HARVEY DEAL FALLS THROUGH ANIMATION FIRM SOUGHT $30 MILLION.

Byline: Jesse Hiestand Staff Writer

Disappearing like Casper the Friendly Ghost, the deal to bring $30 million to the cash-strapped Harvey Entertainment Co. has fallen through, the company said Wednesday.

The Los Angeles-based company, owner of branded characters including Casper and Richie Rich, said it called off the proposed preferred stock investment by New York investor Classic Media LLC because Classic Media insisted on reducing its offer while the deal was being negotiated over the past nine weeks.

``To come this far and have it not come to fruition is frustrating,'' said David C. Collins, Harvey Entertainment's New York-based investor relations counsel. ``We essentially lost valuable time.''

Classic Media officials did not return calls for comment Wednesday.

As it seeks out new partners or investors, Harvey Entertainment is planning a series of cost-cutting measures to conserve its cash reserves and reduce overhead.

So far there has been no indication any jobs will be affected, Collins said.

``That's possible - the management is looking at the total cost structure to figure out ways to reduce our costs,'' Collins said.

Harvey Entertainment's stock lost more than 18 percent in value in trading Wednesday on the Nasdaq exchange, falling 18.75 cents to 81.25 cents on volume of 167,800 shares.

Despite the turmoil, Harvey Entertainment is still churning out product. On Tuesday it released an all-new computer graphics animation feature, ``Casper's Haunted Christmas,'' through Universal Home Video. The movie coincides with the company's first national multimedia campaign to celebrate Casper's 60th birthday.

In August, Harvey Entertainment said it had received investment proposals from several companies. Weeks later, it signed a letter of intent with Classic Media.

Classic Media, headed by former Golden Books chief Eric Ellenbogen, is a new company engaged in managing entertainment properties. Investors in its proposed deal with Harvey Entertainment included Hollywood veterans Frank Biondi and Steve Tisch.

At the time, Ellenbogen said Harvey's character library perfectly complemented his company's focus on family and kids entertainment.

Under the original proposal, Classic Media planned to invest $26 million in cash and all outstanding stock of UPA Industries, Inc., owner of branded characters such as Mr. Magoo, in return for a new $30 million issue of Harvey Preferred Stock, convertible to common stock at $3 per share.

After completing due diligence, Classic Media reduced the conversion price to $2.85 and insisted on other terms that Harvey Entertainment rejected, Collins said.

On Tuesday, Harvey Entertainment's board of directors told management to keep the $1 million deposit it had received to go forward with the deal.

The Harvey Classic Character brands also include Baby Huey, Little Audrey, Wendy the Witch and others, along with a library of more than 150 movies and 165 television episodes.