THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

     This Amendment is made as of the 1st day of December,  2000, by and between
Harvey  Electronics,  Inc. a New York corporation (the "Borrower"),  and Paragon
Capital LLC, a Delaware limited liability company (the "Lender").

                                    Recitals

     The Borrower and the Lender have entered into a Loan and Security Agreement
dated as of November 3, 1997, as amended by First Amendment dated as of November
29,  1999,  and Second  Amendment  dated as of July 7, 2000 (as so amended,  the
"Loan Agreement").

     The Lender has agreed to make certain loan  advances to the Borrower and to
issue or cause to be issued  certain  letters of credit  for the  account of the
Borrower pursuant to the terms and conditions set forth in the Loan Agreement.

     The loan advances  under the Loan Agreement are evidenced by the Borrower's
promissory  note dated as of July 7, 2000,  in the maximum  principal  amount of
Three Million Five Hundred Thousand  ($3,500,000.00)  Dollars and payable to the
order of the Lender (the "Master Note").

     All  indebtedness of the Borrower to the Lender is secured  pursuant to the
terms of the Loan Agreement and all other security  documents  executed in favor
of the Lender (collectively, the "Security Documents").

     The Borrower has  requested  that  certain  amendments  be made to the Loan
Agreement,  which  the  Lender  is  willing  to make  pursuant  to the terms and
conditions set forth herein.

     NOW,  THEREFORE,  in  consideration  of the  premises  and  of  the  mutual
covenants and agreements herein contained, it is agreed as follows:

     1. Terms used in this  Amendment  which are  defined in the Loan  Agreement
shall  have the same  meanings  as defined  therein,  unless  otherwise  defined
herein.

     2. The Loan Agreement is hereby amended as follows:

     (a) Section  1-8(a) is  stricken  in its  entirety  and the  following  new
Section 1-8(a) substituted therefor:

     "(a) The unpaid principal  balance of the Loan Account shall bear interest,
until repaid (calculated based upon a 360-day year and actual days elapsed),  at
the  aggregate of Base plus one (1%) percent per annum but in no event less than
eight (8%)  percent  per annum or in excess of the  maximum  rate  permitted  by
applicable law."

     (b) Section  1-9(b) is  stricken  in its  entirety  and the  following  new
Section 1-9(b) substituted therefor:

     "(b) Annual  Facility  Fee. On October 1, 2000, a facility fee in an amount
equal to  one-quarter of one (.25%) percent of the Credit Limit which shall have
been fully  earned on October 1,  2000,  shall be due and  payable,  and on each
October 1st thereafter,  a facility fee in an amount equal to one-quarter of one
(.25%) percent of the Credit Limit, which shall have been fully earned as of the
applicable October 1st and shall be due and payable."

     (c) Section  1-9(c) is  stricken  in its  entirety  and the  following  new
Section 1-9(c) substituted therefor:

     "(c) Loan  Maintenance  Fee. As of October 1, 2000, and on each anniversary
thereof, a loan maintenance fee in the amount of $18,000.00. Such fee shall have
been fully earned as of October 1, 2000,  and as of each October 1st  thereafter
and shall be  payable in twelve  (12)  installments  as  follows:  $1,500.00  on
October 1, 2000, and $1,500.00 on the first day of each month  thereafter  until
the loan  maintenance fee has been paid in full. The foregoing  notwithstanding,
the  aforementioned  monthly  loan  maintenance  fee  shall  be  increased  from
$1,500.00  to  $3,500.00  for any such month in which the Advance  Rate  exceeds
seventy-five (75%) percent."

     (d) Section 13-3 is stricken in its entirety and the  following new Section
13-3 substituted therefor:

     "13-3 Prepayment Premium. If Borrower pays in full all or substantially all
of the  Liabilities  prior to September 30, 2001,  other than  temporarily  from
funds  internally  generated in the ordinary course of business,  at the time of
such payment Borrower shall also pay to Lender a prepayment premium equal to the
sum of  One  Hundred  Thousand  ($100,000.00)  Dollars,  and  if  prepaid  after
September 30, 2001, but prior to September 30, 2003, other than temporarily from
funds  internally  generated in the ordinary course of business,  at the time of
such payment Borrower shall also pay to Lender a prepayment premium equal to the
sum   of   Seventy-Five    Thousand    ($75,000.00)   Dollars.   The   foregoing
notwithstanding,  the prepayment premium shall be reduced by fifty (50%) percent
if (a) Borrower  grants to Lender a right of first refusal on any new financing,
(b)  Borrower  receives   additional  capital  of  not  less  than  Ten  Million
($10,000.00) Dollars, and (c) Lender is paid in full.

     Any tender of payment in full of the Liabilities  following an acceleration
by Lender of the  Liabilities  pursuant to Article 10,  shall be for purposes of
this  section  deemed  to  be  a  prepayment   requiring  Borrower  to  pay  the
aforementioned prepayment premium.

     Such prepayment  premium shall be paid to Lender as liquidated  damages for
the loss of the bargain by Lender and not as a penalty."

     (e) The definition of the term  "Borrowing  Base" contained on Exhibit 3 is
stricken in its entirety and the following new definition substituted therefor:

     "'Borrowing  Base':  Means  up to  seventy-five  (75%)  percent  of Cost of
Acceptable  Inventory (the 'Advance  Rate')  thereof,  minus (i) the then unpaid
principal  balance of the Loan  Account,  minus (ii) the then  aggregate of such
Availability  Reserves as may have been  established by the Lender,  minus (iii)
the then outstanding Stated Amount of all L/C's."

     (f) The  definition  of the term "Credit  Limit"  contained on Exhibit 3 is
stricken in its entirety and the following new definition substituted therefor:

     "'Credit Limit': Means Seven Million ($7,000,000.00) Dollars, minus (i) the
then unpaid principal balance of the Loan Account, minus (ii) the then aggregate
of such Availability  Reserves as may have been established by the Lender, minus
(iii) the then outstanding Stated Amount of all L/C's."

     (g) The  Capital  Expenditure  covenant  contained  on  Exhibit  9-12(a) is
stricken in its entirety and the following covenant substituted therefor:

     "Capital Expenditures

     Capital  Expenditures for the period beginning November 1, 2000, and ending
April 30, 2001, may be in an amount which does not exceed $2,145,000.00, and for
the period  beginning  May 1, 2001,  and ending  October 31, 2001,  may be in an
amount  which  does  not  exceed  $1,355,000.00,  so long as  Operating  Income,
measured  monthly on a rolling  three-month  basis, is not less than eighty-five
(85%)  percent of the  Operating  Income set forth in the Business  Plan for the
currently existing stores, i.e., existing as of December 1, 2000."

     (h) The  Maximum  Effective  Advance  Rate  covenant  contained  on Exhibit
9-12(a) is stricken  in its  entirety  and the  following  covenant  substituted
therefor:

     "Maximum Effective Advance Rate

     The Maximum Effective Advance Rate shall not exceed on any one occasion the
following percentages during the following periods:

            Percentage                                  Period
            ----------                                  ------

            55%                                         August through March
            72%                                         April through July"

     3. Except as  explicitly  amended by this  Amendment,  all of the terms and
conditions of the Loan Agreement shall remain in full force and effect and shall
apply to any advance or letter of credit thereunder.

     4. The  Borrower  agrees to pay the  Lender  as of the date  hereof a fully
earned,  non-refundable fee in the amount of Seventy-Five  Thousand ($75,000.00)
Dollars in consideration of the execution by the Lender of this Amendment.

     5. This  Amendment  shall be  effective  upon  receipt  by the Lender of an
executed original hereof, together with each of the following, each in substance
and form acceptable to the Lender in its sole discretion:

     (a) The  replacement  note  substantially  in the form of Exhibit A hereto,
duly executed on behalf of the Borrower (the "Replacement Note").

     (b)  Certificate  of the  Secretary  of the Borrower  certifying  as to the
resolutions  of the Board of Directors of the Borrower  approving  the execution
and delivery of this Amendment.

     6. The Borrower  hereby  represents and warrants to the Lender that (i) the
resolutions of the Board of Directors of the Borrower attached to the Borrower's
General  Certificate  dated as of July 7, 2000,  and  delivered to the Lender in
connection with the execution and delivery of the Agreement (the  "Certificate")
are in full force and effect,  (ii) the Articles of Organization  and By-Laws of
the Borrower,  which were certified and delivered to the Lender  pursuant to the
Certificate,  continue  in full force and  effect  and have not been  amended or
otherwise  modified except as set forth in the Certificate to be delivered,  and
(iii) the officers  and agents of the  Borrower  who have been  certified to the
Lender pursuant to the Certificate as being authorized.

     7. All references in the Loan Agreement to "this Agreement" shall be deemed
to refer to the Loan Agreement as amended hereby;  and any and all references in
the  Security  Documents to the Loan  Agreement  shall be deemed to refer to the
Loan  Agreement  as  amended  hereby.  Upon  the  satisfaction  of  each  of the
conditions set forth in paragraph 4 hereof,  the definition of "Master Note" and
all references thereto in the Loan Agreement shall be deemed amended to describe
the Replacement  Note, which Replacement Note shall be issued by the Borrower to
the Lender in replacement,  renewal and amendment,  but not in repayment, of the
Master Note.

     8. This  Amendment may be executed in any number of  counterparts,  each of
which when so executed  and  delivered  shall be deemed an  original  and all of
which  counterparts,   taken  together,   shall  constitute  one  and  the  same
instrument.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
duly executed as of the day and year first above written.

                                     HARVEY ELECTRONICS, INC.


                                  By:______________________________________
                                     Franklin C. Carp, President

                                     PARAGON CAPITAL LLC


                                  By:______________________________________
                                     Robert Chakarian, Vice President


<PAGE>



                                    EXHIBIT A

                   EXHIBIT 1-6 TO LOAN AND SECURITY AGREEMENT

                                   MASTER NOTE
                                   (REVOLVING)

$7,000,000.00                                              Newton, Massachusetts
                                                                December 1, 2000

     For value received, the undersigned,  Harvey Electronics,  Inc., a New York
corporation (the "Borrower"),  hereby promises to pay on September 30, 2003 (the
"Maturity  Date",  unless  extended  as  provided  in  Article  13-1 of the Loan
Agreement (as defined below), in which event the Maturity Date shall be the last
day of the  applicable  renewal  term),  to the order of Paragon  Capital LLC, a
Delaware limited liability company (the "Lender"), at its main office in Newton,
Massachusetts,  or at any  other  place  designated  at any  time by the  holder
hereof,  in lawful  money of the  United  States of America  and in  immediately
available funds, the principal sum of Seven Million  ($7,000,000.00) Dollars or,
if less,  the  aggregate  unpaid  principal  amount of all advances  made by the
Lender to the Borrower hereunder, together with interest on the principal amount
hereunder  remaining  unpaid  from  time to time,  computed  on the basis of the
actual  number of days  elapsed and a 360-day  year,  from the date hereof until
this Note is fully  paid at the rate from time to time in effect  under the Loan
and Security  Agreement  dated  November 3, 1997 (the "Loan  Agreement")  by and
between the Lender and the Borrower.  The principal hereof and interest accruing
thereon  shall be due and payable as provided in the Loan  Agreement.  This Note
may be prepaid only in accordance with the Loan Agreement.

     This Note is issued pursuant, and is subject, to the Loan Agreement,  which
provides,  among other things, for acceleration  hereof. This Note is the Master
Note referred to in the Loan Agreement.

     This Note is secured,  among other things,  pursuant to the Loan  Agreement
and may now or  hereafter be secured by one or more other  security  agreements,
mortgages, deeds of trust, assignments or other instruments or agreements.

     The  Borrower  hereby  agrees  to pay all  costs of  collection,  including
attorneys'  fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.

     Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.

     This Note shall be deemed to be under seal.

                                            HARVEY ELECTRONICS, INC.

                                         By:________________________