TWEETER HOME ENTERTAINMENT GROUP INC, DEF 14A, 1998-12-28

TWEETER HOME ENTERTAINMENT GROUP INC
DEF 14A, 1998-12-28
RADIO, TV & CONSUMER ELECTRONICS STORES

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

FILED BY REGISTRANT [X] FILED BY PARTY OTHER THAN THE REGISTRANT [ ]

- --------------------------------------------------------------------------------

Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12

TWEETER HOME ENTERTAINMENT GROUP, INC.
(Name of Registrant as Specified In Its Charter)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing by registration for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

- --------------------------------------------------------------------------------
<PAGE> 2

TWEETER HOME ENTERTAINMENT GROUP, INC.
10 PEQUOT WAY
CANTON, MA 02021

Dear Stockholder:

You are cordially invited to attend the Company's special meeting in lieu
of annual meeting on January 26, 1999. The meeting will begin promptly at 4:00
PM at the offices of Goulston & Storrs, P.C., 400 Atlantic Avenue, Boston,
Massachusetts.

The official Notice of Meeting, proxy statement and form of proxy are
included with this letter. The matters listed in the Notice of Meeting are
described in detail in the proxy statement. This year, in addition to the
election of two directors and approval of the Company's accountants, we are
asking stockholders to approve the adoption of the Company's Employee Stock
Purchase Plan.

The vote of every stockholder is important. Please sign, date and promptly
mail your proxy using the enclosed return envelope. The Board of Directors and
management look forward to greeting those stockholders that are able to attend.

Sincerely,

/s/ JEFF STONE
- ------------------------------------------------
Jeffrey Stone
President and Chief Operating Officer
<PAGE> 3

TWEETER HOME ENTERTAINMENT GROUP, INC.
10 PEQUOT WAY
CANTON, MA 02021

DECEMBER 23, 1998

NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS

The special meeting in lieu of annual meeting of stockholders (the "Annual
Meeting") of Tweeter Home Entertainment Group, Inc. will be held at the offices
of Goulston & Storrs, P.C., 400 Atlantic Avenue, Boston, Massachusetts, on
January 26, 1999, at 4:00 PM., for the following purposes:

1. To elect two Directors each to serve for a three year term or until the
election and qualification of their respective successors.

2. To act upon the approval of the designation of Deloitte & Touche LLP to
audit the books, records and accounts of the Company for Fiscal Year
1999.

3. To approve the adoption of the Company's Employee Stock Purchase Plan.

4. To consider and act upon all other matters which may properly come
before the Annual Meeting or any adjournment or adjournments thereof.

The Board of Directors has set the close of business on Wednesday, December
23, 1998, as the record date for the purpose of determining the stockholders
entitled to notice of, and to vote at, the Annual Meeting of Stockholders or any
adjournment thereof, and only stockholders of record on that date shall be
entitled to notice of and to vote at said meeting.

Whether or not you plan to attend the meeting, please fill in, date, sign
and return the enclosed proxy promptly in the return envelope provided. You are
cordially invited to attend the meeting.

By Order of the Board of Directors,

/s/ JOSEPH MCGUIRE
- ------------------------------------------------
Joseph McGuire
Chief Financial Officer
<PAGE> 4

TWEETER HOME ENTERTAINMENT GROUP, INC.
PROXY STATEMENT

This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Tweeter Home Entertainment Group,
Inc. ("TWTR") for the special meeting in lieu of annual meeting of stockholders
to be held on January 26, 1999. Only stockholders of record at the close of
business on December 23, 1998 are entitled to notice of and to vote at the
meeting.

Returning your completed proxy will not prevent you from voting in person
at the meeting should you be present and wish to do so.

Unless contrary instructions are indicated on the proxy, all valid proxies
received pursuant to this solicitation (and not revoked before they are voted)
will be voted FOR the election of the nominees for Director named herein, FOR
the approval of the adoption of the Company's Employee Stock Purchase Plan, and
FOR the approval of the designation of Deloitte & Touche LLP to audit the books,
records and accounts of the Company for Fiscal Year 1999. If a stockholder
specifies a different choice on the proxy, such stockholder's shares of Common
Stock will be voted in accordance with such specifications.

Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise. A proxy may be revoked
by filing with the Secretary of the Company an instrument revoking it, by
presenting an executed proxy bearing a later date at the Annual Meeting, or by
attending the Annual Meeting and voting in person.

The cost of soliciting proxies will be borne by the Company. Solicitations
may be made by mail, personal interview, telephone and/or telegram by Directors,
officers and employees of the Company, without additional compensation for such
solicitation activities. Arrangements will be made by the Company with its
transfer agent, BankBoston, NA, to forward solicitation material to the
beneficial owners of the shares of Common Stock held of record. The Company will
reimburse banks, brokerage firms, other custodians, nominees and fiduciaries for
reasonable expenses incurred in sending proxy material to beneficial owners of
the Company's Common Stock held in their respective names.

Corporate Investor Communications, Inc. has been selected by the Company to
distribute, solicit and tabulate all proxies.

Copies of the 1998 Annual Report of the Company are being mailed to
stockholders together with this Proxy Statement. The Annual Report contains the
financial statements of the Company for the fiscal years ended September 30,
1998, September 30, 1997 and September 30, 1996.

VOTING SECURITIES

Holders of record of Common Stock of the Company at the close of business
on Wednesday, December 23, 1998 (the "Record Date") have the right to receive
notice of and to vote at the Annual Meeting and any adjournments of the meeting.
At the Record Date, there were 6,292,512 shares of Common Stock issued and
outstanding. Each share of Common Stock entitles the holder of that share to one
vote on each matter submitted to a vote at the Annual Meeting.

Under the Company's By-Laws, the presence, in person or by proxy, of
stockholders holding a majority in interest of the issued and outstanding shares
of Common Stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum. Abstentions and broker non-votes are each included for
purposes of determining the presence or absence of a sufficient number of shares
to constitute a quorum for the transaction of business. With respect to the
approval of any particular proposal, abstentions and broker non-votes are not
counted in determining the number of votes cast. Other than the election of
directors, which requires a plurality of the votes cast in person or by proxy,
each matter to be submitted to the stockholders requires the affirmative vote of
a majority of the votes cast in person or by proxy at the meeting.
<PAGE> 5

PROPOSAL 1: ELECTION OF DIRECTORS

NOMINEES FOR DIRECTOR, DIRECTORS CONTINUING IN OFFICE AND EXECUTIVE OFFICERS

The By-Laws of the Company provide for a Board of Directors consisting of
such number of directors as may be fixed from time to time by the Board. The
Board is divided into three classes, with each class holding office for a term
of three years and the term of office of one class expiring each year. The Board
has fixed the number of directors to constitute the full Board for the ensuing
year at six, two of whom are to be elected at the annual meeting of stockholders
for a term expiring at the 2002 annual meeting of stockholders, two whose terms
expire at the 2001 annual meeting of stockholders, and two whose terms expire at
the 2000 annual meeting of stockholders. Matthew Bronfman, a director of the
Company since 1989 and Steven S. Fischman, a director since 1998, are in the
class of directors whose term expires at the annual meeting of stockholders. The
Board has nominated Mr. Bronfman and Mr. Fischman for election to the class of
directors whose term will expire in 2002.

The persons named as proxies in the proxy card will vote the shares
represented by your proxy for the election of Mr. Bronfman and Mr. Fischman as
directors unless your proxy card specifies otherwise. If either of the nominees
for election to the Board should, for any reason not now anticipated, not be
available to serve as a director, the persons named as proxies will vote the
shares for such other candidate as may be designated by the Board, unless the
Board reduces the number of directors constituting the full Board, in order to
eliminate the vacancy. The Board has no reason to believe that Mr. Bronfman and
Mr. Fischman will be unable to serve if elected.

The table below sets forth certain information with respect to the nominees
for election to the Board of Directors, those directors whose terms of office
will continue after the Meeting and the Company's Executive Officers.

2
<PAGE> 6

<TABLE>
<CAPTION>
EXPIRATION OF
CURRENT OR
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE FIRST ELECTED PROPOSED
NAME AND AGE AND OTHER BUSINESS AFFILIATIONS DIRECTOR TERM OF OFFICE
- ------------ ----------------------------------------- ------------- --------------
<S> <C> <C> <C>
Jeffrey Bloomberg, 51(1)........... Director of the Company. From 1994 to the 1989 2001
present, Mr. Bloomberg has served as
the President of Bloomberg Associates,
Inc., an investment banking company.
From 1985 to 1993, Mr. Bloomberg served
as a Managing Director at Bear Stearns
& Co., Inc., specializing in corporate
finance and mergers and acquisitions.
Mr. Bloomberg and Samuel Bloomberg are
brothers.
Matthew Bronfman, 39(2)............ Director of the Company. Mr. Bronfman 1989 2002
founded and from 1994 to the present
has served as Chairman and Chief
Executive Officer of Perfumes Isabel, a
fragrance and gift company. In 1990,
Mr. Bronfman served as director, and
from 1991 to 1994 Mr. Bronfman served
as Chairman and Chief Executive
Officer, of Sterling Cellular Holdings,
LP, a privately-held cellular telephone
company.
Michael Cronin, 44(1)(2)........... Director of the Company. From 1991 to the 1995 2000
present Mr. Cronin has served as
Managing Partner of Weston Presidio
Offshore Capital C.V. Mr. Cronin also
serves as a director of Tekni-plex,
Inc. and Casella Waste Systems, Inc.
Steven S. Fischman, 56............. Director of the Company. Since 1992, Mr. 1998 2002
Fischman has been the President of New
England Development (NED), a regional
mall developer based in New England.
Since 1996, Mr. Fischman has also
served as Vice-Chairman of WellsPark
Group Limited Partnership, a mall
management company formed by NED and an
unrelated partner. Prior to joining
NED, Mr. Fischman was a director and
shareholder in the Boston law firm of
Goulston & Storrs, P.C., legal counsel
to the Company. Mr. Fischman is also
Chairman of the Board of Trustees of
Newton-Wellesley Hospital.
Joseph McGuire, 38................. Mr. McGuire has served as Vice President,
Chief Financial Officer and Chief
Information Officer of the Company
since May 1996. Prior to joining the
Company, Mr. McGuire was the Chief
Financial Officer of Bryn Mawr Radio &
Television Centre, Inc. from 1987 to
1996.
</TABLE>

- ---------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

3
<PAGE> 7

GENERAL INFORMATION RELATING TO
THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS

The Board of Directors held five meetings in the fiscal year ended
September 30, 1998. No member of the Board of Directors attended less than 80%
of the total number of meetings of the Board and committees thereof upon which
he served during the fiscal year ended September 30, 1998.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company had no nominating committees of the Board of Directors or
committees performing similar functions during the year ended September 30,
1998.

The Board of Directors has an Audit Committee, which makes recommendations
concerning the engagement of independent public accountants, reviews the plans
for and results of the audit engagement with the independent public accountants,
approves professional services provided by the independent public accountants
and review the adequacy of the Company's internal accounting controls. The Audit
Committee consists of Jeffrey Bloomberg and Michael Cronin. The Audit Committee
held one meeting during the fiscal year ended September 30, 1998. The Audit
Committee recommended the Company's selection of Deloitte & Touche LLP to serve
as the Company's auditors for the fiscal year ended September 30, 1999.

The Compensation Committee of the Board of Directors establishes and
implements compensation policies and programs for the Company's executive
officers and exercises all powers of the Board of Directors in connection with
the Company's incentive compensation and benefit plans. The Compensation
Committee of the Board consists of Mathew Bronfman and Michael Cronin. The
Compensation Committee held three meetings during the fiscal year ended
September 30, 1998.

COMPENSATION OF DIRECTORS

The Company currently pays each Director $1,875 per quarter, provided such
Director attends the meetings of the directors scheduled for such quarter. All
Directors are reimbursed for reasonable expenses incurred in attending meetings.
Under current Director compensation arrangements, upon each subsequent election
or re-election, each Director who is not also an employee or affiliate of the
Company is granted options under the Company's 1998 Stock Option and Incentive
Plan exercisable into 1,750 shares of Common Stock, with an exercise price equal
to the fair market value of the Common Stock at the date of grant. Such options
vest over a three-year period. The Company's policy with respect to the level
and timing of option grants to Directors is currently under review by the
Compensation Committee and the Board of Directors, and may be revised for years
subsequent to the fiscal year ended September 30, 1998.

BOARD OF DIRECTORS RECOMMENDATION

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
BOARD'S NOMINEES, MATTHEW BRONFMAN AND STEVEN S. FISCHMAN. A PLURALITY OF THE
VOTES CAST IN PERSON OR BY PROXY AT THE ANNUAL MEETING IS REQUIRED TO ELECT EACH
NOMINEE AS DIRECTOR.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) known by the
Company to be the beneficial owner of more than 5% of the Company's Common
Stock, (ii) each of the Company's Named Executives (as defined below) and
directors, (iii) all of the Company's executive officers and directors as a
group. Except as otherwise indicated in the footnotes to this table, the Company
believes

4
<PAGE> 8

that the persons named in this table have sole voting and investment power with
respect to all the shares of Common Stock indicated.

<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1) PERCENT
AS OF OF
NAME DECEMBER 23, 1998 CLASS
- ---- --------------------- -------
<S> <C> <C>
Named Executive Officers
Samuel Bloomberg *........................................ 827,243(2) 11.3
Jeffrey Stone *........................................... 305,145(3) 4.2
Joseph McGuire............................................ 21,977(4) **
Directors/Director Nominees
Michael Cronin............................................ 646,558(5) 8.8
Jeffrey Bloomberg......................................... 224,669(6) 3.1
Mathew Bronfman........................................... 112,443(7) 1.5
Steven Fischman........................................... 4,000 **
Directors and Executive Officers as a Group (7 persons)..... 2,142,035(8) 29.3%
Beneficial Owners of more than 5%
Advent International Group................................ 883,872(9) 12.1%
101 Federal Street, Boston, MA 02110
Weston Presidio Offshore Capital C.V...................... 646,558(5) 8.8%
One Federal Street, Boston, MA 02110
PNC Capital Corp.......................................... 457,370 6.3%
One Federal Street, Boston, MA 02110
</TABLE>

- ---------------
* Messrs. Bloomberg and Stone are also directors of the Company.

** Represents less than 1% of class.

(1) Includes the number of shares and percentage ownership represented by such
shares determined to be beneficially owned by a person in accordance with
the rules of the Securities and Exchange Commission. The number of shares
beneficially owned by a person includes shares of Common Stock that are
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days of the Record Date. Such shares
are deemed outstanding for the purpose of computing the percentage of
outstanding shares owned by such person. Such shares are not deemed
outstanding, however, for the purposes of computing the percentage ownership
of any other person.

(2) Includes 32,730 shares held, in the aggregate by the Samuel Bloomberg Family
Trusts for the benefit of Mr. Bloomberg's children and 7,540 shares held by
Carolina Bloomberg, the wife of Mr. Bloomberg. Carolina Bloomberg's 7,540
shares include 313 shares issuable upon the exercise of outstanding
warrants. Mr. Bloomberg expressly disclaims beneficial ownership of the
shares held by the Samuel Bloomberg Family Trusts and Carolina Bloomberg.
Also includes 208,916 shares subject to options granted by the Company to
Mr. Bloomberg exercisable within 60 days of the Record Date.

(3) Includes 114,978 shares subject to options granted by the Company to Mr.
Stone exercisable within 60 days of the Record Date.

(4) Includes 21,977 shares subject to options granted by the Company exercisable
within 60 days of the Record Date.

(5) Includes shares held by Weston Presidio Offshore Capital Management C.V.
("Weston Presidio"). Mr. Cronin is a general partner of Weston Presidio and,
as such, may be deemed to share voting and investment power with respect to
all shares held by Weston Presidio. Mr. Cronin expressly disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest therein.

(6) Includes 10,839 shares held, in the aggregate, by trusts for the benefit of
Mr. Bloomberg's children. Mr. Bloomberg expressly disclaims beneficial
ownership of these shares. Also includes 6,560 shares subject to options
granted by the Company to Mr. Bloomberg exercisable within 60 days of the
Record Date and 609 shares issuable upon exercise of outstanding warrants.

(7) Includes 107,584 shares subject to options granted by the Company
exercisable within 60 days of the Record Date, and 84 shares issuable upon
the exercise of outstanding warrants.

(8) See notes (2) through (7)

(9) Includes 642,041 shares held by Global Private Equity II Limited Partnership
(including 12,281 shares issuable upon exercise of outstanding warrants) and
241,831 shares held by Advent Direct Investment Program Limited Partnership
(including 4,627 shares issuable upon exercise of outstanding warrants).

5
<PAGE> 9

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires directors, officers and persons who are beneficial owners of
more than ten percent of the Company's Common Stock to file with the Securities
and Exchange Commission reports of their ownership of the Company's securities
and changes in that ownership. Matthew Bronfman, a Director of the Company,
failed to file a Form 4 -- Statement of Changes in Beneficial Ownership with
respect to 300 shares of Common Stock he acquired in the Company's initial
public offering completed July 21, 1998. Steven Fischman, a Director of the
Company, failed to file a Form 4 -- Statement of Changes in Beneficial Ownership
with respect to 4,000 shares of Common Stock he acquired in the Company's
initial public offering completed July 21, 1998. To the Company's knowledge,
based upon a review of copies of reports so filed, all other persons required to
file such reports regarding ownership and transactions during the fiscal year
ended September 30, 1998 did so by no later than the date the reports were due.

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other executive officers of the Company
(the "Named Executives") for services rendered in all capacities to the Company
during the fiscal year ended September 30, 1998:

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------ ------------------------- -------------------------
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
COMPENSATION STOCK OPTIONS/SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) AWARD(S) #/$ ($) ($)
- --------------------------- ---- --------- -------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel Bloomberg.......... 1998 253,461 10,000 0 0 23,038 0 0
CEO and Chairman of the
Board
Jeffrey Stone............. 1998 253,461 10,000 0 0 29,000 0 0
President and Chief
Operating Officer
Joseph McGuire............ 1998 162,307 5,000 0 0 8,000 0 0
Vice President, Chief
Financial Officer
</TABLE>

- ---------------
(1) The compensation described in this table does not include medical or other
benefits received by the Named Executives which are generally available to
all salaried employees of the Company.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS GRANT
OPTIONS/ GRANTED TO EXERCISE DATE
SARS EMPLOYEES OR BASE PRESENT
GRANTED IN FISCAL PRICE EXPIRATION VALUE(1)
NAME (#) YEAR ($/SH) DATE ($)
- ---- ---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Samuel Bloomberg..................... 23,038 10.1% 17.00 2004 -0-
Jeffrey Stone........................ 29,000 12.7% 17.00 2004 -0-
Joseph McGuire....................... 8,000 3.5% 17.00 2004 -0-
</TABLE>

- ---------------
(1) The fair value of each stock option granted in fiscal 1998 under the
Company's existing stock option plan was estimated using The Black-Scholes
option pricing model assuming an expected volatility of 32%, a risk-free
interest rate of 4%, an expected life of 3 years and no dividends.

6
<PAGE> 10

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table provides certain information with respect to options to
purchase Common Stock held by the Named Executives at September 30, 1998. No
options were exercised by Named Executives during the fiscal year ended
September 30, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
Samuel Bloomberg......................... 208,916/23,038 $ 2,031,560/-0-
Jeffrey Stone............................ 114,978/29,000 $ 1,071,153/-0-
Joseph McGuire........................... 21,977/9,640 $ 232,001/$10,478
</TABLE>

EMPLOYMENT AGREEMENTS

The summaries of the various employment agreements set forth below are
qualified in their entirety by reference to the full text of such agreements,
which are exhibits to the Amendment No. 1 to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on June
8, 1998.

BLOOMBERG AND STONE AGREEMENTS

Upon completion of the Company's Initial Public Offering on July 16, 1998,
the Company entered into five-year employment agreements with Samuel Bloomberg,
to serve as Chairman of the Board and Chief Executive Officer of the Company,
and with Jeffrey Stone, to serve as President and Chief Operating Officer of the
Company (the "Employment Agreements"). The Employment Agreements provide that
Messrs. Bloomberg and Stone will each receive a base salary of $300,000 per year
through September 30, 1998, $325,000 from October 1, 1998 to September 30, 1999,
and thereafter at the annual rate of at least $325,000, plus such increases as
may be determined by the Compensation Committee of the Board of Directors. Each
of Messrs. Bloomberg and Stone will have the opportunity to earn incentive
bonuses based upon certain performance criteria, to be determined by the
Compensation Committee, and the opportunity to receive stock options and other
incentive awards under the Company's 1998 Stock Option and Incentive Plan.

The Employment Agreements provide for continued employment until
termination by either party. The Company, however, may terminate either
Employment Agreement with or without cause at any time. If either executive's
employment is terminated by the Company without cause, the Company is obligated
to pay the respective executive an amount equal to such executive's unvested
accrued benefits under any stock option plan, incentive plan or retirement plan
plus severance pay calculated as follows: (i) if the executive is terminated in
during the first three years of the agreement, he will receive an amount equal
his annual base salary in elect in the year of termination for three years
following termination; (ii) if the executive is terminated in the fourth year,
he will receive an amount equal to two times his annual base salary in effect in
the year of termination for two years following termination; and (iii) if the
executive is terminated in the fifth or any subsequent year of the agreement, he
will receive an amount equal to his annual base salary in the year of
termination. The Employment Agreements also provide that if the Company and
Messrs. Bloomberg and Stone do not renew the Agreements upon expiration, the
Company may elect to pay such executives two years severance in exchange for a
two-year non-competition arrangement.

MCGUIRE EMPLOYMENT AGREEMENT

Upon completion of the Company's Initial Public Offering on July 16, the
Company entered into an employment agreement with Joseph McGuire to serve as
Chief Financial Officer and Chief Information Officer of the Company. Under the
terms of this three-year agreement, Mr. McGuire will earn a base annual salary
of $185,000 and will have the opportunity to earn yearly incentive bonuses based
on performance criteria (determined by the Compensation Committee). Mr. McGuire
is also entitled to receive stock options and other incentive awards under the
Company's stock option and incentive plans. The Company may elect, upon the
expiration and non-renewal of the agreements, to pay Mr. McGuire two years of
severance pay in

7
<PAGE> 11

exchange for a two-year non-competition agreement from Mr. McGuire. If Mr.
McGuire's employment is terminated by the Company without cause, the Company is
obligated to pay Mr. McGuire an amount equal to his base salary in the year of
termination, and shall permit his options and incentives to continue to vest for
one year following termination.

COMPENSATION COMMITTEE REPORT REGARDING EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors made decisions
regarding cash compensation paid and stock options granted to the Company's
executive officers. The Compensation Committee has submitted the following
report concerning executive compensation:

COMPENSATION PHILOSOPHY

The Compensation Committee (the "Committee"), which is composed entirely of
outside independent directors, reviews, evaluates and approves the amount,
design and implementation of the Company's compensation system for executive
officers. The Committee believes that corporate performance and, in turn,
stockholder value will be best enhanced by a compensation system that supports
and reinforces the Company's key operating and strategic goals while aligning
the financial interests of the Company's executive officers with those of the
stockholders. The Company utilizes both short-term and long-term incentive
compensation programs to achieve these objectives. Executive officer incentive
compensation programs are tied to Company-wide achievement of annual financial
goals and the market value of the Company's stock. The Committee believes that
the use of Company-wide performance in setting goals promotes a unified vision
for senior management and creates common motivation among the executives. For
other salaried employees, the incentive compensation program is also tied to
divisional, departmental or store business goals and, in some cases, individual
performance.

For the Company's 1998 fiscal year, the Committee made its compensation
decisions based on a review of the Company's 1997 fiscal year performance, on
the Company's budget and other projections for the 1998 fiscal year, and on the
Company's performance in comparison to certain of its competitors. During the
1998 fiscal year, the Committee engaged a nationally known independent
compensation consultant to make an evaluation of the structure of the Company's
compensation practices in comparison to industry standards. The compensation
consultant determined that the Company's programs were generally consistent with
prevailing practices but also recommended some adjustments. As a result of these
recommendations, the Committee has adjusted some aspects of the Company's
compensation practices as noted below.

COMPONENTS OF THE EXECUTIVE COMPENSATION PROGRAM

The Company's compensation program for executive officers consists
generally of three components: base salary, an annual performance-based cash
bonus and long-term stock incentives. In making compensation decisions, the
Committee generally compares the compensation of the Company's executive
officers with compensation of officers at certain other retail companies and has
utilized a nationally known compensation consultant, as it deemed necessary.

The Committee generally compares various short- and long-term performance
measures, including total stockholder return, return on average stockholders'
equity, sales, net income and earnings per share for the Company and other
companies with which it competes with for executive talent. The Committee has
not established any particular level at which overall compensation will be set
in respect to the compensation peer group. The Committee believes that the total
compensation of the named executive officers is supported by the Company's
competitive comparisons on the short- and long-term performance factors and is
appropriate given the Company's overall performance. The individual elements of
the executive compensation program are addressed below.

ANNUAL SALARY

Each year, the Committee establishes salaries for executive officers. Such
salaries are based on proposals submitted by the Company's Chief Executive
Officer ("CEO") for annual salary for the executive officers
8
<PAGE> 12

other than himself. Based on an analysis by the compensation consultant, the
Committee set the executive officer salaries for the 1998 fiscal year. The
Committee believes that the current level of annual salaries for executive
officers is appropriate and that it also provides for a large percentage of
total compensation to be at risk under the incentive programs. In evaluating
individual executive officers, the Committee may also consider, among other
factors, (1) a qualitative evaluation of the individual executive officer's
performance provided by the CEO, (2) the job responsibilities of the individual
executive, including changes in those responsibilities, and (3) the Company's
performance in relation to its target financial goals for the prior fiscal year.

ANNUAL PERFORMANCE-BASED BONUS

The Company's executive officers are eligible to receive cash bonuses under
an annual performance-based incentive program ("Incentive Program") established
each year by the Committee and approved by the Board of Directors. The Incentive
Program is designed to motivate the Company's employees to achieve the Company's
annual operating and financial goals. The executive officers participate in the
Incentive Program. The Incentive Program allows the Committee to establish
performance goals based on pre-tax earnings. The goals are established with the
purpose of continuing the Company's record of superior performance in comparison
with its competitors.

For the 1998 fiscal year, the Incentive Program measured the Company's
achievement of its target financial goals. The target goal was established early
in the fiscal year as part of the Company's budgeting process and was approved
by the Committee. Consistent with the Committee's compensation philosophy of
tying a large percentage of total compensation to performance, the potential
maximum bonus of each executive officer was a significant percentage of that
individual's salary for the year. For the 1998 fiscal year, the target bonus
amounts ranged from 5 percent of base salary to 25 percent of base salary. The
target bonus percentages were based upon the results of the current year's
compensation study and the recommendation of the compensation consultant.

The amount of bonus payments depends upon the extent to which the Company
achieves its target financial goals for the year. For the 1998 fiscal year, if
the Company did not achieve 100 percent of the goal, no bonuses would be paid.
For performance above the target, an additional bonus would be paid with a
maximum bonus of 100 percent of the target bonus.

The Company's performance for the 1998 fiscal year was above the
requirement for payment of a bonus. As a result, bonuses were paid at the 100
percent level for the 1998 fiscal year.

LONG-TERM INCENTIVE COMPENSATION

Grants under the Company's Stock Incentive Plans provide long-term
incentive compensation and are a significant component of total compensation.
These programs are a part of the Company's performance-based incentive
compensation rewarding officers as total stockholder value increases. For
executive officers, grants under the Stock Incentive Plans are made in the form
of Incentive Stock Options. For non-employee directors, grants under the plan
are in the form of nonqualified stock options.

The Committee considers stock-based grants to be an important means of
ensuring that executive officers have a continuing incentive to increase the
long-term return to stockholders and the value of the Company's stock.
Stock-based grants also aid in retention of executives.

Stock options generally vest and become exercisable ratably over a period
of three years from the date of grant. The number of stock options to be granted
to a particular executive officer is determined by the Committee. The Committee
primarily uses a formula based on an individual's target bonus for the fiscal
year and the market price of the Company's stock, as well as the results of
compensation surveys to determine the appropriate grant size. Because the value
of stock options is entirely a function of increases in the value of the
Company's stock, the Committee believes that this component of the Company's
compensation arrangement closely aligns the interests of the executive officers
with those of the Company's stockholders.

9
<PAGE> 13

CHIEF EXECUTIVE OFFICER'S AND CHIEF OPERATING OFFICER'S COMPENSATION

The Committee determined the compensation of Samuel Bloomberg and Jeffrey
Stone, the Company's CEO and COO, respectively, for the 1998 fiscal year in a
manner consistent with the philosphy described above. The Committee approved an
increase in salary based upon a review of comparable officers in the
compensation peer group on a size-adjusted basis.

In establishing the CEO and COO compensation, the Committee has compared
their compensation with the compensation of the CEOs and COOs of the
compensation peer group in relation to the relative performance of the Company
with respect to the compensation peer group. At the beginning of fiscal 1998,
the Committee based the compensation on the fact that the Company was a
privately held company. At the IPO date, the Committee adjusted Messrs.
Bloomberg and Stone's salary to reflect that of a publicly held company.

For setting the fiscal 1998 compensation, the Committee also considered the
Company's performance during the fiscal year. The Company's performance for the
1998 fiscal year was above the requirement for payment of a bonus. As a result,
bonuses were paid at the maximum level for the 1998 fiscal year. The Committee
recognized Mr. Bloomberg's and Mr. Stone's leadership skills in assembling and
developing a strong management team and guiding the Company through its
significant growth during the last eight years, resulting in the Company's
successful Initial Public Offering this past July.

The Committee believes that Mr. Bloomberg's and Mr. Stone's compensation
for the 1998 fiscal year was appropriate in light of all of the above
considerations.

COMPENSATION AND PERSONNEL COMMITTEE

Michael Cronin
Matthew Bronfman

10
<PAGE> 14

PERFORMANCE GRAPH

Since a nationally recognized index that would represent a peer group was
not available, the Company has used the Russell 2000 to measure its performance.
The Company believes that this index is representative of a peer group because
it is comprised of companies with similar market capitalization.

<TABLE>
<CAPTION>
DATE RUSSELL 2000 DATE TWTR
<S> <C> <C> <C>
12/3/98 -14.1122422569% 12/3/98 20.5882352941%
12/2/98 -14.2675351566% 12/2/98 18.3823529412%
12/1/98 -13.9979294280% 12/1/98 18.3823529412%
11/30/98 -14.2114571650% 11/30/98 10.2941176471%
11/27/98 -13.2753860754% 11/27/98 9.9294117647%
11/26/98 -13.8728323699% 11/26/98 8.8235294118%
11/25/98 -13.8728323699% 11/25/98 8.8235294118%
11/24/98 -14.4594944353% 11/24/98 11.7647058824%
11/23/98 -14.1251833319% 11/23/98 8.8235294118%
11/20/98 -14.9577258218% 11/20/98 8.9176470588%
11/19/98 -14.9404710551% 11/19/98 4.4117647059%
11/18/98 -15.4257613666% 11/18/98 -9.1882352941%
11/17/98 -16.0059528945% 11/17/98 -10.2941176471%
11/16/98 -15.7924251574% 11/17/98 -17.6470588235%
11/13/98 -16.0210508153% 11/13/98 -17.6470588235%
11/12/98 -15.4085065999% 11/12/98 -18.3823529412%
11/11/98 -15.1345871797% 11/11/98 -16.9117647059%
11/10/98 -14.4034164438% 11/10/98 -16.9117647059%
11/9/98 -14.0647916487% 11/9/98 -17.6470588235%
11/6/98 -13.6571477871% 11/6/98 -18.3823529412%
11/5/98 -14.4185143646% 11/5/98 -17.6470588235%
11/4/98 -15.2445863170% 11/4/98 -16.9117647059%
11/3/98 -16.4092830644% 11/3/98 -16.1764705882%
11/2/98 -16.5688896558% 11/2/98 -16.1764705882%
10/30/98 -18.4367181434% 10/30/98 -17.6470588235%
10/29/98 -19.2304374083% 10/29/98 -12.5000000000%
10/28/98 -19.8796480028% 10/28/98 -13.2352941176%
10/27/99 -19.8731774653% 10/27/98 -14.7058823529%
10/26/98 -19.7502372530% 10/26/98 -15.4411764706%
10/23/98 -20.8329738590% 10/23/98 -16.1764705882%
10/22/98 -20.9731688379% 10/22/98 -17.6470588235%
10/21/98 -22.3664912432% 10/21/98 -30.1470588235%
10/20/98 -22.7180571133% 10/20/98 -34.5588235294%
10/19/98 -23.9819687689% 10/19/98 -37.5000000000%
10/16/98 -26.0482270727% 10/16/98 -35.2941176471%
10/15/98 -27.7866448106% 10/15/98 -33.8235294118%
10/14/98 -29.9068242602% 10/14/98 -32.3529411765%
10/13/98 -30.9097575705% 10/13/98 -32.3529411765%
10/12/98 -29.7687861272% 10/12/98 -34.5588235294%
10/9/98 -31.3260288155% 10/9/98 -32.3529411765%
10/8/98 -33.0773876283% 10/8/98 -35.2941176471%
10/7/98 -30.4999568631% 10/7/98 -33.0882352941%
10/6/98 -28.2740919679% 10/6/98 -26.4705882353%
10/5/98 -27.3574324907% 10/5/98 -25.0000000000%
10/2/98 -24.5729445259% 10/2/98 -25.0000000000%
10/1/98 -24.5017686136% 10/1/98 -23.5294117647%
9/30/98 -21.5792425157% 9/30/98 -19.8529411765%
9/29/98 -21.1025795876% 9/29/98 -20.5882352941%
9/28/98 -20.6259166595% 9/28/98 -32.3529411765%
9/25/98 -20.4080752308% 0/25/98 -30.5117647059%
9/24/98 -20.1427831939% 9/24/98 -23.5294117647%
9/23/98 -18.9025968424% 9/23/98 -22.0588235294%
9/22/98 -20.5763092054% 9/22/98 -22.0588235294%
9/21/98 -21.7841428695% 9/21/98 -19.8529411765%
9/18/98 -21.6504184281% 9/18/98 -19.8529411765%
9/17/98 -23.3694245535% 9/17/98 -22.0588235294%
9/16/98 -22.3859028557% 9/16/98 -19.8529411765%
9/15/98 -22.8431541713% 9/15/98 -18.7470588235%
9/14/98 -22.8453110172% 9/14/98 -23.5294117647%
9/11/98 -23.7296178069% 9/11/98 -20.5882352941%
9/10/98 -25.5952894487% 9/10/98 -12.5000000000%
9/9/98 -23.9302044690% 9/9/98 -12.5000000000%
9/8/98 -21.9372789233% 9/8/98 -16.9117647059%
9/7/98 -25.1423518247% 9/7/98 -16.1764705882%
9/4/98 -25.1423518247% 9/4/98 -16.1764705882%
9/3/98 -25.3105857993% 9/3/98 -25.0000000000%
9/2/98 -23.9388318523% 9/2/98 -20.5882352941%
9/1/98 -25.3321542576% 9/1/98 -23.5294117647%
8/31/98 -27.1093952204% 8/31/98 -22.7941176471%
8/28/98 -22.6684496592% 8/28/98 -22.7941176471%
8/27/98 -21.0378742128% 8/17/98 -20.5882352941%
8/26/98 -17.9492709861% 8/26/98 -19.1176470588%
8/25/98 -15.9347769821% 8/25/98 -19.1176470588%
8/24/98 -15.0849797256% 8/24/98 -19.1176470588%
8/21/98 -14.6665516349% 8/21/98 -19.1176470588%
8/20/98 -13.3530325252% 8/20/98 -19.1176470588%
8/19/98 -12.4665688897% 8/19/98 -11.7647058824%
8/18/98 -11.2910879130% 8/18/98 -9.5588235294%
8/17/98 -12.8720559054% 8/17/98 -4.4117647059%
8/14/98 -13.1244068674% 8/14/98 -2.9411764706%
8/13/98 -12.9000949012% 8/13/98 -1.4705882353%
8/12/98 -11.8820636701% 8/12/98 -2.2058823529%
8/11/98 -13.5967561039% 8/11/98 0.0000000000%
8/10/98 -11.2155983090% 8/10/98 0.0000000000%
8/7/98 -10.3183504443% 8/7/98 0.7352941176%
8/6/98 -12.2983349150% 8/6/98 -5.8823529412%
8/5/98 -14.0087136571% 8/5/98 0.0000000000%
8/4/98 -13.3746009835% 8/4/98 0.0000000000%
8/3/98 -10.8446208265% 8/3/98 0.0000000000%
7/31/98 -9.4663963420% 7/31/98 0.7352941176%
7/30/98 -7.3634716590% 7/31/98 2.2058823529%
7/29/98 -8.0773876283% 7/29/98 1.6529411765%
7/28/98 -7.7862134415% 7/28/98 0.0000000000%
7/27/98 -6.5740660858% 7/28/98 0.3705882353%
7/24/98 -5.4050556466% 7/24/98 6.6176470588%
7/23/98 -4.5962384609% 7/23/98 5.8823529412%
7/22/98 -2.7413510482% 7/22/98 8.8235294118%
7/21/98 -1.6176343715% 7/21/98 4.7823529412%
7/20/98 -0.3709774825% 7/20/98 8.8235294118%
7/17/98 -0.2760762661% 7/17/98 7.3529411765%
7/16/98 0.0000000000% 7/17/98 0.0000000000%
</TABLE>

PROPOSAL 2: APPROVAL OF ADOPTION OF EMPLOYEE STOCK PURCHASE PLAN

On September 15, 1998, the Board of Directors unanimously adopted the
Company's Employee Stock Purchase Plan (the "Stock Purchase Plan"), subject to
stockholder approval. As of the date hereof, no shares have been issued under
the Stock Purchase Plan.

If stockholder approval of the Stock Purchase Plan is obtained, the Company
intends to file with the Securities and Exchange Commission a Registration
Statement on Form S-8 covering the shares of Common Stock issued under the Stock
Purchase Plan.

A summary of the Stock Purchase Plan is set forth below. Although the
Company believes that all material provisions of the Stock Purchase Plan have
been set forth in this Proxy Statement, this summary does not discuss all the
elements of the Stock Purchase Plan and is qualified in its entirety by
reference to the text of the Stock Purchase Plan, a copy of which is attached to
this proxy as Annex I and is incorporated herein by reference.

SUMMARY OF STOCK PURCHASE PLAN

The Stock Purchase Plan is designed to foster continued favorable employee
relations, and to encourage and assist its employees and the employees of any
present or future subsidiaries in acquiring a stock ownership interest in
Tweeter Home Entertainment Group, Inc. (the "Company"). The Stock Purchase Plan
shall be effective beginning upon the date of its approval by the stockholders
of the Company. The Stock Purchase

11
<PAGE> 15

Plan shall continue in effect for a term of twenty (20) years unless terminated
sooner. The Company has the right to terminate the Plan at any time. The Plan is
intended to be an Employee Stock Purchase Plan under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").

Subject to adjustment pursuant to the Stock Purchase Plan, the aggregate
number of shares of Common Stock which may be sold under the Stock Purchase Plan
(the "Shares") is 500,000. The Stock Purchase Plan is to be administered by the
Administrator (the "Administrator") appointed by the Board from time to time.
Any construction, interpretation, or application of the Stock Purchase Plan by
the Administrator shall be final, conclusive and binding.

Only Eligible Employees (as defined in the Stock Purchase Plan) may
participate in the Stock Purchase Plan. For all participants in the Stock
Purchase Plan, there will be established and maintained individual accounts
("Stock Purchase Accounts"). A payroll deduction shall be made as a percentage
of compensation payable to each participant for each payroll period of the
Company as specified in the participant's participation election. Payroll
deductions for each payroll period shall not be more than 10% of such
Participant's Compensation for such payroll period. In addition, the maximum
amount that may be deducted for each Participating Employee in any one calendar
year is the lessor of (a) $5,000 and (b) that amount which would cause the total
"fair market value" of Shares purchased by the participant under the Stock
Purchase Plan, plus the "fair market value" of all other shares of capital stock
of the Company purchased by the participant in any one calendar year under
Section 423 of the Code, to exceed $25,000.

On the last business day of each calendar quarter (a "Purchase Date") so
long as the Stock Purchase Plan shall remain in effect, the Company shall apply
the funds credited to each participant's Stock Purchase Account as of that
Purchase Date to the purchase of Shares in units of one Share or multiples
thereof. The cost to each Participant for the Shares so purchased shall be
either (a) eighty-five percent (85%) of the "fair market value" of such Shares,
as measured on such Purchase Date in accordance with the definition thereof set
forth in the Stock Purchase Plan, or (b) such higher percentage of the "fair
market value" of such Shares, as measured on such Purchase Date, as the
Administrator may determine from time to time (including, without limitation,
such higher percentage as the Administrator may determine from time to time to
be necessary or appropriate in connection with the Stock Purchase Plan's status
under, or compliance with, Section 423 of the Code).

The Administrator, in its sole discretion, may determine that Shares
purchased under the Stock Purchase Plan shall be delivered by the Company by (i)
issuing and delivering to any participant a certificate for the number of Shares
purchased by the participant on a Purchase Date or during a calendar year or
other period determined by the Administrator, (ii) issuing and delivering a
certificate or certificates for the number of Shares purchased by all
participants on a Purchase Date or during a calendar year or other period
determined by the Administrator to a brokerage or investment banking firm as
selected by the Administrator from time to time, which Shares shall be
maintained by such firm in a separate brokerage account for each participant,
(iii) issuing and delivering a certificate or certificates for the number of
Shares purchased by all participants on a Purchase Date or during the calendar
year or other period determined by the Administrator to a bank or trust company
or affiliate thereof, as selected by the Administrator from time to time, which
shares may be held by such bank or trust company or affiliate in street name,
but with a separate account maintained by such entity for each Participant
reflecting such participant's interest in the Shares; or (iv) such other manner
or method of delivery as may be selected by the Administrator.

The Administrator in its sole discretion, may impose such restrictions or
limitations as it shall determine on the withdrawal of Shares (or certificates
evidencing Shares) from any accounts established for a participant as described
in clauses (ii) or (iii) of the preceding paragraph. Notwithstanding the
foregoing, in the event a participant terminates his or her employment with the
Company or otherwise ceases to be eligible to participate in the Stock Purchase
Plan, the participant shall receive a distribution of his or her Shares held in
any such account), unless the participant elects to have the Shares sold in
accordance with such procedures as the Administrator shall prescribe.

12
<PAGE> 16

As of December 23, 1998, approximately 997 employees would be eligible to
participate in the Stock Purchase Plan. The closing price of the Company's
Common Stock, as reported by the Nasdaq Stock Market on December 18, 1998, was
$24.50.

FEDERAL INCOME TAX CONSEQUENCES

Under the Code, a participant will not realize any taxable income as a
result of participating in the Stock Purchase Plan or upon the purchase of
Common Stock under the Stock Purchase Plan. Instead, taxation is deferred until
the disposition of such Common Stock by the participant. The Company will not be
entitled to a deduction for income tax purposes as a result of such purchase. A
participant will be taxed on amounts withheld from salary under the Plan as if
actually received. As discussed more fully below, the Company generally will
receive a deduction for such amounts. The participant's basis for gain or loss
will equal the amount paid for such shares.

If a participant disposes of shares purchased under the Plan more than two
years after the date of grant (the first day of the relevant offering period)
and one year after the shares are issued to the participant, and the fair market
value of the shares at the time of disposition exceeds the purchase price of the
shares, then the participant will realize taxable income. An amount equal to the
lesser of (a) the amount by which the fair market value of the shares on the
first day of the offering period for the shares exceeded the purchase price of
the shares or (b) the amount by which the fair market value of the shares at the
time of disposition exceeded the purchase price of the shares will be taxed as
ordinary income. Any gain realized in excess of the amount taxed as ordinary
income will be taxed as long-term capital gain. If a participant disposes of
shares for less than the purchase price of the shares, then the entire loss will
be treated as a long-term capital loss. In either of these cases, the Company
will not be entitled to a deduction for income tax purposes.

If a participant disposes of shares purchased under the Plan within two
years after the date of grant or within one year after the shares are issued to
the participant (a "disqualifying disposition"), the amount by which the fair
market value of the shares at the time of purchase exceeded the purchase price
of the shares will be treated as ordinary income in the nature of compensation
received by the participant in the year of the disqualifying disposition. The
Company will be entitled to a corresponding income tax deduction equal to the
amount treated as compensation to the participant. Any amount realized in excess
of the sum of the purchase price of the shares and the amount treated as
compensation will be taxed as a capital gain. If the amount realized is less
than the sum of the purchase price of the shares and the amount treated as
compensation, the difference will be treated as a capital loss. Any capital gain
or loss will be classified as long-term or short-term, depending on the
participant's holding period with respect to the shares. Generally, the
participant's holding period for the shares begins on the day following the date
the shares are purchased and includes the date of disposition.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN.

PROPOSAL 3. RATIFICATION OF SELECTION OF AUDITORS

The Board of Directors has selected the firm of Deloitte & Touche LLP,
independent certified public accountants, to serve as auditors for the fiscal
year ending September 30, 1999. Deloitte & Touche LLP served as the Company's
auditors for fiscal year 1998. A majority of the votes cast by the stockholders
represented at the meeting, in person or by proxy, is required to approve this
proposal. Representatives of Deloitte & Touche LLP will be present at the
meeting to respond to appropriate questions, and they will have an opportunity,
if they desire, to make a statement.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE SELECTION OF DELOITTE & TOUCHE LLP AS AUDITORS.

OTHER BUSINESS

The Board of Directors of the Company is not aware of any matter, other
than those described above, that may come before the meeting. However, if any
matters are properly presented to the meeting for action, it is
13
<PAGE> 17

intended that the persons named in the enclosed proxy will vote on such matters
in accordance with their best judgment.

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

In order for a stockholder proposal to be considered for inclusion in the
Company's proxy materials for the 2000 annual meeting of stockholders, it must
be received by the Company at 10 Pequot Way, Canton, MA 02021, Attention: Joseph
McGuire, no later than August 1, 1999.

ANNUAL REPORT

A copy of the Company's 1998 Annual Report to Stockholders is being mailed
with this Proxy Statement to each stockholder entitled to vote at the Annual
Meeting. Stockholders not receiving a copy of such Annual Report may obtain one,
without charge, by writing or calling Joseph McGuire at telephone (781)
830-3314, or by e-mail at [email protected].

14
<PAGE> 18

ANNEX I

TWEETER HOME ENTERTAINMENT GROUP, INC.

EMPLOYEE STOCK PURCHASE PLAN

ARTICLE I.

PURPOSE; CERTAIN DEFINITIONS

Section 1.1 Purpose. The Tweeter Home Entertainment Group, Inc. Employee
Stock Purchase Plan (the "Plan") is designed to foster continued favorable
employee relations, and to encourage and assist employees of Tweeter Home
Entertainment Group, Inc. (the "Company") and the employees of any present or
future subsidiaries of the Company in acquiring a stock ownership interest in
the Company. The Plan is intended to be an Employee Stock Purchase Plan under
Internal Revenue Code (the "Code") Section 423.

Section 1.2 Certain Definitions. As used in this Plan, the terms set
forth below shall have the following meanings:

1.2.1 "Administrator" means the individual or committee (which may be
a committee of the Board) appointed by the Board to administer the Plan, as
provided in Section 6.1 hereof.

1.2.2 "Board" means the Board of Directors of the Company.

1.2.3 "Commencement Date" means the first business day of each
Purchase Period during which the Plan is in effect, starting with the first
business day after this Plan is first adopted.

1.2.4 "Compensation" means, with respect to any employee, the total
annual earnings of such employee paid by the Company or its subsidiaries,
as reported by the Company or such subsidiary on such employee's Form W-2.

1.2.5 "Eligible Employee" means each employee of the Company or any of
its subsidiaries who has completed one year of continuous service other
than: (a) an employee whose customary employment is for 29 hours or less
per week, (b) an employee whose customary employment is for not more than
five months in any calendar year, (c) an employee who has not reached the
age of majority in the state within which such employee works or resides,
(d) an employee who is deemed for purposes of Section 423(b)(3) of the Code
to own stock (either before or after giving effect to any proposed purchase
of Shares) possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company, or (e) an
employee not otherwise satisfying any additional eligibility criteria
established by the Administrator from time to time. The determination of
whether a particular entity is a "subsidiary" of the Company for purposes
of the Plan shall be made by the Administrator in its sole discretion.

1.2.6 "Fair Market Value" of Shares on any date means the last sale
price reported by Nasdaq, or any comparable national securities association
or national securities exchange on which the Common Stock is traded, for
the Common Stock for the nearest prior business day on which trading in the
Common Stock occurred on the Nasdaq National Market or any such comparable
national securities association or national securities exchange. If on any
day for which Fair Market Value is to be determined the Common Stock of the
Company is not admitted to trading on the Nasdaq National Market or any
other national securities association or national securities exchange for
which last sale prices are commonly reported, then Fair Market Value of the
Shares on that date shall be determined on such basis as shall be
established or specified for the purpose in good faith by the
Administrator.

1.2.7 "Participant" means each Eligible Employee who elects to
participate in the Plan pursuant to the terms and conditions of the Plan.

1.2.8 "Purchase Date" means the last business day of each Purchase
Period.

I-1
<PAGE> 19

1.2.9 "Purchase Period" means each calendar quarter beginning each
January 1, April 1, July 1, and October 1.

ARTICLE II:

STOCK SUBJECT TO THE PLAN

Section 2.1 Shares Under the Plan. Subject to adjustment pursuant to
Section 8.1 of the Plan, the aggregate number of shares of the Company's Common
Stock, $.01 par value ("Common Stock") which may be sold under the Plan (the
"Shares") is 500,000. The Shares may be authorized, but unissued, or reacquired
shares of Common Stock of the Company. The Company, during the term of the Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

ARTICLE III:

ELIGIBILITY

Section 3.1 Participation. Only Eligible Employees may participate in the
Plan. Any Eligible Employee may elect to be a Participant and may become a
Participant by executing and filing with the Administrator one or more
participation election documents in the form prescribed by the Administrator
from time to time (a "Participation Election"). The effective date of an
Eligible Employee's participation shall be the Commencement Date next following
the date which is thirty (30) days after the date on which the Administrator
receives from the Eligible Employee a properly filed Participation Election.
Participation in the Plan will continue automatically from one Purchase Period
to another unless participation is otherwise terminated hereunder.

Section 3.2 Voluntary Withdrawal. Any Participant may voluntarily
withdraw from the Plan by filing a notice of withdrawal with the Administrator
in the form prescribed by the Administrator from time to time. Upon such
withdrawal, there shall be paid to the Participant the cash amount, if any,
remaining in his or her Stock Purchase Account (as defined below in Section
4.1). The delivery of certificates representing the Shares held for such
Participant under the Plan shall be handled in the manner provided in Section
5.2(c).

Section 3.3 Termination of Participation.

(a) Termination. A Participant's participation in the Plan will be
terminated when the Participant (1) resigns or is discharged from the Company or
its subsidiaries, (2) dies, (3) does not receive pay from the Company or its
subsidiaries for twelve (12) consecutive months, unless this period is due to
illness, injury or for other reasons approved by the Administrator, or (4)
otherwise does not qualify as an Eligible Employee. Subject to Section 3.3(b)
with respect to termination due to death, upon termination of participation, the
Participant shall be paid the cash amount, if any, remaining in his or her
individual Stock Purchase Account within thirty (30) days after termination, and
the delivery of certificates representing the Shares held for such Participant
under the Plan shall be handled in the manner provided in Section 5.2(c).

(b) Beneficiaries Upon Death. Each Participant may designate a beneficiary
or beneficiaries of the Stock Purchase Account in the event of such
Participant's death, and such Participant may change his or her designation, in
each case by filing with the Administrator such forms as may be required by the
Administrator for such purpose from time to time. Any designation shall be
effective only after it is received by the Administrator and shall become
effective as of the date it is signed. Upon the death of a Participant any cash
amounts remaining in his or her Stock Purchase Account shall be paid or
distributed to the beneficiary or beneficiaries designated by such Participant,
or in the absence of such designation, to the executor or administrator of his
or her estate, and in either event the Company shall not be under any further
liability to anyone. Notwithstanding the foregoing provisions of this Section
3.3(b), the rights of any Participant to designate any such beneficiary with
respect to any rights of the Participant in an account referred to in clauses
(ii) or (iii) of Section 5.2(b) shall be governed by the requirements of the
entity with which such account is established or maintained, and the Company
shall have no responsibility or liability with respect to any such designation
or requirements.
I-2
<PAGE> 20

ARTICLE IV:

PAYROLL DEDUCTIONS

Section 4.1 Accounts. For all Participants in the Plan, there shall be
established and maintained individual accounts ("Stock Purchase Accounts"). The
Company shall provide, or cause to be provided, to each Participant a statement
of account quarterly or for such other time period as may be determined by the
Administrator, which statement will set forth, as to such Participant's Stock
Purchase Account, the amount of all payroll deductions made during such time
period, the number of Shares purchased on the Purchase Date(s) within the
relevant time period by such Participant and the per share purchase price of
Shares, and the cash balance credit, if any, remaining in such Stock Purchase
Account as of such Purchase Date(s). No interest shall accrue on any amounts
held in the Stock Purchase Account from time to time. All payroll deductions
received or held by the Company under the Plan may be used by the Company for
any corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.

Section 4.2 Payroll Deductions, Limitations, and Stock Purchase
Accounts. Subject to this Section 4.2, a payroll deduction shall be made on
behalf of each Participant for each payroll period of the Company in the dollar
amount as specified in such Participant's Participation Election. Payroll
deductions for each payroll period shall not be more than ten percent (10%) of
such Participant's Compensation for such payroll period. In addition, the
maximum amount that may be deducted for each Participating Employee in any one
calendar year (the "Maximum Amount") shall be the lesser of: (a) $5,000; and (b)
that amount which would cause the total Fair Market Value of Shares purchased
under the Plan by the Participant, plus the Fair Market Value of all other
shares of capital stock of the Company purchased by the Participant under any
other plan of the Company intended to qualify under Section 423 of the Code, in
any one calendar year to exceed $25,000. For purposes of determining the Maximum
Amount, Fair Market Value will be determined as of each Commencement Date in
which the Participant participates in the Plan. When a Participating Employee's
aggregate payroll deductions for the calendar year total the Maximum Amount, the
Participant's purchases of Shares and payroll deductions under the Plan shall be
suspended for the remainder of the calendar year, but the Participant shall not
cease to be a Participant under the Plan solely by reason of such suspension.

Section 4.3 Changes in Payroll Deductions. A Participant may change the
dollar amount of his or her payroll deductions, subject to the limitations set
forth in Section 4.2 above by executing and filing with the Administrator one or
more documents in the forms prescribed by the Administrator for such purpose
from time to time. The effective date of such changes shall be the Commencement
Date next following the date which is thirty (30) days after the date on which
the Administrator receives from the Participant such documents properly filed.

ARTICLE V:

ISSUANCE OF SHARES

Section 5.1 Issuance of Shares. On each Purchase Date so long as the Plan
shall remain in effect, the Company shall apply the funds credited to each
Participant's Stock Purchase Account as of that Purchase Date to the purchase of
Shares in units of one Share or multiples thereof. The cost to each Participant
for the Shares so purchased shall be eighty-five (85%) of the Fair Market Value
of such Shares, as measured on such Purchase Date, or such higher percentage of
the Fair Market Value of such Shares, as measured on such Purchase Date, as the
Administrator may determine from time to time (including, without limitation,
such higher percentage as the Administrator may determine from time to time to
be necessary or appropriate in connection with the Plan's status under, or
compliance with, Section 423 of the Code). Any monies remaining in such
Participant's Stock Purchase Account equaling less than the sum required to
purchase one Share shall, unless otherwise requested by the Participant, be held
in the Participant's Stock Purchase Account for use during the next Purchase
Period. If the number of Shares that all Participants desire to purchase at any
Purchase Date exceeds the number of Shares then available under the Plan, the
Shares available shall be allocated among such Participants in proportion to
their contributions during the Purchase Period ending on

I-3
<PAGE> 21

such Purchase Date. The delivery of certificates representing the Shares held
for each Participant under the Plan shall be handled in the manner provided in
Section 5.2(b).

Section 5.2 Share Ownership; Issuance of Certificates.

(a) Participant's Ownership. The Shares purchased by a Participant on a
Purchase Date shall, for all purposes, be deemed to have been issued or sold at
the close of business on the Purchase Date. Prior to that time, none of the
rights or privileges of a shareholder of the Company shall inure to the
Participant with respect to such Shares. All the Shares purchased under the Plan
shall be delivered by the Company in a manner as determined by the Administrator
in accordance with subsection (b).

(b) Delivery of Shares. The Administrator, in its sole discretion, may
determine that Shares purchased under the Plan shall be delivered by the Company
by (i) issuing and delivering to any Participant a certificate for the number of
Shares purchased by the Participant on a Purchase Date or during a calendar year
or other period determined by the Administrator, (ii) issuing and delivering a
certificate or certificates for the number of Shares purchased by all
Participants on a Purchase Date or during a calendar year or other period
determined by the Administrator to a brokerage or investment banking firm
selected by the Administrator from time to time, which Shares may be held by
such brokerage or investment banking firm in street name, but with a separate
brokerage account for each Participant, (iii) issuing and delivering a
certificate or certificates for the number of Shares purchased by all
Participants on a Purchase Date or during the calendar year or other period
determined by the Administrator to a bank or trust company or affiliate thereof
selected by the Administrator from time to time, which shares may be held by
such bank or trust company or affiliate in street name, but with a separate
account maintained by such entity for each Participant reflecting such
Participant's interest in the Shares; or (iv) such other manner or method of
delivery as may be selected by the Administrator.

(c) Restrictions on Withdrawals, Etc. The Administrator in its sole
discretion, may impose such restrictions or limitations as it shall determine on
the withdrawal of Shares (or certificates evidencing Shares) from any accounts
established for a Participant pursuant to clauses (ii) or (iii) of Section
5.2(b). Notwithstanding the foregoing, in the event a Participant terminates his
or her employment with the Company or otherwise ceases to be an Eligible
Employee, the Participant shall receive a distribution of his or her Shares held
in any account established pursuant to clauses (ii) or (iii) of Section 5.2(b),
unless the Participant elects to have the Shares sold in accordance with such
procedures as the Administrator shall prescribe.

Section 5.4 Compliance With Laws. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to provide for the purchase or
delivery of Shares if the Administrator or the Company concludes that such
purchase or delivery would not be in compliance with applicable legal
requirements, including without limitation the Securities Act of 1933, as
amended.

Section 5.5 Notice to Company of Disqualifying Disposition. By electing
to participate in the Plan, each Participant agrees to notify the Company in
writing immediately after such Participant transfers Shares acquired under the
Plan, if such transfer occurs within two years after the Commencement Date of
the Purchase Period in which such Shares were acquired or within one year after
the end of that Purchase Period. Each Participant further agrees to provide any
information about such a transfer as may be requested by the Company in order to
assist it in complying with the tax laws, and understands that such dispositions
have certain tax consequences to Participants and to the Company.

ARTICLE VI:

ADMINISTRATION

Section 6.1 Administration. The Plan shall be administered by the
Administrator appointed by the Board from time to time. Without limiting the
foregoing, the Administrator shall have the power to construe and interpret the
Plan, any Participation Election and any other documents, instruments or
agreements relating thereto; to decide all questions relating to an employee's
status and eligibility to participate in the Plan; to make adjustments to the
limitations on payroll deductions set forth in Section 4.2; to employ such

I-4
<PAGE> 22

other persons as are necessary for the proper administration of the Plan; and to
make all determinations necessary or advisable in administering the Plan. Any
construction, interpretation, or application of the Plan by the Administrator
shall be final, conclusive and binding.

ARTICLE VII:

EFFECTIVE DATE, MODIFICATION AND TERMINATION OF THE PLAN

Section 7.1 Effective Date and Term. The Plan shall be effective
beginning January 26, 1999, which is the date of the approval of the Plan by the
stockholders of the Company. The Plan shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 7.2 or Section 8.2.

Section 7.2 Company's Reservation of Rights. The Company reserves the
right to amend, alter, or terminate the Plan in its discretion at any time.

Section 7.3 Return of Amounts Upon Termination. Upon termination of the
Plan, each Participant shall be entitled to receive the amount remaining in his
or her individual Stock Purchase Account, and the Participant shall be entitled
to receive a distribution of his or her Shares held in any account established
pursuant to clauses (ii) or (iii) of Section 5.2(b), unless the Participant
elects to have the Shares sold in accordance with such procedures as the
Administrator shall prescribe, in each case within a reasonable time following
such termination.

ARTICLE VIII.

ADJUSTMENTS UPON CHANGES IN CAPITALIZATION:

Section 8.1 Anti-Dilution Provisions. The aggregate number of Shares
reserved for purchase under the Plan, as provided in Section 2.1, and the
calculation of the purchase price per Share, may be appropriately adjusted to
reflect any increase or decrease in the number of issued Shares resulting from a
subdivision or consolidation of shares or other capital adjustment, or the
payment of a stock dividend, or other increase or decrease in such Shares, if
effected without receipt of consideration by the Company. Any such adjustment
shall be made by the Administrator acting with the consent of, and subject to
the approval of, the Board of Directors.

Section 8.2 Dissolution, Merger, Etc. Subject to any required action by
the Company's shareholders, if the Company shall be the surviving corporation in
any merger or consolidation, any offering under the Plan shall pertain to and
apply to the Shares of Common Stock of the Company. However, in the event of (a)
a dissolution or liquidation of the Company, (b) a merger or consolidation in
which the Company is not the surviving corporation, (c) any transaction that
results in the Common Stock ceasing to be publicly traded, the Plan and any
offering under the Plan shall terminate upon the effective date of such
dissolution, liquidation, merger consolidation or transaction, and the balance
of any amounts remaining in a Participant's Stock Purchase Account and which had
not by such time been applied to the purchase of Shares shall be returned to the
Participant, without interest, and the Participant shall be entitled to receive
a distribution of his or her Shares held in any account established pursuant to
clauses (ii) or (iii) of Section 5.2(b), unless the Participant elects to have
the Shares sold in accordance with such procedures as the Administrator shall
prescribe, in each case within a reasonable time following such termination.

ARTICLE IX:

MISCELLANEOUS PROVISIONS

Section 9.1 Assignment. No rights of any Participant under this Plan
shall be assignable by him or her, by operation of law, or otherwise, except to
the extent that a Participant is permitted to designate a beneficiary or
beneficiaries as hereinabove provided, and except to the extent permitted by the
law of descent and distribution if no such beneficiary be designated.

I-5
<PAGE> 23

Section 9.2 Participation in Other Plans. Nothing herein contained shall
affect a Participant's right to participate in and receive benefits under and in
accordance with the then current provisions of any pension, insurance, or other
employee welfare plan or program of the Company, including without limitation
any stock option or incentive plan maintained from time to time by the Company.

Section 9.3 Governing Law. The interpretation, performance, and
enforcement of this Plan shall be governed by the laws of the State of Delaware.

Dated Adopted by Company's Board of Directors: December 10, 1998

Dated Adopted by Company's Stockholders: January 26, 1999

I-6
<PAGE> 24

1748-PS-98
<PAGE> 25
DETACH HERE

TWEETER HOME ENTERTAINMENT GROUP, INC.
10 Pequot Way
Canton, Massachusetts 02021
P
R SOLICITED BY THE BOARD OF DIRECTORS
O FOR THE ANNUAL MEETING OF STOCKHOLDERS
X
Y THE UNDERSIGNED HEREBY APPOINTS JEFFREY STONE AND JOSEPH MCGUIRE, EACH
WITH THE POWER TO APPOINT HIS SUBSTITUTE, AND HEREBY AUTHORIZES THEM TO
REPRESENT AND TO VOTE, AS DESIGNATED ON THE REVERSE SIDE, ALL SHARES OF
COMMON STOCK OF TWEETER HOME ENTERTAINMENT GROUP, INC. (THE "COMPANY")
HELD OF RECORD BY THE UNDERSIGNED ON DECEMBER 23, 1998 AT THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 26, 1999 AND ANY
ADJOURNMENTS THEREOF.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.

PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

[SEE REVERSE SIDE]
<PAGE> 26

Dear Stockholder:

Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the operation of the Company that require your
immediate attention.

Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.

Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.

Thank you in advance for your prompt consideration of these matters.

Sincerely,

Tweeter Home Entertainment Group, Inc.

DETACH HERE

PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.

1. Election of Directors
NOMINEES: Matthew Bronfman, and
Steven S. Fischman

FOR WITHHELD
[ ] [ ]

[ ]______________________________
For all nominees except as noted above

2. Ratify the appointment For Against Abstain
Deloitte & Touche LLP
as independent auditors. [ ] [ ] [ ]

3. Approve the adoption of the For Against Abstain
Company's Employee Stock
Purchase Plan. [ ] [ ] [ ]

4. In their discretion the For Against Abstain
proxies are authorized to
vote upon any other business [ ] [ ] [ ]
that may properly come before
the meeting.

MARK HERE
FOR ADDRESS
CHANGE AND [ ]
NOTE AT LEFT

Please sign exactly as name appears hereon. Joint owners should each sign.
Executors, administrators, trustees, guardians or other fiduciaries should give
full title as such. If signing for a corporation, please sign in full corporate
name by a duly authorized officer.

Signature:____________ Date:________________ Signature:___________ Date_________