Document:

NONQUALIFIED STOCK OPTION AGREEMENT

     NONQUALIFIED  STOCK OPTION  AGREEMENT,  dated as of August 9, 2000,  by and
between, Empyrean Bioscience,  Inc., a Wyoming corporation (the "Company"),  and
International Bioscience Corporation, a Florida corporation (the "Optionee").

                                  WITNESSETH:

     WHEREAS,  the  Company  and the  Optionee  are  parties to a Joint  Venture
Agreement dated August 9, 2000 which  contemplates  that the Company will, among
other  matters  and in order to  induce  the  Optionee  to enter  into the Joint
Venture Agreement,  issue to the Optionee an option to acquire certain shares of
the Company's  Common Stock, no par value, on the terms and conditions set forth
in this Agreement;

     NOW,  THEREFORE,  in  consideration  of the  premises  and  of  the  mutual
agreements contained in this Agreement, the parties hereto agree as follows:

     1.  Definitions.  As used in this  Agreement,  the following terms have the
meanings set forth below:

         "Act" shall mean the Securities Act of 1933, as amended.

         "Affiliate"  when used with  reference  to any  Person,  shall mean any
other Person that directly,  or indirectly  through one or more  intermediaries,
controls,  is  controlled  by,  or is under  common  control  with,  the  Person
specified.

         "Board" shall mean the board of directors of the Company.

         "Common Stock" shall mean the shares of Common Stock of the Company, no
par value.

         "Contemplated  Agreements" shall mean the following agreements dated as
of August 9, 2000: (i) the Trademark  License  Agreement from the Company to the
Optionee; (ii) the Trademark License Agreement from the Company to IBC-Empyrean,
L.L.C.;  (iii) the License Agreement from the Optionee to the Company;  (iv) the
Trademark  License  Agreement from the Optionee to the Company;  (v) the License
Agreement from the Optionee to IBC-Empyrean,  L.L.C.; (vi) the Trademark License
Agreement  from the Optionee to  IBC-Empyrean,  L.L.C.;  (vii) the Joint Venture
Agreement between the Company and the Optionee (the "Joint Venture  Agreement");
(viii) the Limited Liability Company Agreement of IBC-Empyrean, L.L.C.; (ix) the
Put Agreement between the Company and the Optionee; and (x) the Voting Agreement
between the Optionee and Lawrence D. Bain (the "Voting Agreement").

         "Derivative  Products" shall mean products hereinafter developed by the
Optionee  having an  effective  amount of  Formulation  therein,  and being of a
different  product  category  than  those  Licensed  Products   currently  being
manufactured.
<PAGE>
         "Exercise  Price"  shall  have the  meaning  ascribed  to such  term in
Section 2 of this Agreement.

         "Fair Market  Value" of a share of Common Stock on any date shall mean,
(i) if the Common Stock is listed on a national stock  exchange,  the officially
quoted closing price on such stock exchange,  (ii) if the Common Stock is listed
on the NASDAQ National  Market,  the officially  quoted closing price on NASDAQ,
(iii) if the Common  Stock is listed on NASDAQ but not on the  National  Market,
the average of the closing bid and asked prices reported by NASDAQ, in each case
on the date as of which the value is to be determined  (or if such date is not a
trading  day, as of the  preceding  trading  day),  (iv) if the Common  Stock is
listed on an over-the-counter  market, the average of the last bid prices on the
date as of which the value is to be determined (or if such date is not a trading
day, as of the  preceding  trading day) or (v) if the Common Stock is not listed
on either a national stock exchange or NASDAQ,  the fair market value determined
in good faith by the Board.

         "Formulation"  shall  mean  the  proprietary   formulation   (including
manufacturing  technology and processes) comprising  Benzalkonium Chloride as an
active  ingredient  with  Octoxynol 9 (and  others)  invented and created by Dr.
David Thornburgh and exclusively owned by the Optionee known as the GEDA line of
products.

         "GEDA  Plus  Product"  shall  mean  the   spermicide  and   microbicide
contraceptive gel product embodying the Formulation presently being developed by
the  Optionee,  also  known  as the  "Gel  Product",  designed  to  prevent  the
transmission of sexually  transmitted  diseases  including,  but not limited to,
gonorrhea,  chlamydia, syphilis, Trichomonas, herpes I and II and HIV, and which
is presently undergoing the appropriate and necessary United States governmental
regulatory compliance process to permit the Company to include such product as a
Licensed Product.

         "Licensed  Products" shall mean products having an effective  amount of
the  Formulation  therein  and  having all  necessary  government  approval  for
commercialization,  including,  but not limited to, the Lotion Products, the Gel
Product and any Derivative Products hereinafter developed by the Optionee.

         "Lotion  Products"  (also  known as GEDA  Lotion)  shall  mean the hand
sanitizing  lotion  presently  being  manufactured  for the  Company by Canadian
Custom  Packaging and sold by the Company as a Licensed  Product,  and presently
being  marketed by the Company under  appropriate  and  necessary  United States
governmental regulatory compliance.

         "Option" shall have the meaning set forth in Section 2 hereof.

         "Person"  shall  mean  any  individual,   limited  liability   company,
partnership, corporation, group, trust or other legal entity.

     2.  Grant  of  Option;  Option  Price.  On the  terms  and  subject  to the
conditions  of this  Agreement,  the Company  hereby  grants to the Optionee the
option (the  "Option") to purchase an  aggregate  of 2,226,000  shares of Common

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<PAGE>
Stock  (the  "Option  Shares")  at an  exercise  price  of $.83 per  share  (the
"Exercise Price").

     3. Term.  The term of the Option (the "Option  Term") shall commence on the
date hereof and expire on the tenth  anniversary of the date hereof,  unless the
Option shall  theretofore  have been  terminated in accordance with the terms of
this Agreement.

     4.  Vesting and  Exercisability.  The right to acquire the shares of Common
Stock (the "Shares") represented by this Option shall vest as follows, and shall
otherwise be exercisable in accordance with the following terms and conditions:

     (i)  1,000,000 of the Option  Shares may be  purchased  upon receipt of the
pre-IND number from the Food and Drug Administration for the GEDA Plus Product;

     (ii)  1,000,000 of the Option Shares may be purchased  upon delivery of the
towlettes  presently  being  manufactured  with  agreed  upon  claims for retail
distribution; and

     (iii) the remaining 226,000 Option Shares may be immediately purchased upon
execution of the Contemplated Agreements.

     5. Procedure for Exercise.

          (a) The  Option  may be  exercised  with  respect  to Shares  that are
exercisable,  from time to time,  in whole or in part (but for the  purchase  of
whole Shares only), by delivery of a written notice (the "Exercise Notice") from
the Optionee to the Company at its principal  executive  office,  which Exercise
Notice shall:

               (i) state that the Optionee elects to exercise the Option;

               (ii)  specify  the  number of Shares  with  respect  to which the
Optionee is exercising the Option;

               (iii) include any  representations of the Optionee required under
Section 7 hereof;

               (iv) state the date upon which the Optionee desires to consummate
the purchase of such Shares (which date must be prior to the  termination of the
Option);

               (v) state the payment method for the exercise of the Option; and

               (vi)  comply  with such  further  provisions  as the  Company may
reasonably require.

          (b) Payment of the  Exercise  Price for the Shares to be  purchased on
the exercise of the Option  shall be made by cash or check  payable to the order
of the Company.  Notwithstanding  the  foregoing,  the  Optionee  shall have the

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<PAGE>
right, subject to the Company's approval (in its sole discretion), to receive in
lieu of the Shares an amount in cash from the  Company  equal to the  difference
between the Fair Market Value of the Shares to be received  upon the exercise of
the Option and the Exercise Price therefore.

          (c) The  Company  shall be  entitled  to  require  as a  condition  of
delivery  of the Shares that the  Optionee  agree to remit when due an amount in
cash sufficient to satisfy all current or estimated  future  federal,  state and
local withholding and employment taxes relating thereto.

     6. Rights as a  Stockholder.  The Optionee's  rights as a stockholder  upon
exercise of the Option Shares shall be subject to the Voting Agreement.

     7. Registration of Shares and Additional Provisions Related to Exercise.

          (a) The  registration of the Common Stock underlying the Option Shares
and the  registration  rights of the  Optionee  are  subject to Section 7 of the
Joint Venture Agreement.

          (b) In the event of the exercise of the Option at a time when there is
not in effect a  registration  statement  under the  Securities  Act of 1933, as
amended (the "Act"),  relating to the Shares, the Optionee hereby represents and
warrants,  and by virtue of such  exercise  shall be  deemed  to  represent  and
warrant,  to the Company that the Shares are being acquired for investment  only
and not with a view to the  distribution  thereof except in compliance with such
Act,   and  the   Optionee   shall   provide  the  Company   with  such  further
representations  and warranties as the Board may reasonably  require in order to
ensure compliance with applicable  federal and state securities,  "blue sky" and
other laws. No Shares shall be purchased  upon the exercise of the Option unless
and  until  the  Company  and/or  the  Optionee  shall  have  complied  with all
applicable  federal  or  state   registration,   listing  and/or   qualification
requirements  and all other  requirements  of law or of any regulatory  agencies
having jurisdiction.

     8.  Restriction on Transfer.  The Option may not be  transferred,  pledged,
assigned,  hypothecated or otherwise  disposed of in any way by the Optionee and
may be  exercised  only by the  Optionee.  The  Option  shall not be  subject to
execution,  attachment or similar process. Any attempted  assignment,  transfer,
pledge,  hypothecation  or  other  disposition  of the  Option  contrary  to the
provisions hereof, and the levy of any execution,  attachment or similar process
upon the Option, shall be null and void and without effect.

     9. Adjustment.

          (a) If the Shares are changed,  or the number of Shares outstanding is
increased or diminished,  by reason of a stock split, reverse stock split, stock
dividend,  recapitalization  or similar  corporate  event or  converted  into or
exchanged for cash or other securities as a result of a merger, consolidation or
reorganization  or a dividend in cash or property  (other than an ordinary  cash
dividend after the Company has become public) is made to the stockholders of the
Company, the Board shall make such adjustments in the number and class of shares
of stock or other securities  subject to the Option, and such adjustments to the
exercise  price of  outstanding  Options as it  determines  to be equitable  and
appropriate in its good faith judgment under the circumstances.  In the event of

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<PAGE>
a merger, consolidation, corporate reorganization or a recapitalization to which
the Company is a party that involves any change in the number or class of shares
of capital  stock of the Company  outstanding,  the Option shall  thereafter  be
exercisable  only  for  and to the  extent  of the  kind  and  amount  of  cash,
securities and/or other property, or the cash equivalent thereof,  receivable as
a result of such  event by the holder of a number of Shares for which the Option
could have been exercised immediately prior to such event (taking account of all
Shares issuable under the Option, whether or not then exercisable).

          (b) The following  rules shall apply in  connection  with Section 9(a)
above:

               (i) no fractional  shares shall be issued as a result of any such
adjustment,  and any fractional shares resulting from the computations  pursuant
to Section 9(a) shall be eliminated without consideration from the Option;

               (ii) no adjustment shall be made for the issuance to stockholders
of rights to subscribe for additional Shares or other securities; and

               (iii) any  adjustments  referred to in Section 9(a) shall be made
by the Board in its reasonable discretion and shall be conclusive and binding on
the Optionee.

     10. Notices. All notices, claims, certificates, requests, demands and other
communications  hereunder  shall be in writing  and shall be deemed to have been
duly  given and  delivered  if  personally  delivered  or if sent by  nationally
recognized  overnight  courier by telecopy or by registered  or certified  mail,
return receipt requested and postage prepaid, addressed as follows:

          (a) if to the Company, at:

              Empyrean Bioscience, Inc.
              23800 Commerce Park Road, Suite A
              Cleveland, Ohio 44122
              Attention: Mr. Richard C. Adamany
              Facsimile No.: (216) 360-7909

              with a copy to:

              Kaye, Scholer, Fierman, Hays & Handler, LLP
              425 Park Avenue
              New York, New York 10022
              Attention: Richard H. Kronthal, Esq.
              Facsimile No.:  212-836-8689

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<PAGE>
          (b) if to the Optionee, at:

              International Bioscience Corporation
              777 South Flagler Drive
              Phillips Point Building
              East Tower, Suite 909
              West Palm Beach, Florida 33401
              Attn: Ms. Sara Gomez de Ferro
              Facsimile No.: (561) 366-8905

              with a copy to:

              Holtzman, Krinzman, Equels & Furia
              2601 South Bayshore Drive, Suite 600
              Miami, Florida 33133
              Attn: Mr. Arthur J. Furia, Esq.
              Facsimile No.: (305) 859-9996

Any such notice or  communication  shall be deemed to have been  received (i) in
the case of personal delivery,  on the date of such delivery (or if such date is
not a business day, on the next  business day after the date sent),  (ii) in the
case of nationally-recognized  overnight courier, on the next business day after
the date sent, (iii) in the case of telecopy transmission,  when received (or if
not sent on a business day, on the next  business day after the date sent),  and
(iv) in the case of mailing,  on the third  business day  following  the date on
which the piece of mail containing such communication is posted.

     11.  Waiver  of  Breach.  The  waiver  by  either  party of a breach of any
provision  of this  Agreement  must be in  writing  and shall not  operate or be
construed as a waiver of any other or subsequent  breach.  Any of the provisions
of this Agreement may be waived only by an instrument in writing executed by the
party or parties whose rights are being waived.

     12.  Optionee's  Undertaking.  The Optionee  hereby agrees to take whatever
additional actions and execute whatever additional  documents the Company may in
its  reasonable  judgment  deem  necessary or advisable in order to carry out or
effect one or more of the  obligations or  restrictions  imposed on the Optionee
pursuant to the provisions of this Agreement.

     13. Amendment. This Agreement may not be amended, terminated,  suspended or
otherwise  modified  except  in a  written  instrument,  duly  executed  by both
parties.  Waivers of or amendments to this Agreement shall be binding as against
the Company only if approved by the Board.

     14.  Governing Law. (i) This Agreement  shall be governed by, and construed
in accordance with, the laws of the State of Florida regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.

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<PAGE>
               (ii) Except for actions  brought for wrongful  termination  or to
seek  termination of this Agreement,  if any  disagreement  arises regarding the
interpretation  of any points of the  Agreement  or any other  point not covered
herein or any claims for damages or specific performance, the disagreement, upon
request of either party hereto delivered in writing to the other party, shall be
resolved  by  arbitration  before a single  arbitrator  in  accordance  with the
commercial   rules  and  procedures  set  forth  by  the  American   Arbitration
Association.  The  prevailing  party  in such  action  or  arbitration  shall be
entitled to receive  from the other party a reasonable  sum for it's  attorneys'
fees and all other  reasonable  costs and  expenses  incurred  in such action or
arbitration.

               (iii) The venue of any  arbitration  between the parties  arising
from or related to this Agreement shall be in either  Miami-Dade  County or Palm
Beach County,  Florida. Any litigation arising from or related to this Agreement
shall  be  brought  exclusively  in an  appropriate  state or  federal  court in
Miami-Dade County or Palm Beach County, Florida, and the parties waive any right
to challenge such venue.

     15.   Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  and each such counterpart shall be deemed to be an original,  but
all such counterparts together shall constitute but one agreement.

     16. Entire Agreement.  This Agreement is the sole and complete statement of
the parties of their rights and  obligations  with respect to the subject matter
hereof.  This  Agreement is an integrated  agreement and replaces and supersedes
any and all previous obligations and agreements between the parties. The parties
hereto recognize and agree that no  representations or warranties have been made
except as set forth in this  Agreement.  Except as may  otherwise  be  expressly
provided herein,  by signing this Agreement the parties  expressly  release each
other from any and all existing  obligations  that pre-date this Agreement as if
such obligations have been fully performed and satisfied.

     17.  Severability.  In the event any provision of this  Agreement  shall be
held to be invalid,  illegal or unenforceable,  the remaining terms shall remain
in full force and effect,  to effectuate  this Agreement in accordance  with its
intent.  Headings,  title and subtitles of this Agreement are for convenience of
reference  only and are not to be  considered  in  construing  the terms of this
Agreement.

     18. Successors and Assigns.  This Agreement shall be binding upon and inure
to the  benefit  of the  parties  hereto  and their  respective  successors  and
assigns, subject to the limitations set forth in Section 8 hereof.

                     [Remainder of Page Intentionally Blank]

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<PAGE>
     IN WITNESS  WHEREOF,  the  parties  hereto do hereby  sign,  enter into and
acknowledge this  Nonqualified  Stock Option Agreement on the date first written
above.

                                   INTERNATIONAL BIOSCIENCE CORPORATION

                                   By:
                                       -----------------------------------------

                                   Title:
                                          --------------------------------------

                                   EMPYREAN BIOSCIENCE, INC.

                                   By:
                                       -----------------------------------------

                                   Title:
                                          --------------------------------------

                                       8<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

                                      -2-
<PAGE>   3

               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

                                      -3-
<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.

                                      -4-
<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

                                      -6-
<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

                                      -8-
<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-

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