EMPLOYMENT AGREEMENT

     This  Employment  Agreement is entered into as of the 19th day of December,
2006 by and  between  HARVEY  ELECTRONICS,  INC.,  a New York  corporation  (the
"Company"), and MARTIN W. McCLANAN ("Executive").

     In consideration of the mutual covenants  contained in this Agreement,  the
Company and Executive agree as follows:

     1. Employment. During the term of this Agreement (as defined in Section 2),
the Company shall employ Executive, and Executive hereby accepts such employment
by the Company,  in accordance  with the terms and  conditions set forth in this
Agreement.

     a) Position and Duties.  Executive  shall serve as Interim Chief  Executive
Officer and President of the Company or in such other position with the Company,
as the Board of  Directors  of the Company  shall,  from time to time,  specify.
Executive shall perform all duties,  services and responsibilities and have such
authority  and powers for,  and on behalf of, the Company as are  customary  and
appropriate  for such position  designated by, as are  established  from time to
time by, or in accordance with procedures established by, the Company's Board of
Directors.

     (b)  Performance.  Executive shall perform the duties called for under this
Agreement to the best of his ability and shall devote an  appropriate  amount of
his business time (no less than 40 hours per week), energies,  efforts and skill
to such duties during the term of his employment and shall not accept employment
with any other  employer  or  business  or engage in any other  business  of any
nature  whatsoever,  in any capacity  whatsoever,  unless approved in writing in
advance  by the  Board of  Directors  of the  Company.  During  the term of this
Agreement,  Executive  shall  be  physically  present  in the  Metropolitan  New
York/New  Jersey or other Harvey  related  business  location area not less than
fifteen (15) business days out of every calendar  month.  Vacation days shall be
excluded from this requirement.

     2. Term. The term of  Executive's  employment  under this  Agreement  shall
begin on the date  hereof  and  shall  continue  until  January  31,  2007  (the
"Termination  Date").  Subject to Section 4 hereof, at any time on or before the
Termination  Date or any  Extended  Termination  Date (as defined  herein),  the
Company may, at its sole option,  extend this  Agreement for a period of one (1)
month (the expiration of any extension being referred to herein as the "Extended
Termination  Date");  provided,  however,  that  the  Company  may  extend  this
Agreement no more than three (3) times for an aggregate of three (3) months.

     3.   Compensation,   Expenses  and  Benefits.   As  full  compensation  for
Executive's  performance of his duties pursuant to this  Agreement,  the Company
shall pay  Executive  during the term of this  Agreement,  and  Executive  shall
accept as full payment for such performance, the following aggregate amounts and
benefits:

     (a) Salary.  As salary for  Executive's  services to be rendered under this
Agreement,  the Company  shall pay Executive a monthly  salary of $21,500,  such
salary  to be paid in  accordance  with the  regular  payroll  practices  of the
Company.

     (b)  Business  Expenses.  Within  seven  (7)  days of the  presentation  of
receipts therefor,  the Company shall pay or reimburse Executive for airfare for
weekly round trips between New York and his Continental U.S.  location per month
(coach  class;  lowest  available  fare),  rental car while in the New York area
(lowest  available  rate  for  mid-sized  vehicle)  and for  lodging  in  either
Metropolitan  New York or New  Jersey,  provided  that the cost of said  lodging
shall not exceed  $3,500 per month.  In addition,  the Company  shall  reimburse
Executive,  or cause  him to be  reimbursed,  for all  reasonable  out-of-pocket
expenses  incurred  by him in the  performance  of his  duties  hereunder  or in
furtherance of the business and/or interests of the Company. While traveling out
of the San  Francisco  area on  Company  related  matters,  Executive  shall  be
entitled  to a $35 per day pier  diem meal  allotment.  If  legitimate  business
entertainment  expenses  exceed  $35 per day,  Executive  will  need to file for
expense  reimbursement  and not  receive  a per diem  allocation  for that  day.
Executive  will  be  entitled  to  a  $50  per  week  communications  allocation
regardless  of  location.  The  communications  allocation  is intended to cover
cellular phone, home office phone, mobile Wi-Fi and other forms of paid internet
connectivity.  Such  expenses,  will not be reimbursed by the Company beyond the
agreed amount.  Other out of pocket expenses will be reimbursed  provided,  that
(i) such  expenses are incurred in  accordance  with  Company  policy,  and (ii)
Executive  furnishes to the Company an itemized  account  (including  receipts),
satisfactory to the Company, in substantiation of such expenditures.

     (c) Vacation. Executive shall be entitled to 5 paid vacation days per three
month period with the first accruing between October 1, 2006-December 31, 2006.

     (d) Options. Upon the execution of this Agreement,  the Company shall grant
Executive a  "non-qualified  stock option" (the  "Option")  pursuant to the Free
Standing Non-Qualified Stock Option Agreement attached hereto as Annex A.

The  parties  agree  that  Executive  shall  be  granted  certain   "piggy-back"
registration  rights to the  extent the shares of common  stock  underlying  the
Option are not  covered by an  effective  registration  statement.  The  parties
further  acknowledge and agree that the number of shares and exercise prices set
forth in Annex A reflect a one-for-four reverse split consummated by the Company
on November 10, 2006.  Executive  further agrees and acknowledges  that he shall
not sell any shares of the Company's  common stock underlying the Option until a
period  commencing one year from the later of the Termination Date and the final
Extended  Termination Date and Executive further agrees and acknowledges that he
shall not sell more than 25,000 Option Shares in any three-month period.

Should  Executive  purchase shares of the common stock of the Company outside of
the scope of this Agreement and the option granted  hereunder,  Executive agrees
that such purchases shall be made pursuant to a plan meeting the requirements of
Rule 10b5-1(c)  under the  Securities and Exchange Act of 1934, as amended.  The
prohibition on the sale of shares set forth in this Agreement shall not apply to
such shares,  provided,  however, that Executive acknowledges that to the extent
Executive  purchases  such  shares  at any  time  the  Executive  is  deemed  an
"affiliate"  (as such term is defined under Rule 144(a)(1) of the Securities Act
of  1933,  as  amended  (the  "Act"))  of the  Company,  such  shares  shall  be
"restricted  securities"  (as such term is defined  under Rule  144(a)(3) of the
Act) and may only be resold  pursuant  to an  effective  registration  statement
under the Act or pursuant to an applicable exemption under the Act. .

     (e) Executive shall have the right to participate, on the same basis and to
the same extent as other  executive  employees of the Company,  in the Company's
employee benefit programs, if any, including, without limitation, group life and
medical insurance programs covering Executive and his dependents.

     (f) Indemnification;  Directors and Officers Insurance.  The Company shall,
to the  fullest  extent  authorized  or  permitted  by  the  New  York  Business
Corporation  Law,  the  Company's  Charter and the  Company's  By-Laws,  defend,
indemnify and hold Executive,  his heirs,  executors,  administrators  and other
legal  representatives,  harmless  from and against  any and all claims,  suits,
debts,  causes of  action,  proceedings  or other  actions,  at law or in equity
("Claims"),  which  any  person or  entity  may have had,  now has or may in the
future have with  respect to  Executive's  service to the Company as an officer,
director,  executive  or agent  thereof,  including  any  costs  and  reasonable
attorney fees incurred in connection with defending such Claims.  This provision
shall survive the termination of this agreement.

     (g) The Company shall deduct from  Executive's  compensation  hereunder and
any other  payment,  any  federal,  state,  or city  withholding  taxes,  social
security  contributions,  and any  other  amounts  which may be  required  to be
deducted  or withheld by the Company  pursuant to any  federal,  state,  or city
laws, rules, or regulations.

     4. Termination.

     The Company or Executive can terminate  this Agreement on thirty (30) days'
notice to the other party;  provided  however  this  Agreement  shall  terminate
immediately upon Executive's death.

     5. Effects of Expiration or Termination.

     (a)  Expiration  under  Section 2 or  Termination  under Section 4. If this
Agreement  expires  or  Executive's  employment  with  the  Company  under  this
Agreement is terminated  pursuant to Section 4, the Company's  obligations under
this Agreement,  including obligations under Section 3, shall end except for the
Company's  obligation  to:  (i)  reimburse  Executive  (or his  estate)  for all
out-of-pocket expenses incurred and unpaid pursuant to Section 3(b); (ii) pay to
Executive (or his estate) any salary and accrued vacation,  pursuant to Sections
3(a)  and  (c),  actually  earned,  accrued  and  unpaid  through  the  date  of
termination  and (iii)  indemnify  Executive as provided under section 3(e). All
unvested options as of the termination of this Agreement shall be forfeited.

     (b) Rights and  Obligations.  Termination of Executive's  employment  under
this  Agreement  shall not  affect any  party's  rights  and  obligations  under
Sections 3 (subject to the  limitations  set forth in Sections 5(a), 6, 7, 8, 9,
10, 11 and 12,  such  rights and  obligations  shall  continue  and  survive the
termination of Executive's employment and this Agreement.

     6.  Solicitation  of Employees  and  Consultants.  Upon  expiration of this
Agreement or termination of Executive's  employment  with the Company under this
Agreement pursuant to Section 4, Executive shall not for a period of three years
following  the date of such  termination,  without  the  written  consent of the
Company, directly or indirectly:

     (i) solicit,  recruit,  or attempt to hire any person who is then  employed
by, or is a consultant  to, the Company or who, to  Executive's  knowledge,  was
employed by, or was a  consultant  to, the Company at any time during the period
of Executive's employment with the Company under this Agreement; or

     (ii)  encourage,  solicit or entice any such person to terminate his or her
employment or consultation with the Company, or employ or engage any such person
as an employee, or independent contractor of any person or entity other than the
Company or a Company subsidiary.

     This provision  will not apply to Executive's  appointment of the Company's
employees,  board members or  consultants  to serve on the board of directors of
another  company,  provided such  appointment  is to the board of directors of a
company whose interests are not adverse to the Company.

     7. Covenant Not to Compete/ Non Disparagement.

     (a) During the term of Executive's  employment under this Agreement and for
a  period  of  three  years  following  expiration  of  this  Agreement  or  the
termination  of  Executive's  employment  with the Company under this  Agreement
pursuant to Section 4, Executive shall not, directly or indirectly,  himself, or
through or for an individual,  person or entity wherever located:  (i) engage in
any  activities  or perform any services for a company that  specializes  in the
sale and custom  installation  of audio  visual and home  theater  products  for
consumers or, businesses located in the states of Alabama, South Carolina, North
Carolina,  Kentucky,  Tennesee,  Illinois,  Michigan, Ohio,  Pennsylvania,  West
Virginia, Virginia, Maryland, Delaware, New Jersey, New York, Connecticut, Rhode
Island,  Massachusetts,  Vermont, New Hampshire, Maine, Florida, Georgia, Texas,
or any other  jurisdiction  or state in which the  Company  does  business  (the
"Prohibited  Area"); or (ii) be employed by, consult with, own any capital stock
of, or have any  financial  interest of any kind in, any  individual,  person or
entity,  wherever located, for a company that specializes in the sale and custom
installation  of audio  visual  and  home  theater  products  for  consumers  or
businesses in a Prohibited Area; provided that Executive may own, for investment
purposes up to 1% of the  securities of any such publicly  traded  company whose
securities (i) trade or are listed on a national  securities exchange registered
under  Section 6 of the  Securities  and Exchange  Act of 1934,  as amended (the
"Exchange  Act") or (ii) are quoted on the National  Association  of  Securities
Dealers'  electronic  bulletin board or any other  "over-the-counter  market"(so
long as Executive is not otherwise affiliated with such business).

     (b) Each of the parties agrees that it will not, and will instruct,  as the
case may be, each of its respective representatives, officers and members of its
board of directors not to, make any statements,  written or oral, which would be
reasonably  likely to  disparage or damage the other  party.  Executive  further
acknowledges  and agrees that,  following  the  expiration  of the  Agreement or
termination of Executive's employment with the Company pursuant to Section 4, he
will not make any  statement  about the Company or his service  thereto,  or any
related matter, without the prior written consent of the Company.  Following the
expiration of this Agreement or termination of Executive's  employment  with the
Company pursuant to Section 4, Executive further agrees to provide assistance to
and shall cooperate with the Company upon its reasonable request with respect to
matters  within  the scope of  Executive's  duties and  responsibilities  during
employment.  The Company agrees and  acknowledges  that it shall, to the maximum
extent possible under then prevailing circumstances, coordinate any such request
with Executive's other commitments and  responsibilities  to minimize the degree
to which such request interferes with such commitments and responsibilities. The
Company agrees that it will reimburse  Executive for reasonable  travel expenses
(i.e.,  travel,  meals,  and  lodging)  that  Executive  may incur in  providing
assistance to the Company hereunder.

     8. Solicitation of Company Customers.  Upon expiration of this Agreement or
termination  of  Executive's  employment  with the Company under this  Agreement
pursuant to Section 4, Executive shall not, directly or indirectly,  at any time
within three years after the date of such termination,  solicit any entity that,
to Executive's  knowledge,  was a customer of the Company within the year before
the date of such  termination,  to perform  services or supply products for such
customer of a similar nature to those services performed or products provided by
the Company to such customer.

     9. Intellectual Property/Confidential Information; Return of Documents.

     (a) Executive  covenants and undertakes that he will not at any time during
or  after  the  expiration  of this  Agreement  or  termination  of  Executive's
employment  with the  Company  under this  Agreement  pursuant  to Section 4, in
perpetuity,  reveal, divulge, or make known to any person, firm, corporation, or
other business organization (other than the Company or its affiliates,  if any),
or use  for  his  own  account  or for  the  account  of  another,  directly  or
indirectly, any customer lists, pricing policies, marketing plans or strategies,
financial  information,  trade  secrets,  "know-how",  or any  other  secret  or
confidential  information  of any kind used by the  Company  (the  "Confidential
Information")  during his employment by the Company,  and made known (whether or
not with the knowledge and permission of the Company,  whether or not developed,
devised,  or otherwise  created in whole or in part by the efforts of Executive,
and whether or not a matter of public knowledge unless as a result of authorized
disclosure) to Executive by reason of his  employment by the Company.  Executive
further  covenants  and agrees  that he shall  retain  and use the  Confidential
Information  in trust for the sole benefit of the Company,  its  successors  and
assigns.

     (b) Executive  shall promptly  communicate  and disclose to the Company all
inventions, ideas, discoveries, improvements,  modifications, writings, artistic
or creative  material,  or other  intellectual  property in any form  whatsoever
(hereinafter  "Inventions"),  conceived,  developed,  or made by him  during his
employment by the Company, whether solely or jointly with others, and whether or
not patentable or copyrightable,  (a) which relate to any matters or business of
the type carried on or being developed by the Company,  or (b) which result from
or are suggested by any work done by him in the course of his  employment by the
Company.  Executive shall also promptly  communicate and disclose to the Company
all other data obtained by him concerning the business or affairs of the Company
in the course of his employment by the Company.

     (c) All written  materials,  records,  and  documents (in any form) made by
Executive  or  coming  into his  possession  during  the term of this  Agreement
concerning  the business or affairs of the Company shall be the sole property of
the Company,  and,  upon the  expiration  of this  Agreement or  termination  of
Executive's employment with the Company under this Agreement pursuant to Section
4, or upon the request of the Company  during the term hereof,  Executive  shall
promptly deliver the original and all copies (whether physical or electronic) of
same to the Company.  Executive  agrees to render to the Company such reports of
the activities  undertaken by Executive or conducted under Executive's direction
pursuant  hereto  during the term hereof as the Company may request from time to
time.

     10. Company' Remedies. Executive acknowledges and agrees that the covenants
and  undertakings  contained in Sections  1(b), 6, 7, 8, and 9 of this Agreement
relate to matters which are of a special, unique and extraordinary character and
that a violation  of any of the terms of such  Sections  will cause  irreparable
injury to the Company, the amount of which will be difficult, if not impossible,
to estimate or determine and which cannot be adequately  compensated.  Executive
further acknowledges and agrees that the compensation paid, or to be paid to him
hereunder,  is adequate and  sufficient  for the covenants and  agreements he is
making hereunder.  Therefore,  Executive agrees that the Company, in addition to
any other  available  remedies under  applicable  law,  shall be entitled,  as a
matter of course, to an injunction,  restraining order or other equitable relief
from  any  court  of  competent  jurisdiction,   restraining  any  violation  or
threatened  violation of any such terms by Executive  and such other  persons as
the court shall order.  Nothing  contained in this section shall be construed to
prevent the Company from seeking and recovering from Executive damages sustained
as a result of any breach or violation  by Executive of any of the  covenants or
agreements contained in the Agreement, and that in the event of any such breach,
the Company  shall avail  itself of all  remedies  available  both at law and at
equity.

     11. Executive's Remedies. Executive's remedy against the Company for breach
of this Agreement is the collection of any  compensation  due him as provided in
Section 3 subject to Section 5(a) and such other remedies available to Executive
under law or in equity.

     12. Assignment. The Company shall not be required to make any payment under
this  Agreement  to any  assignee  or  creditor  of  Executive,  other  than  to
Executive's legal representative or his estate on death. Executive's obligations
under  this  Agreement  are  personal  and may  not be  assigned,  delegated  or
transferred in any manner and any attempt to do so shall be void. Executive,  or
his  legal  representative,  shall  have no  rights  by way of  anticipation  or
otherwise  to assign or otherwise  dispose of any right of Executive  under this
Agreement.  The Company may assign this Agreement without Executive's consent to
any successor to the Company's  business.  This Agreement shall be binding upon,
and shall inure to the benefit of, the Company,  Executive  and their  permitted
successors and assigns.

     13.  Notices.  Any notice to be given under this  Agreement by either party
shall be  deemed to be given if  delivered  to the other  party in  person,  one
business day after deposited with a nationally  recognized overnight courier, or
three  business  days after  mailed by  certified or  registered  mail,  postage
prepaid,  return receipt  requested.  If to Executive,  notice shall be sent to:
Martin W. McClanan,  128 3rd Avenue,  San Francisco,  CA 94118,  with a copy to:
Harry G. Lewis, Esq.,  Cornerstone Law Group, 595 Market Street, Suite 2360, San
Francisco,  CA 94105;  and if to the Company,  notice  shall be sent to:  Harvey
Electronics,  Inc.,  205 Chubb  Avenue,  Lyndhurst,  NJ 07071,  Attn:  Joseph J.
Calabrese,  with a copy to: Ruskin Moscou Faltischek,  P.C., 1425 Reckson Plaza,
East Tower, 15th Floor,  Uniondale,  NY 11556,  Attn: Seth I. Rubin, Esq.; or at
such other  address as the Company or Executive  shall have advised the other in
writing.

     14.  General.  This  Agreement  shall not be amended,  in whole or in part,
except by an  agreement  in writing  signed by the Company and  Executive.  This
Agreement  constitutes the entire agreement  between the parties with respect to
the subject matter of this Agreement and all prior agreements or understandings,
oral or written,  are merged in this  Agreement  and are of no further  force or
effect including,  without limitation,  that certain consulting agreement by and
between Executive and the Company, dated September 25, 2006, and all obligations
arising  thereunder.  The parties  acknowledge  that they are not relying on any
representations, express or implied, oral or written, (relating to any aspect of
Executive's current or future employment or otherwise),  except for those stated
in this  Agreement.  Executive  further  acknowledges  that his sole  rights and
remedies  with respect to any aspect of his  employment  or  termination  of his
employment  are provided for in this  Agreement.  The captions of this Agreement
are included for convenience  only and shall not affect the  construction of any
provision of this Agreement. All provisions, agreements, and covenants contained
in this Agreement are  severable,  and in the event any of them shall be held to
be illegal,  void or invalid by any competent court or under any applicable law,
such provision shall be changed to the extent  reasonably  necessary to make the
provision,  as so changed,  legal,  valid and binding.  If any provision of this
Agreement  is held  illegal,  void or invalid  in its  entirety,  the  remaining
provisions of this Agreement  shall not in any way be affected or impaired,  but
shall remain binding in accordance with their terms.

     15.  Consultation  with Counsel.  Executive  acknowledges  that he has been
given the  opportunity to consult,  and has  consulted,  with his personal legal
counsel  concerning  all aspects of this  Agreement  and the Company  have urged
Executive to so consult with such counsel.

     16. No Conflicts.  Executive  represents  and warrants that his  execution,
delivery and  performance  of this Agreement will not (i) constitute a breach or
violation of any agreement or arrangement to which he is a party or by which the
is bound; (ii) constitute a violation of any order,  judgment or decree to which
he is a party; or (iii) require the consent of any third party.

     17. Governing Law. This Agreement, its construction,  and the determination
of any rights,  duties or remedies of the parties  arising out of or relating to
this Agreement,  shall be governed by, and  interpreted in accordance  with, the
laws of the State of New York.  Each party  consents  to be subject to  personal
jurisdiction of the courts located in the State of New York, County of New York,
and any lawsuit or other court action or proceeding  relating to, or arising out
of,  this  Agreement  or  Executive's  employment  with  the  Company  shall  be
instituted only in the state or federal court of proper jurisdiction  located in
the State of New York,  County of New York and those courts shall have exclusive
jurisdiction  over any case or  controversy  arising  out of or relating to this
Agreement.

<PAGE>
     IN WITNESS  WHEREOF,  the Company and  Executive  have duly  executed  this
Agreement as of the date and year first above written.

                            HARVEY ELECTRONICS, INC.

                            By:/s/D. Andrew Stackpole
                               ---------------------------
                               Name: D. Andrew Stackpole
                               Title:   Chairman


                            /s/Martin W. McClanan
                            -----------------------------
                            MARTIN W. McCLANAN

<PAGE>

                                                            ANNEX A

                                                            MARTIN W. McCLANAN
                                                            75,000 Shares (NQ)

                            HARVEY ELECTRONICS, INC.

                FREESTANDING NONQUALIFIED STOCK OPTION AGREEMENT

AGREEMENT,  made as of this  19 day of  December  2006,  by and  between  HARVEY
ELECTRONICS, INC., a New York corporation, (the "Company") having offices at 205
Chubb Avenue, Lyndhurst, NJ 07071; and MARTIN W. McCLANAN (the "Optionee").

     WHEREAS,  on (the "Grant Date" as defined  below) the Board of Directors of
the Company (the "Board") authorized the grant to the Optionee of an Option (the
"Option") to purchase up to 75,000 shares of the authorized but unissued  Common
Stock (the "Option Shares"),  conditioned upon the Optionee's acceptance thereof
upon the terms and  conditions  set forth in this  Agreement and the  Optionee's
acceptance of the terms and conditions of that certain Employment Agreement with
the Company dated December 19, 2006 (the "Employment Agreement"); and

     WHEREAS,  the  Optionee  desires  to  acquire  the  Option on the terms and
conditions set forth in this Agreement and the Employment Agreement;

     WHEREAS,  all capitalized terms not otherwise defined herein shall have the
meanings given them in the Employment Agreement;

     NOW, THEREFORE, it is agreed:

1. DATE OF GRANT.  The date of grant of this  Option is  December  19, 2006 (the
"Grant Date").

2. NATURE OF THE OPTION. This Option is a non-qualified Option.

3. EXERCISE  PRICE.  The exercise price is $4.00 for each share of Common Stock,
subject to adjustment in accordance with this Agreement (the "Exercise  Price").
The parties  acknowledge and agree that the number of shares and exercise prices
set forth herein reflect a one-for-four reverse split consummated by the Company
on November 10, 2006.

4. EXERCISABILITY OF OPTION. This Option shall be exercisable during its term as
follows:

     4.1 The Option granted hereby shall be exercisable as follows:

     (i)  Options to purchase  37,500 Option  Shares,  shall vest on January 31,
          2007,  provided Optionee continues to be employed by the Company until
          such date;

     (ii) Options to  purchase  12,500  Option  Shares  shall vest one (1) month
          after  the  first  Extended  Termination  Date  [February  28,  2007],
          provided  the Company has elected to extend the  Employment  Agreement
          for one (1) month as provided in Section 2(b) thereof;

     (iii) Options to purchase an additional 12,500 Option Shares shall vest one
          (1) month after the second Extended Termination [March 31, 2007] Date,
          provided  the Company has elected to extend the  Employment  Agreement
          for a second one (1) month  extension  as  provided  in  Section  2(b)
          thereof;

     (iv) Options to purchase an additional  12,500 Option Shares shall vest one
          (1) month after the third and final Extended  Termination  Date [April
          30, 2007],  provided the Company has elected to extend the  Employment
          Agreement for a third and final one (1) month extension as provided in
          Section 2(b) thereof; and

     (v)  In the event the Company or  Optionee,  during any  extension  period,
          elects to terminate the  Employment  Agreement  before the  applicable
          Extended  Termination  Date, then options shall vest based on the time
          elapsed during such one (1) month extension  period. By way of example
          and  for  illustration   purposes  only,  in  the  event  the  Company
          terminates  Optionee  after ten days of the second  extension  period,
          then in  connection  with  such  ten day  period,  Optionee  shall  be
          entitled to receive  options to purchase  4,032  Option  Shares,  this
          being the number of options multiplied by the fraction 10/31.

     4.2 This Option may not be exercised for a fraction of a share.

     4.3 After a portion  of the  Option  becomes  exercisable  it shall  remain
exercisable except as otherwise provided herein,  until the close of business on
December __, 2009 (the "Expiration Date")

5. METHOD OF EXERCISE.

     5.1 Notice to the  Company.  The Option  shall be  exercised in whole or in
part by written notice in  substantially  the form attached  hereto as Exhibit A
directed to the Company at its principal  place of business  accompanied by full
payment as  hereinafter  provided of the exercise price for the number of Option
Shares specified in the notice.

     5.2  Delivery of Option  Shares.  The Company or its  transfer  agent shall
deliver  a  certificate  for  the  Option  Shares  to the  Optionee  as  soon as
practicable after payment therefor.

     5.3 Payment of Purchase Price.

     5.3.1 Cash Payment. The Optionee shall make cash payments by wire transfer,
certified or bank check or personal  check, in each case payable to the order of
the  Company;  the Company  shall not be required  to deliver  certificates  for
Option  Shares until the Company has confirmed the receipt of good and available
funds in payment of the Exercise Price thereof.

     5.3.2  Cashless  Payment.  The Exercise  Price for any or all of the Option
Shares  to be  acquired  may be paid by the  surrender  of any  exercisable  but
unexercised  portion  of the  Option  having a Fair  Market  Value  equal to the
purchase  price  multiplied by the number of Option  Shares to be purchased.  In
either case, the Fair Market Value of the surrendered shares or options shall be
determined  as of the date of exercise as follows:  "Fair  Market  Value" of the
Common Stock means,  as of the exercise  date: (i) if the Common Stock is listed
on a national  securities  exchange or quoted on the NASDAQ  National  Market or
NASDAQ SmallCap Market, the last sale price of the Common Stock in the principal
trading market for the Common Stock on the last trading day preceding such date,
as  reported by the  exchange or NASDAQ,  as the case may be; (ii) if the Common
Stock is not listed on a national  securities  exchange  or quoted on the NASDAQ
National Market or NASDAQ SmallCap Market, but is traded in the over-the-counter
market,  the  closing  bid price of the  Common  Stock on the last  trading  day
preceding  such date for which such  quotations  are  reported  by the  National
Quotation  Bureau,  Incorporated or similar  publisher of such  quotations;  and
(iii) if the fair market value of the Common Stock cannot be determined pursuant
to clause (i) or (ii) above, such price as the Company shall determine,  in good
faith. The Fair Market Value of a surrendered portion of the Option means, as of
the exercise  date, an amount equal to the excess of the total fair market value
of the shares of Common Stock  underlying the surrendered  portion of the Option
(as determined in accordance with the immediately  preceding  sentence) over the
total purchase price of such shares of Common Stock  underlying the  surrendered
portion of the Option.  The Company  shall issue a certificate  or  certificates
evidencing the Option Shares as soon as practicable after the notice and payment
is received. The certificate or certificates  evidencing the Option Shares shall
be registered in the name of the person or persons so exercising the Option.

     5.3.3 Payment of  Withholding  Tax. If at any time, the Company is required
under applicable laws and regulations, to withhold, or to make any deduction for
any taxes, or take any other action in connection with any Option exercise,  the
Optionee  shall be  required  to pay to the  Company  the  amount  of any  taxes
required to be withheld,  or, in lieu  thereof,  at the election of the Company,
the Company may accept  Common Stock valued at its Fair Market Value on the date
of payment, to cover the amount required to be withheld.

     5.3.4 Exchange Act Compliance.  Notwithstanding the foregoing,  the Company
shall have the right to reject the payment in the form of Common Stock if in the
opinion  of  counsel  for the  Company,  (i) it  could  result  in an  event  of
"recapture"  under  Section  16(b) of the  Securities  Exchange Act of 1934,  as
amended (the "Exchange  Act");  (ii) such shares of Common Stock may not be sold
or  transferred  to the  Company;  or (iii) such  transfer  could  create  legal
difficulties for the Company.

     5.3.5  Restrictions  on  Exercise.  This Option may not be exercised if the
issuance  of such  Shares  upon  such  exercise  or the  method  of  payment  of
consideration  for such shares would  constitute  a violation of any  applicable
federal or state  securities  or other law or  regulation,  including  any rules
promulgated  by any national  securities  exchange or the Federal  Reserve Board
relating to margin requirements.  As a condition to the exercise of this Option,
the Company may require the Optionee to make any  representation and warranty to
the Company as may be required by any applicable law or regulation.

6. OPTIONEE'S  REPRESENTATIONS.  The Optionee hereby  represents and warrants to
the Company that:

     6.1  Investment  Intent.  The  Optionee is  acquiring  the Option and shall
acquire the Option  Shares for its own  account and not with a view  towards the
distribution thereof;

     6.2 Exchange Act Documents. The Optionee has received a copy of all reports
and  documents  required  to be filed by the  Company  with the  Securities  and
Exchange  Commission (the "SEC") pursuant to the Exchange Act within the last 24
months and all reports issued by the Company to its stockholders;

     6.3 Option Shares Restricted.  In the event that the Company shall not have
an effective Form S-8 Registration  Statement with respect to the Option Shares,
the Optionee  understands that it must for an indefinite period of time bear the
economic risk of the  investment in the Option  Shares,  which cannot be sold by
the Optionee  unless they are  registered  under the  Securities Act of 1933, as
amended (the "Securities Act") or an exemption therefrom is available thereunder
and that the Company is under no  obligation  to register the Option  Shares for
sale under the Securities Act;

     6.4 Access to Information.  In the Optionee's position with the Company, it
has had both the  opportunity  to ask  questions  and receive  answers  from the
officers  and  directors  of the Company  and all  persons  acting on its behalf
concerning  the terms and  conditions of the offer made  hereunder and to obtain
any additional  information  to the extent the Company  possesses or may possess
such  information  or can  acquire  it  without  unreasonable  effort or expense
necessary to verify the accuracy of the information obtained pursuant to Section
6.2 above;

     6.5 Transfer  Restrictions.  In the event that the Company does not have an
effective Form S-8 Registration Statement with respect to the Option Shares, the
Optionee is aware that the Company  shall  place stop  transfer  orders with its
transfer  agent  against  the  transfer  of the Option  Shares in the absence of
registration  under the  Securities  Act or an  exemption  therefrom as provided
herein; and

     6.6 Legends. In the event that the Company shall not have an effective Form
S-8 Registration  Statement,  then the certificates evidencing the Option Shares
shall bear the following legends:

               "THE SHARES  REPRESENTED BY THIS  CERTIFICATE  HAVE BEEN ACQUIRED
          FOR INVESTMENT AND HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT
          OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SHARES MAY NOT BE SOLD
          OR  TRANSFERRED  IN THE ABSENCE OF SUCH  REGISTRATION  OR AN EXEMPTION
          THEREFROM UNDER THE SECURITIES ACT."

               "THE SHARES  REPRESENTED BY THIS  CERTIFICATE  HAVE BEEN ACQUIRED
          PURSUANT TO A STOCK OPTION AGREEMENT, DATED AS OF [INSERT GRANT DATE],
          A  COPY  OF  WHICH  IS ON  FILE  WITH  THE  COMPANY,  AND  MAY  NOT BE
          TRANSFERRED,  PLEDGED OR  DISPOSED  OF EXCEPT IN  ACCORDANCE  WITH THE
          TERMS AND CONDITIONS THEREOF."

     6.7 Lockup  Agreement.  Optionee  further agrees and  acknowledges  that he
shall not sell any Option  Shares  until a period  commencing  one year from the
later  of the  Termination  Date and the  final  Extended  Termination  Date and
Optionee further agrees and acknowledges that he shall not sell more than 25,000
Option Shares in any three-month period.

7.  WITHHOLDING TAX. Not later than the date as of which an amount first becomes
includable  in the gross income of the Optionee for Federal  income tax purposes
with  respect to the Option,  the  Optionee  shall pay to the  Company,  or make
arrangements  satisfactory  to the Board  regarding the payment of, any Federal,
state and local  taxes of any kind  required  by law to be withheld or paid with
respect  to such  amount.  The  obligations  of the  Company  under the Plan and
pursuant  to  this  Agreement   shall  be  conditional   upon  such  payment  or
arrangements  with the Company and the Company shall, to the extent permitted by
law,  have the right to  deduct  any such  taxes  from any  payment  of any kind
otherwise due to the Optionee from the Company.

8. EFFECT OF TERMINATION OF EMPLOYMENT. Intentionally Omitted.

9. TERMINATION FOR CAUSE. Intentionally Omitted.

10. TERM OF OPTION. This Option may not be exercised beyond the Expiration Date,
and may be exercised  during such term only in accordance with the terms of this
Option Agreement.

11. RESTRICTION ON TRANSFER OF OPTION SHARES.  Anything in this Agreement to the
contrary  notwithstanding,  the Optionee  hereby agrees that Optionee  shall not
sell,  transfer by any means or otherwise  dispose of the Option Shares acquired
by the Optionee without  registration  under the Securities Act, or in the event
that they are not so registered, unless (i) an exemption from the Securities Act
registration  requirements  is available  thereunder,  and (ii) the Optionee has
furnished  the Company with notice of such  proposed  transfer and the Company's
legal counsel, in its reasonable  opinion,  shall deem such proposed transfer to
be so exempt.

12. RESERVED  SHARES.  The Company  warrants that there have been reserved,  and
covenants  that at all times in the  future it shall keep  reserved,  out of the
authorized and unissued  Common Stock,  a number of Option Shares  sufficient to
provide  for  the  exercise  of the  rights  of  purchase  represented  by  this
Agreement.

13. DIVIDENDS, RECLASSIFICATIONS, ETC.

     13.1  Dividends;  Reclassifications,  etc.  In the event  that the  Company
shall,  at any time prior to the exercise of this Option:  (i) declare or pay to
the  holders  of the Common  Stock a  dividend  payable in any kind of shares of
stock of the  Company;  or (ii)  change or divide or  otherwise  reclassify  its
Common  Stock into the same or a different  number of shares with or without par
value, or in shares of any class or classes;  or (iii) make any  distribution of
its  assets  to  holders  of  its  Common  Stock  as a  liquidation  or  partial
liquidation  dividend or by way of return of capital;  then, upon the subsequent
exercise  of this  Option,  the  Optionee  shall  receive,  in addition to or in
substitution  for the Option Shares to which it would otherwise be entitled upon
such exercise,  such additional shares of stock or scrip of the Company, or such
reclassified  shares of stock of the  Company,  or such  assets of the  Company,
which it would have been entitled to receive had it exercised  this Option prior
to the happening of any of the foregoing events.

     13.2 Notice. If, at any time while this Option is outstanding,  the Company
shall pay any dividend  payable in cash or in Common  Stock,  the Company  shall
cause notice thereof to be mailed to the registered holder of this Option at its
address  appearing on the  registration  books of the Company,  at least l0 days
prior to the record date as of which  holders of Common Stock shall  participate
in such dividend or distribution at least l0 days prior to the effective date of
the merger or consolidation. Failure to give notice as required by this Section,
or any  defect  therein,  shall not  affect  the  legality  or  validity  of any
dividend, distribution or subscription or other right.

     13.3  Anything  in this  Section  13 to the  contrary  notwithstanding,  no
adjustment in the Exercise Price shall be required unless such adjustment  would
require an increase or decrease of at least 1% in such Exercise Price; provided,
however,  that any  adjustments  which by  reason of this  Section  13.3 are not
required to be made shall be carried  forward  and taken into  account in making
subsequent  adjustments.  All calculations under this Section 13.3 shall be made
to the nearest cent or to the nearest tenth of a share, as the case may be.

     13.4 Upon any adjustment of any Exercise Price,  then and in each such case
the Company shall promptly deliver a notice to the Optionee,  which notice shall
state the Exercise  Price  resulting  from such  adjustment  and the increase or
decrease,  if any, in the number of Option Shares purchasable at such price upon
the  exercise  hereof,   setting  forth  in  reasonable  detail  the  method  of
calculation and the facts upon which such calculation is based.

14. MISCELLANEOUS.

     14.1 Notices.  All notices,  requests,  deliveries,  payments,  demands and
other  communications  which are  required or  permitted  to be given under this
Agreement shall be in writing and shall be either  delivered  personally or sent
by  registered  or  certified  mail,  or  by  private  courier,  return  receipt
requested,  postage prepaid to the Company at its principal executive office and
to the  Optionee  at its address set forth  below,  or to such other  address as
either  party  shall have  specified  by notice in writing to the other.  Notice
shall be deemed  duly  given  hereunder  when  delivered  or mailed as  provided
herein.

     14.2 Stockholder Rights. The Optionee shall not have any of the rights of a
stockholder with respect to the Option Shares until such shares have been issued
after the due exercise of the Option.

     14.3 Waiver. The waiver by any party hereto of a breach of any provision of
this  Agreement  shall not operate or be  construed  as a waiver of any other or
subsequent breach.

     14.4 Entire  Agreement.  This Agreement  constitutes  the entire  agreement
between the parties with respect to the subject  matter  hereof.  This Agreement
may not be amended except by writing executed by the Optionee and the Company.

     14.5 Binding Effect; Successors.  This Agreement shall inure to the benefit
of and be binding  upon the parties  hereto  and,  to the extent not  prohibited
herein, their respective heirs, successors, assigns and representatives. Nothing
in this  Agreement  expressed  or  implied,  is intended to confer on any person
other than the parties hereto and as provided  above,  their  respective  heirs,
successors,  assigns and  representatives any rights,  remedies,  obligations or
liabilities.

     14.6 Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with the laws of the State of New York (without  regard to choice of
law provisions).

     14.7 Headings.  The headings  contained  herein are for the sole purpose of
convenience  of reference,  and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.

     IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
day and year first above written.

                            HARVEY ELECTRONICS, INC.
                            (a New York corporation)


                            By: /s/ D. Andrew Stackpole
                                -------------------------------
                                D. Andrew Stackpole, Chairman

<PAGE>
     Optionee  represents  that the  Optionee  is  familiar  with the  terms and
provisions  thereof,  and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding,  conclusive
and final all  decisions  or  interpretations  of the Board  upon any  questions
arising under the Agreement.

                               /s/Martin W. McClanan
                               --------------------------------
                               Martin W. McClanan, Optionee