) Deposit promptly refunded to Investor
               and (b) Company obligated to pay a $150,000 fee to Investor upon
               the closing of an Alternative Transaction during the twelve month
               period following the end of the Due Diligence Period. In the
               event that clause (1) and/or (2) of this Section 9.1, on the one
               hand, and this clause (4), on the other hand, are each
               applicable, then this clause (4) shall control.

               9.2  DURING THE NEGOTIATION PERIOD:

                    (1) Investor in breach and as a result a Definitive
               Agreement is not signed: Deposit retained by the Company; or

                    (2) Investor provides written notice during the Negotiation
               Period that it will not proceed due to a MAC specified in such
               written notice: (a) Deposit




                                      -7-
<PAGE>   8


               promptly refunded to Investor and (b) Company obligated to pay a
               $150,000 fee to Investor, upon the closing of an Alternative
               Transaction during the twelve month period following the date of
               Investor's written notice; or

                    (3) The Company's Board of Directors invokes the "fiduciary
               duty" exception provided in paragraph 10 and the transaction
               contemplated by this LOI is abandoned during the Negotiation
               Period for any reason: (a) Deposit promptly refunded to Investor
               and (b) same provision as (2)(b) immediately above (except that
               reference to $150,000 shall be $1,300,000 and references to the
               date of Investor's written notice shall be to the end of the
               Negotiation Period). In the event that clause (2) and/or (4) of
               this Section 9.2, on the one hand, and this clause (3), on the
               other hand, are each applicable, then this clause (3) shall
               control; or

                    (4) The Company breaches this LOI and the transaction
               contemplated by this LOI is abandoned during the Negotiation
               Period for any reason: (a) Deposit promptly refunded to Investor,
               (b) the Company will promptly pay Investor a $500,000 fee, (c)
               the Company will pay an additional $800,000 fee to Investor upon
               the closing of an Alternative Transaction during the twelve month
               period following the termination of the Negotiation Period.

               9.3  AFTER EXECUTION OF A DEFINITIVE AGREEMENT AND BEFORE
                    CLOSING:

                    (1) Investor in breach: Deposit retained by the Company; or

                    (2) Investor provides written notice that it is terminating
               the Definitive Agreement due to a MAC specified in such written
               notice: (a) Deposit promptly refunded to Investor and (b) same
               provision as clause (2)(b) of Section 9.2 above (except that
               reference to $150,000 shall be $300,000); or

                    (3) The Company's Board of Directors invokes the "fiduciary
               duty" exception provided in paragraph 10 prior to the initial
               mailing of the Company's proxy statement for the transaction:
               Same provisions as clause (3) of Section 9.2 above (except that
               references to the end of the negotiation period shall be to the
               date on which written notice of termination of the Definitive
               Agreement is given). After such mailing, no "fiduciary duty"
               exception will be applicable. In the event that clause (2) and/or
               (4) of this Section 9.3, on the one hand, and this clause (3), on
               the other hand, are each applicable, then this clause (3) shall
               control; or

                    (4) The Company breaches this LOI and the Definitive
               Agreement is terminated: Same provisions as clause (4) of Section
               9.2 (except that references to the end of the Negotiation Period
               shall be to the date on which written notice of termination of
               the Definitive Agreement is given).

               If the transaction contemplated hereby fails to close for any
               reason not specifically identified above, Investor's deposit
               shall be promptly refunded to Investor and the parties' rights
               and obligations to one another shall otherwise


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<PAGE>   9


               (except as expressly provided herein to the contrary) terminate.

               For the avoidance of doubt, it is the parties' intention that no
               cash fee (for this purpose, excluding return of Investor's
               deposit) shall be payable if the reason that a Definitive
               Agreement for a transaction is not signed is a failure of any No
               Fault Condition.

               Once the Definitive Agreement is signed, Investor and the Company
               shall be obligated to complete the transaction set forth herein
               and therein, subject to the closing conditions set forth therein
               and to the provisions of Section 10 hereof. The Definitive
               Agreement will contain break-up fee and exclusivity provisions
               substantially similar to those contained in this LOI, as
               appropriate and as indicated above.

               Notwithstanding anything in this LOI to the contrary, the fees
               (including, without limitation, retention or refund of Investor's
               deposit) provided for in this paragraph 9 are intended by the
               parties as reasonable compensation for the resources to be
               devoted by them and the financial commitments being made by them
               to complete the investment transaction, and not as a penalty, and
               will constitute the sole and exclusive legal and/or equitable
               remedy of the parties for a breach of this LOI and/or the
               Definitive Agreement by either of them and for the resulting
               failure to execute, deliver and close a Definitive Agreement; and
               each party hereby waives and relinquishes any right to obtain or
               prosecute any other legal and/or equitable right against or from
               the other.

               Notwithstanding anything to the contrary in this LOI, a
               termination of this LOI for any reason prior the execution of a
               Definitive Agreement shall not affect the provisions of
               paragraphs 6 and 9 hereof, which shall continue to apply and be
               binding on the parties hereto in accordance with their terms.

               For purposes of paragraphs 9.1 - 9.3 (inclusive), the following
               shall not be deemed MACs: (a) shareholder litigation against the
               transaction contemplated by this LOI; (b) continued financial and
               cash flow performance consistent with (or better than) that
               reported by the Company in recent financial statements; (c)
               resignations of key executives; and (d) acceleration by the
               Company's principal bank lender of its credit facility with the
               Company to the closing date of the transaction contemplated by
               this LOI (provided, that such acceleration does not result in
               foreclosure on assets or the exercise of other remedies by such
               lender). In addition, for the avoidance of doubt, failure to
               obtain the requisite shareholder approval of the transaction
               contemplated by this LOI at the shareholders meeting called for
               that purpose, and a court-imposed injunction against the
               consummation of such transaction (in each case, provided that the
               parties are not in breach of this LOI or the Definitive
               Agreement, as the case may be), will result in a prompt refund of
               Investor's deposit but will otherwise be treated as the failure
               of a No Fault Condition hereunder.




                                      -9-
<PAGE>   10


          10.  EXCLUSIVITY. In consideration of the resources to be committed by
               Investor and its representatives and agents and the earnest money
               deposit referred to above, from the date of execution of this LOI
               until the expiration of the Due Diligence Period, or, if Investor
               indicates in writing that it is satisfied with or waives the Due
               Diligence Conditions, until the execution of the Definitive
               Agreement, neither the Company nor any of its officers, directors
               or other agents shall, directly or indirectly, through any
               representative or otherwise, solicit or entertain offers from,
               negotiate with or in any manner encourage, discuss, accept,
               consider or assist any proposal of any other person relating to
               the acquisition of the Company in whole or in part, or any
               material investment transaction involving the Company, whether
               through direct purchase, merger, consolidation or business
               combination or otherwise, other than the sale of products or
               services in the ordinary course (each of the foregoing is
               referred to as a "Sale Transaction"), except and in each instance
               to the extent that the Board of Directors of the Company
               following consultation with its counsel believes that it must
               take such action(s) in order to avoid a breach of its fiduciary
               obligations to the Company's shareholders. Neither the provisions
               of this LOI nor the fact that a transaction is being discussed
               may be disclosed to any person without the express consent of the
               parties hereto, except as may be required by applicable law (in
               which case the disclosing party shall reasonably consult with the
               other party prior to disclosure to the extent reasonably
               practicable).

          11.  INTERIM OPERATIONS. From and after the date of this LOI, the
               Company's business will be operated in the normal course
               consistent with reasonable commercial practices prior to closing.
               Among other things, the Company will not make any distribution of
               stock, pay any dividends, sell or acquire any assets other than
               in the ordinary course of business and in a manner consistent
               with reasonable business practices, or change any aspect of
               officer or director compensation or enter into or amend and
               related party transaction without the prior consent of Investor.

          12.  GENERAL. If any term or other provision of this LOI is invalid,
               illegal or incapable of being enforced by any rule of law or
               public policy, all other conditions and provisions of this LOI
               shall nevertheless remain in full force and effect. Each party
               represents to the other that this LOI has been approved by its
               Board of Directors or other governing body and, as to Investor,
               by all required member action. The LOI constitutes the entire
               agreement of the parties and supersedes all prior agreements and
               undertakings, both written and oral, between the parties, or any
               of them, with respect to the subject matter hereof (except with
               respect to the confidentiality agreement previously signed by
               Investor in favor of the Company, which shall continue to apply
               in accordance with its terms). This LOI shall bind and inure to
               the benefit of the parties hereto and their respective successors
               and assigns, but shall not be assignable by any party hereto
               without the prior written consent of the other parties (except
               that Investor may permit co-investors to participate on the same
               terms as Investor, provided that at least a majority of the
               investment contemplated hereby is controlled by Investor). This
               LOI shall be governed




                                      -10-
<PAGE>   11


               by and construed in accordance with the laws of the State of
               California without regard to rules respecting conflicts of law.
               In any proceeding to enforce this LOI, the prevailing party shall
               be entitled to recover, in addition to other remedies, its
               attorney's fees and costs of proceeding, as awarded by the
               arbitrator(s). Any dispute pursuant to this LOI (including,
               without limitation, any dispute concerning whether a party is
               proceeding in good faith to negotiate and execute the Definitive
               Agreement as provided in paragraph 7 hereof) shall be resolved by
               binding, mandatory arbitration in Los Angeles, California under
               the auspices of the American Arbitration Association using
               commercial arbitration rules and procedures.




                                      -11-
<PAGE>   12


         IN WITNESS WHEREOF, Investor and the Company have each caused this LOI
to be executed as of the date indicated below by their respective officers and
representatives thereunto duly authorized.


         Date: August 24, 2000              CLASSIC MEDIA LLC


                                            By: /s/ ERIC ELLENBOGEN
                                               ---------------------------------
                                            Name: Eric Ellenbogen
                                            Its:  Chief Executive Officer and
                                                  President




         Date: August 24, 2000              THE HARVEY ENTERTAINMENT
                                            COMPANY


                                            By: /s/ ROGER A. BURLAGE
                                               ---------------------------------
                                            Name: Roger A. Burlage
                                            Its:  Chairman and Chief Executive
                                                  Officer





                                      -12-
</TEXT>
</DOCUMENT>
