Edgar Filing: KOSS CORP

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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )

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KOSS CORPORATION
4129 NORTH PORT WASHINGTON AVENUE
MILWAUKEE, WISCONSIN 53212

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON

OCTOBER 17, 2002

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
Meeting) of Koss Corporation will be held at the Milwaukee River Hilton Hotel at
4700 North Port Washington Avenue, Milwaukee, Wisconsin, on Thursday, October
17, 2002, at 9:00 a.m. local time to consider and act on the following
proposals:

1. The election of six (6) directors;

2. The ratification of the appointment of PricewaterhouseCoopers
LLP, independent accountants, as auditors of the Company for
the fiscal year ending June 30, 2003; and

3. Such other business as may properly be brought before the
Meeting.

The transfer books of the Company will not be closed for the Meeting.
Only stockholders of record at the close of business on August 15, 2002 will be
entitled to notice of and to vote at the Meeting. Information regarding the
matters to be considered and voted upon at the Meeting is set forth in the Proxy
Statement accompanying this Notice.

You are cordially invited to attend the Meeting in person, if possible.
In order to assist us in preparing for the Meeting, all stockholders are urged
to promptly sign and date the enclosed proxy and return it in the enclosed
envelope which requires no postage. If you attend the Meeting, you may vote your
shares in person even if you previously submitted a proxy.

By Order of the Board of Directors

Sujata Sachdeva, Secretary

Milwaukee, Wisconsin
September 19, 2002

KOSS CORPORATION

PROXY STATEMENT

2002 ANNUAL MEETING OF STOCKHOLDERS

OCTOBER 17, 2002

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

INTRODUCTION

THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE BOARD OF DIRECTORS OF KOSS CORPORATION (the "Company") for use at
the Company's 2002 Annual Meeting of Stockholders (the "Meeting") and any
adjournment thereof, for the purposes set forth in the foregoing Notice of
Annual Meeting of Stockholders.

DATE, TIME AND LOCATION. The Meeting will be held at the Milwaukee River
Hilton Hotel, 4700 North Port Washington Avenue, Milwaukee, Wisconsin, 53212, on
Thursday, October 17, 2002, at 9:00 a.m. local time.

PURPOSES OF THE MEETING. At the Meeting, stockholders will consider and
vote upon the following: (i) the election of six (6) directors for one-year
terms; (ii) a proposal to ratify the appointment of PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), independent accountants, as independent auditors for
the fiscal year ending June 30, 2003; and (iii) such other business as may
properly be brought before the Meeting.

PROXY SOLICITATION. The cost of soliciting proxies will be borne by the
Company. Proxies will be solicited primarily by mail and may be made by
directors, officers and employees personally or by telephone. The Company will
reimburse brokerage firms, custodians and nominees for their out-of-pocket
expenses incurred in forwarding proxy materials to beneficial owners. Proxy
Statements and proxies will be mailed to stockholders on approximately September
23, 2002.

QUORUM AND VOTING INFORMATION. Only stockholders of record of the Company's
$.005 par value common stock ("Common Stock") at the close of business on August
15, 2002 (the "Record Date"), are entitled to vote at the Meeting. As of the
Record Date, there were issued 3,911,756 shares of Common Stock, of which
241,202 shares were held as treasury shares. Accordingly, as of the Record Date,
there were 3,670,554 shares of Common Stock outstanding and entitled to vote. A
quorum of stockholders is necessary to take action at the Meeting. A majority of
the outstanding shares of Common Stock, represented in person or by proxy, will
constitute a quorum of stockholders at the Meeting. Votes cast by proxy or in
person at the Meeting will be tabulated by the inspector of elections appointed
for the Meeting. The inspector of elections will determine whether or not a
quorum is present at the Meeting. The inspector of elections will treat
abstentions as shares of Common Stock that are present and entitled to vote for
purposes of determining the presence of a quorum. If a broker indicates on the
proxy that it does not have discretionary authority to vote certain shares of
Common Stock on a particular matter (a "broker non-vote"), those shares will not
be considered as present and entitled to vote with respect to that matter
(although those shares are considered entitled to vote for quorum purposes and
may be entitled to vote on other matters).

The six nominees receiving the greatest number of votes cast in person or
by proxy at the Meeting will be elected directors of the Company. The vote
required to ratify the appointment of PricewaterhouseCoopers as independent
accountants for the year ending June 30, 2003, and to approve any other matter
to be presented to the Meeting, is the affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy at the Meeting.
Abstentions and broker non-votes will have no effect on the election of
directors and will have the same effect as votes "against" ratification of
PricewaterhouseCoopers as the Company's auditors for the year ending June 30,
2003.

PROXIES AND REVOCATION OF PROXIES. A proxy in the accompanying form, which
is properly executed, duly returned to the Company and not revoked, will be
voted in accordance with instructions contained therein. In the event that any
matter which is not described in this Proxy Statement properly comes before the
Meeting, the accompanying form of proxy authorizes the persons appointed as
proxies thereby ("Proxyholders") to vote on such matter in their sole
discretion. At the present time, management knows of no other matters which are
to come before the Meeting. See "ITEM 4. TRANSACTION OF OTHER BUSINESS." If no
instructions are given with respect to any particular matter to be acted upon, a
proxy will be voted "FOR" the election of all nominees for director named
herein, and "FOR" the ratification of PricewaterhouseCoopers as the Company's
auditors for the year ending June 30, 2003. If matters other than those
mentioned herein properly come before the Meeting, a proxy will be voted in
accordance with the best judgment of a majority of the Proxyholders named
therein.

Each such proxy granted may be revoked at any time before it is voted by
filing with the Secretary of the Company a written notice of revocation, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Meeting and voting in person.

ANNUAL REPORT. The Company's Annual Report to Stockholders, which includes
the Company's Form 10-K and its audited financial statements for the year ended
June 30, 2002, although not a part of this Proxy Statement, is delivered
herewith.

ITEM 1. ELECTION OF DIRECTORS

The By-Laws of the Company provide that the number of Directors on the
Board shall be no fewer than six and no greater than twelve. Given the varied
experience of the current nominees and their contribution to the governing of
the Company, the current size of the Board has been determined to be
advantageous for both the Company and its stockholders. Shares cannot be voted
for a greater number of persons than six vacant positions. Each director so
elected shall serve until the next Annual Meeting of Stockholders and until his
successor is duly elected, or until his prior death, resignation or removal.

INFORMATION AS TO NOMINEES

The following identifies the nominees for the six director positions and
provides information as to their business experience for the past five years.
Each nominee is presently a director of the Company:

JOHN C. KOSS, 72, has served continuously as Chairman of the Board of
the Company or its predecessors since 1958. Previously, he served as
Chief Executive Officer from 1958 until 1991. He is the father of
Michael J. Koss (who is the Company's Vice Chairman, President, Chief
Executive Officer, Chief Financial Officer, and Chief Operating
Officer, and a nominee for director of the Company), and the father of
John Koss, Jr. (the Company's Vice President - Sales).

THOMAS L. DOERR, 58, has been a director of the Company since 1987. In
1972, Mr. Doerr co-founded Leeson Electric Corporation and served as
its President and Chief Executive Officer until 1982. The company
manufactures industrial electric motors. In 1983, Mr. Doerr
incorporated Doerr Corporation as a holding company for the purpose of
acquiring established companies involved in distributing products to
industrial and commercial markets. Currently, Mr. Doerr serves as
President of Doerr Corporation.

MICHAEL J. KOSS, 48, has held various positions at the Company since
1976, and has been a director of the Company since 1985. He was elected
President, Chief Operating Officer and Chief Financial Officer of the
Company in 1987, Chief Executive Officer in 1991, and Vice-Chairman in
1998. He is the son of John C. Koss and the brother of John Koss, Jr.
Mr. Koss is also director of Strattec Security Corporation.

LAWRENCE S. MATTSON, 70, has been a director of the Company since 1978.
Mr. Mattson is the retired President of Oster Company, a division of
Sunbeam Corporation, which manufactures and sells portable household
appliances.

MARTIN F. STEIN, 65, Mr. Stein has been a director of the Company since
1987. He is the former Chairman of Eyecare One, Inc., which includes
Stein Optical and Eye Q optical centers. Prior to that, Mr. Stein was
the Chairman and Chief Executive Officer of Stein Health Services. He
is also a director of Northwestern Mutual Series Fund, Inc., Mason
Street Series.

JOHN J. STOLLENWERK, 62, has been a director of the Company since 1986.
Mr. Stollenwerk is the President and Chief Executive Officer of the
Allen-Edmonds Shoe Corporation, an international manufacturer and
retailer of high quality footwear. He is also a director of
Allen-Edmonds Shoe Corporation, Badger Meter, Inc., U.S. Bancorp, and
Northwestern Mutual Life Insurance Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE ELECTION OF ALL
NOMINEES NAMED ABOVE TO THE BOARD OF DIRECTORS.

BOARD COMMITTEES

The Board of Directors of the Company has the following standing
committees:

AUDIT COMMITTEE. The Audit Committee, which is composed of Mr.
Mattson, Mr. Doerr, and Mr. Stein, reviews and evaluates the
effectiveness of the Company's financial and accounting functions,
including reviewing the scope and results of the audit work performed
by the independent accountants and by the Company's internal accounting
staff. The Audit Committee met twice during the fiscal year ended June
30, 2002. The independent accountants were present at both of these
meetings to discuss their audit scope and the results of their audit.

COMPENSATION COMMITTEE. The Compensation Committee, which is
composed of John C. Koss, Mr. Mattson, and Mr. Stollenwerk, has
responsibility for reviewing and recommending adjustments for all
employees whose annual salaries exceed $75,000 or who report directly
to the Company's Chief Executive Officer. The Compensation Committee
met once during the fiscal year ended June 30, 2002. See "Compensation
Committee Report on Executive Compensation." The Company's 1990
Flexible Incentive Plan (the "Plan") is administered by the
Compensation Committee. Subject to the express provisions of the Plan,
the Committee has complete authority to (i) determine when and to whom
benefits are granted; (ii) determine the terms and provisions of
benefits granted; (iii) interpret the Plan; (iv) prescribe, amend and
rescind rules and regulations relating to the Plan; (v) accelerate,
purchase, adjust or remove restrictions from benefits; and (vi) take
any other action which it considers necessary or appropriate for the
administration of the Plan.

NOMINATING COMMITTEE. The Board of Directors has no nominating
committee and the Company has no established procedure for the
nomination of persons to serve on the Board of Directors.

ATTENDANCE AT BOARD AND COMMITTEE MEETINGS. During the fiscal year ended
June 30, 2002, the Board held four meetings. Every incumbent director attended
75% or more of the total of (i) all meetings of the Board, plus (ii) all
meetings of the committees on which they served during their respective terms of
office.

EXECUTIVE OFFICERS

Information is provided below with respect to the executive officers of the
Company who are not directors. Each executive officer is elected annually by the
Board of Directors and serves for one year or until his or her successor is
appointed.

CURRENT POSITION
NAME AGE POSITIONS HELD HELD SINCE
--------------------- ------ ---------------------------------------- --------------------

John Koss, Jr. 45 Vice President - Sales 1988

Sujata Sachdeva 38 Vice President - Finance and Secretary 1992

Lenore E. Lillie 43 Vice President - Operations 1998

BENEFICIAL OWNERSHIP OF COMPANY SECURITIES

SECURITY OWNERSHIP BY NOMINEES AND MANAGEMENT. The following table sets
forth, as of August 1, 2002, the number of shares of Common Stock "beneficially
owned" (as defined under applicable SEC regulations), and the percentage of such
shares to the total number of shares outstanding, for all nominees, for each
executive officer named in the Summary Compensation Table (see "Executive
Compensation and Related Matters - Summary Compensation Table"), for all
directors and executive officers as a group, and for each person and each group
of persons who, to the knowledge of the Company as of June 30, 2002, were the
beneficial owners of more than 5% of the outstanding shares of Common Stock.

NUMBER OF PERCENT OF
SHARES OUTSTANDING
BENEFICIALLY COMMON STOCK
NAME AND BUSINESS ADDRESS (1) OWNED (2) (3)
---------------------------------------------------------------------- ------------- ------------

John C. Koss (4)...................................................... 1,378,083 37.54%
Michael J. Koss (5) .................................................. 995,631 26.33%
John Koss, Jr. (6) ................................................... 281,271 7.49%
Thomas L. Doerr....................................................... 0 *
Victor L. Hunter...................................................... 2 *
Lawrence S. Mattson................................................... 0 *
Martin F. Stein....................................................... 9,000 *
John J. Stollenwerk................................................... 9,130 *
Sujata Sachdeva (7)................................................... 8,845 *
Lenore E. Lillie (8).................................................. 20,387 *
All directors and executive Officers as a group (10 persons) (9)...... 2,641,985 68.30%
Koss Family Voting Trust, John C. Koss, Trustee (10).................. 580,672 15.82%
Koss Employee Stock Ownership Trust ("KESOT") (11).................... 411,176 11.20%
Dimensional Fund Advisors (12)........................................ 210,800 5.74%
-----------------------

(1) Unless otherwise noted, the business address of all persons named
in the above table is c/o Koss Corporation, 4129 North Port
Washington Avenue, Milwaukee, WI 53212.

(2) Unless otherwise noted, amounts indicated reflect shares as to
which the beneficial owner possesses sole voting and dispositive
powers. Also included are shares subject to stock options if such
options are exercisable within 60 days of August 1, 2002.

(3) All percentages shown in the above table are based on 3,670,554
shares outstanding and entitled to vote (which number excludes
241,202 treasury shares) on August 1, 2002, plus (for Michael J.
Koss, John C. Koss, Jr., Ms. Sachdeva and Ms. Lillie, and for all
directors and executive officers as a group) the number of
options exercisable within 60 days of August 1, 2002. The
Percentage calculation assumes, for each individual owning
options and for directors and executive officers as a group, the
exercise of that number of stock options that are exercisable
within 60 days of August 1, 2002. Asterisk (*) denotes beneficial
ownership of less than 1%.

(4) Includes the following shares which are deemed to be
"beneficially owned" by John C. Koss: (i) 561,712 shares owned
directly or by his spouse; (ii) 111,034 shares as a result of his
position as an officer of the Koss Foundation; (iii) 580,672
shares as a result of his position as trustee of the Koss Family
Voting Trust; (iv) 124,300 shares as a result of his position as
co-trustee of the John C. and Nancy Koss Revocable Trust; and (v)
365 shares by reason of the allocation of those shares to his
account under the Koss Employee Stock Ownership Trust ("KESOT")
and his ability to vote such shares pursuant to the terms of the
KESOT - see "Executive Compensation and Related Matters - Other
Compensation Arrangements - Employee Stock Ownership Plan and
Trust."

(5) Includes the following shares which are deemed to be
"beneficially owned" by Michael J. Koss: (i) 474,455 shares owned
directly or by reason of family relationships; (ii) 56,084 shares
by reason of the allocation of those shares to his account under
the KESOT and his ability to vote such shares; (iii) 110,000
shares with respect to which he holds options which are
exercisable within 60 days of August 1, 2002; and (iv) 411,176
shares which are held by the KESOT (see Note (9), below). The

56,084 shares allocated to Michael J. Koss' KESOT account, over
which he holds voting power, are included within the
aforementioned 411,176 shares but are counted only once in his
individual total.

(6) Includes the following shares which are deemed to be
"beneficially owned" by John Koss, Jr.: (i) 158,014 shares owned
directly or by reason of family relationships; (ii) 82,500 shares
with respect to which he holds options which are exercisable
within 60 days of August 1, 2002; and (iii) 40,757 shares by
reason of the allocation of those shares to his account under the
KESOT and his ability to vote such shares.

(7) Includes the following shares which are deemed to be
"beneficially owned" by Sujata Sachdeva: (i) 0 shares owned
directly; (ii) 2,500 shares with respect to which she holds
options which are exercisable within 60 days of August 1, 2002;
and (iii) 6,345 shares by reason of the allocation of those
shares to her account under the KESOT and her ability to vote
such shares.

(8) Includes the following shares which are deemed to be
"beneficially owned" by Lenore E. Lillie: (i) 5,000 shares owned
directly; (ii) 2,500 shares with respect to which she holds
options which are exercisable within 60 days of August 1, 2002;
and (iii) 12,887 shares by reason of the allocation of those
shares to her account under the KESOT and her ability to vote
such shares.

(9) This group includes 10 people, all of who are listed on the
accompanying table. To avoid double-counting: (i) the 411,176
total shares held by the KESOT and deemed to be beneficially
owned by Michael J. Koss as a result of his position as a KESOT
Trustee (see Note (5), above) include shares allocated to the
KESOT accounts of John C. Koss, Michael J. Koss, John Koss, Jr.,
Ms. Sachdeva and Ms. Lillie in the above table but are included
only once in the total; and (ii) the 580,672 shares deemed to be
beneficially owned by John C. Koss as a result of his position as
trustee of the Koss Family Voting Trust (see Note (4), above) are
included in his individual total share ownership and are included
only once in the total.

(10) The Koss Family Voting Trust was established by John C. Koss. The
sole Trustee is John C. Koss. The term of the Koss Family Voting
Trust is indefinite. Under the Trust Agreement, John C. Koss, as
Trustee, holds full voting and dispositive power over the shares
held by the Koss Family Voting Trust. All of the 580,672 shares
held by the Koss Family Voting Trust are included in the number
of shares shown as beneficially owned by John C. Koss (see Note
(4), above).

(11) The KESOT holds 411,176 shares. Authority to vote these shares is
vested in KESOT participants to the extent shares have been
allocated to individual KESOT accounts. All 411,176 of these
KESOT shares are also included in the number of shares shown as
beneficially owned by Michael J. Koss (see Note (5), above).
Michael J. Koss and Cheryl Mike (the Company's Director of Human
Resources) serve as Trustees of the KESOT and, as such, they
share dispositive power with respect to (and are therefore each
deemed under applicable SEC rules to beneficially own) all
411,176 KESOT shares.

(12) 1299 Ocean Ave., 11th Floor, Santa Monica, CA 90401. The share
ownership reported by Dimensional Fund Advisors is based on the
most recently available public information obtained by the
Company.

EXECUTIVE COMPENSATION AND RELATED MATTERS

SUMMARY COMPENSATION TABLE. The following table presents certain summary
information concerning compensation paid or accrued by the Company for services
rendered in all capacities during the fiscal years ended June 30, 2002, 2001,
and 2000 for (i) the Chief Executive Officer ("CEO") of the Company, and (ii)
each of the other four executive officers of the Company (determined as of the
end of the last fiscal year) whose total annual salary and bonus exceeded
$100,000 (collectively, including the CEO, the "Named Executive Officers").

LONG-TERM
COMPENSATION (1)
--------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------------ --------------------------
SECURITIES
FISCAL UNDERLYING
YEAR OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND PRINCIPAL ENDED SALARY BONUS COMPENSATION(2) STOCK AWARDS SARS(3) COMPENSATION(4)
POSITION JUNE 30 ($) ($) ($) ($) (#) ($)
-------------------- ----------- ------------- ------------- -------------- ------------- ----------- ---------------

John C. Koss 2002 $150,000 $232,049 $ 0 $ 0 0 $ 19,539
Chairman of the Board 2001 150,000 267,185 0 0 0 132,142
2000 150,000 164,855 0 0 0 135,769

Michael J. Koss 2002 $195,000 $324,869 $289,500 0 60,000 $ 19,222
Chief Executive Officer 2001 185,000 374,060 81,438 0 30,000 17,842
2000 175,000 230,797 230,263 0 20,000 14,881

John Koss, Jr 2002 $145,000 $ 43,264 $141,600 0 40,000 $ 18,373
Vice President - Sales 2001 136,500 150,000 183,000 0 20,000 15,884
2000 130,000 34,020 51,900 0 15,000 13,426

Sujata Sachdeva 2002 $ 90,503 $ 21,291 $ 81,738 0 10,000 $ 14,566
Vice President - Finance 2001 86,250 23,221 118,963 0 5,000 15,172
2000 75,000 17,200 37,601 0 5,000 8,219

Lenore E. Lillie 2002 $ 90,563 $ 21,291 $118,200 0 10,000 $ 14,918
Vice President - 2001 86,250 23,221 434,088 0 5,000 14,651
Operations 2000 75,000 17,200 53,388 0 5,000 8,862

--------
(1) The above table omits information concerning Long Term Incentive Plans
("LTIPs") (plans, other than restricted stock, stock option, or SAR
plans, which provide for the payment of incentive compensation for
performance expected to occur over more than one fiscal year) because
the Company has no LTIPs.
(2) This column consists of the value realized upon the exercise of stock
options for the fiscal years indicated. For more information, see
"Aggregate Stock Option Exercises During the Fiscal Year." In all cases,
the value of perquisites and other benefits in any fiscal year did not
exceed the lesser of $50,000 or 10% of the total salary and bonus
reported and, under applicable SEC compensation disclosure rules, are
not required to be included in this column.
(3) This column consists of Incentive Stock Options granted to executive
officers for the fiscal years indicated. For additional information, see
"Stock Options Granted During Fiscal Year" and "Other Compensation
Arrangements - Stock Option Plans."
(4) "All Other Compensation" consists of the following: (i) Company matching
contributions under the Company's 401(k) Plan for the accounts of John
C. Koss ($7,866 in 2002, $7,500 in 2001, and $7,500 in 2000), Michael J.
Koss ($11,000 in 2002, $10,500 in 2001, and $10,500 in 2000), John Koss,
Jr. ($11,103 in 2002, $9,880 in 2001, and $11,870 in 2000), Ms. Sachdeva
($10,259 in 2002, $11,224 in 2001, and $7,849 in 2000), and Ms. Lillie
($10,606 in 2002, $10,752 in 2001, and $7,866 in 2000); (ii) Company
contributions to the KESOT for the accounts of John C. Koss ($5,868 in
2002, $5,917 in 2001, and $289 in 2000), Michael J. Koss ($5,868 in
2002, $5,917 in 2001, and $289 in 2000), John Koss, Jr. ($5,868 in 2002,
$5,917 in 2001, and $289 in 2000), Ms. Sachdeva ($4,062 in 2002, $3,914
in 2001, and $167 in 2000), and Ms. Lillie ($3,937 in 2002, $3,749 in
2001, and $168 in 2000); (iii) premiums paid by the Company for life
insurance for John C. Koss ($5,805 in 2002, $3,645 in 2001, and $12,900
in 2000), Michael J. Koss ($2,354 in 2002, $1,425 in 2001, and $4,092 in
2000), John Koss, Jr. ($1,402 in 2002, $87 in 2001, and $1,267 in 2000),
Ms. Sachdeva ($245 in 2002, $34 in 2001, and $203 in 2000), and Ms.
Lillie ($375 in 2002, $150 in 2001, and $828 in 2000); and (iv) for the
fiscal years 2001 and 2000, an annual accrued expense of $115,080 in
connection with the Company's agreement to continue to pay John C. Koss
his current base salary for the remainder of his life, and no such
accrual for the fiscal year 2002.

STOCK OPTIONS GRANTED DURING FISCAL YEAR. The following table provides
certain information concerning stock options granted to Named Executive Officers
during the fiscal year ended June 30, 2002.

INDIVIDUAL GRANTS
-----------------------------
PERCENT OF
TOTAL
SECURITIES OPTIONS/ SARS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED TO ASSUMED ANNUAL RATES OF STOCK PRICE
OPTIONS/ EMPLOYEES IN EXERCISE OR APPRECIATION FOR OPTION TERM (2)
SARS GRANTED FISCAL YEAR BASE PRICE EXPIRATION -----------------------------------
NAME (#) (1) ($ PER SHARE) DATE 0% 5% 10%
------------------- -------------- --------------- --------------- ---------------- ---------- ---------- ----------

John C. Koss n/a n/a n/a n/a n/a n/a n/a

Michael J. Koss 60,000 40.0% $18.48 April 24, 2007 $(100,800) $ 177,600 $ 615,600

John Koss, Jr 40,000 26.7% 18.48 April 24, 2007 (67,200) 118,400 410,400

Sujata Sachdeva 10,000 6.7% 16.80 April 24, 2012 0 46,400 108,000

Lenore E. Lillie 10,000 6.7% 16.80 April 24, 2012 0 46,400 108,000

------
(1) The percentages set forth in this table are based on 150,000 total stock
option shares granted for the fiscal year ended June 30, 2002.
(2) Based on the closing price on April 24, 2002, the date such options were
granted. The exercise price for Michael J. Koss and John Koss, Jr. is
equal to 110% of the closing price on the date of grant.

AGGREGATE STOCK OPTION EXERCISES DURING THE FISCAL YEAR. The following
table provides certain information about stock options exercised by the Named
Executive Officers during the fiscal year ended June 30, 2002 and held by the
Named Executive Officers on June 30, 2002.

NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
SHARES UNEXERCISED OPTIONS/SARS AT OPTIONS AT FISCAL YEAR END (1)
ACQUIRED ON VALUE FISCAL YEAR END (DOLLARS)
EXERCISE REALIZED ------------------------------- --------------------------------
NAME (#) (DOLLARS) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- -------------- ------------- ------------- ------------- -------------- -------------

John C. Koss n/a n/a n/a n/a n/a n/a
Michael J. Koss 30,000 $ 289,500 110,000 150,000 $ 999,625 $ 457,875
John Koss, Jr. 15,000 141,600 82,500 97,500 762,463 275,688
Sujata Sachdeva 7,500 81,738 2,500 25,000 0 78,525
Lenore E. Lillie 10,000 118,200 2,500 25,000 0 78,525

------
(1) Based on the $16.75 per share market value of the Common Stock on
June 30, 2002, determined with reference to the closing price of the
Common Stock on that date as reported on The Nasdaq Stock Market.
Options are "in-the-money" if the fair market value of the Common
Stock on June 30, 2002 exceeded the exercise price.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. John C. Koss,
who is the Chairman of the Board and executive officer of the Company, serves on
the Compensation Committee.

DIRECTOR COMPENSATION. Directors who are not also employees of the Company
receive an annual retainer of $5,000, plus $1,250 per director for each meeting
and $500 per director for each committee meeting.

OTHER COMPENSATION ARRANGEMENTS. The Company has certain other compensation
plans and arrangements which are available to the CEO and certain of the Named
Executive Officers including the following:

- SUPPLEMENTAL MEDICAL CARE REIMBURSEMENT PLAN. Each officer of the
Company is covered by a medical care reimbursement plan for all medical
expenses incurred which are not covered under group health insurance up
to an annual maximum of 10% of salary. Amounts reimbursed under this
Plan are included under the column headed "All Other Compensation" in
the summary compensation table.

- EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. In December 1975, the Company
adopted the KESOT, which is a form of employee benefit plan designed to
invest primarily in employer securities. The KESOT is qualified under
Section 401(a) of the Internal Revenue Code. All full-time employees
with at least six months' uninterrupted service with the Company are
eligible to participate in the KESOT. Contributions to the KESOT are
allocated to the accounts of participants in proportion to the ratio
that a participant's compensation bears to total compensation of all
participants.

Accounts are adjusted each year to reflect the investment experience of
the trust and forfeitures from accounts of non-vested terminated
participants. All unallocated shares will be voted by the KESOT
Trustees as directed by the KESOT Committee. Michael J. Koss and Cheryl
Mike currently serve as KESOT Trustees and as the members of the KESOT
Committee. Voting rights for all allocated shares are passed through to
the participant for whose account such shares are allocated, and must
be voted by the Trustees in accordance with the participants'
direction. As of August 1, 2002 the KESOT held 411,176 shares of Common
Stock (approximately 10.51% of the total number of shares outstanding).

- OFFICER LOAN POLICY. On January 31, 1980, the Board adopted an Officer
Loan Policy. The significant provisions of the policy are: (i) the
maximum amount to be loaned is limited to one-half of the officer's
annual base salary; (ii) the first $10,000 bears no interest; (iii) in
the event the loan balance exceeds $10,000, interest is charged on the
entire amount at the minimum rate provided by Section 483 of the
Internal Revenue Code; and (iv) the loan will be repaid in installments
or in full upon termination of employment. During the fiscal year ended
June 30, 2002, no officer had an officer loan that exceeded $60,000.
Given the recent passage of the Sarbanes-Oxley Act of 2002, the Company
will no longer have an officer loan policy.

- RETIREMENT AGREEMENT. The Board of Directors adopted a resolution to
continue to pay to John C. Koss his current base salary in the event he
became disabled prior to age 70. After age 70, Mr. Koss is eligible to
receive his current base salary of $150,000 for the remainder of his
life, whether he becomes disabled or not. Mr. Koss is over 70 years old
and will be entitled to receive this benefit upon his retirement from
the Company.

- STOCK OPTION PLANS. In 1990, the Board of Directors created, and the
stockholders approved, a Flexible Incentive Plan (the "Plan"). This
Plan is administered by the Compensation Committee and vests the
Compensation Committee with discretionary powers to choose from a
variety of incentive compensation alternatives to make annual
stock-based awards to officers, key employees and other members of the
Company's management team. John C. Koss is not eligible for any grants
since he is a member of the Compensation Committee.

- SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Board of Directors has by
resolution entered into a Supplemental Executive Retirement Plan with
Michael J. Koss which calls for Mr. Koss to receive annual cash
compensation following his retirement from the Company ("Retirement
Payments") in an amount equal to 2% of the base salary of Mr. Koss,
multiplied by his number of years of service to the Company (for
example, if Mr. Koss had worked 25 years, then he would be entitled to
receive 50% of base salary). The base salary shall be calculated using
the average base salary of Mr. Koss during the three years preceding
his retirement. The Retirement Payments are to be paid to Mr. Koss
monthly until his death, and after his death shall continue to be paid
monthly to his surviving spouse until her death.

- PROFIT SHARING PLAN. Every quarter of each fiscal year, the Company
sets aside a percentage of any operating profits and distributes it to
all employees (except John C. Koss, Michael J. Koss, and John Koss,
Jr.) based on their hourly rate of pay. All full-time Koss employees
(except John C. Koss, Michael J. Koss, and John Koss, Jr.) are eligible
for profit sharing if they have been employed for the complete fiscal
quarter. Deductions are made from profit sharing for each absence (paid
sick days and unpaid days) based on the number of hours of time lost.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors (the "Committee") is composed of
three non-employee directors. The members of the Committee are: Mr. Mattson, Mr.
Doerr and Mr. Stein. Each member of the Committee is "independent" as defined in
The Nasdaq Stock Market listing standards. The Committee held two meetings
during its fiscal year 2002.

The responsibilities of the Committee are set forth in its Charter, which is
reviewed and amended periodically, as appropriate. Generally, the Committee
reviews and monitors the Company's financial reporting process on behalf of the
Board of Directors. In fulfilling its responsibility, the Committee recommends
to the full Board of Directors the selection of the Company's independent
accountants. The Committee discusses with the independent accountants the
overall scope and specific plans for their respective audits. The Committee also
discusses the Company's consolidated financial statements, the effectiveness and
adequacy of the Company's internal controls and pending litigation. The
Committee meets twice a year with the Company's independent accountants to
discuss the results of their examinations, their evaluations of the Company's
internal controls, and the overall quality of the Company's financial reporting.

Specifically, the Committee has: (i) reviewed and discussed the Company's
audited financial statements for the fiscal year ended June 30, 2002 with the
Company's management; (ii) discussed with the Company's independent auditors the
matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards), as may be modified or supplemented; and (iii) received the
written disclosures and the letter from the Company's independent accountants
required by Independence Standards Board Standard No. 1 (Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees), as may be
modified or supplemented, and has discussed with the Company's independent
accountants the independent accountants' independence. Based on the review and
discussions referred to above, the Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002 for filing
with the SEC.

AUDIT COMMITTEE
LAWRENCE S. MATTSON
THOMAS L. DOERR
MARTIN F. STEIN

THE REPORT OF THE AUDIT COMMITTEE SHALL NOT BE DEEMED INCORPORATED BY REFERENCE
BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO
ANY FILING UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT
OF 1934 (TOGETHER, THE "ACTS"), EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER SUCH ACTS.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Under SEC rules, the Company is required to provide certain information
concerning compensation provided to the Company's Chief Executive Officer and
the Named Executive Officers. The disclosure requirements for these individuals
include the use of tables and a report of the Committee responsible for
compensation decisions for these individuals, explaining the rationale and
considerations that led to those compensation decisions. Therefore, the
Compensation Committee of the Board of Directors has prepared the following
report for inclusion in this Proxy Statement:

The Compensation Committee of the Board of Directors ("Compensation
Committee") is composed of Mr. Stollenwerk, Mr. Mattson, Mr. Hunter and
the Chairman of the Board, John C. Koss. The Compensation Committee is
responsible for the review of all employee salaries in excess of $75,000
or who report directly to the Company's Chief Executive Officer. The
Compensation Committee also reviews all bonus, commission and stock
option programs. The Compensation Committee meets as a group each spring
and reviews its report with the full Board prior to the end of the fiscal
year. This system enables management to plan the following year more
appropriately.

The Company employs a compensation program linked to company-wide
performance and individual achievement. All executive officers are
reviewed twice each year. Raises in base salaries are made in July when
necessary or when promotions are announced. In addition, the Company has
a Flexible Incentive Plan, an Employee Stock Ownership Plan and Trust, a
401(k) Plan, and a Profit Sharing Plan. The Company also has a

cafeteria benefits plan to provide flexibility to employees to choose
their own health care and associated benefits package from an array of
offerings. The Company shares the cost of medical insurance with its
employees.

The Company's executive officers are paid base salaries commensurate
with their responsibilities, after comparison with base salaries of
executive officers of other light assembly or manufacturing companies
taken from data in an annual national survey.

Executive officers are also eligible for annual bonuses based upon
individual performance and overall Company performance and profitability.
Factors relevant to determining such bonuses include attainment of
corporate revenue and earnings goals and the development of new accounts.
The Company's Chairman is eligible to receive a bonus calculated as a
percentage of the Company's earnings before interest and taxes. The
Company's Vice President-Sales is entitled to receive a bonus based upon
increases in sales over the prior year, and a bonus for obtaining new
accounts from a predetermined list of potential new accounts and for
adding new product lines to current accounts. The Company's Vice
President - Europe is entitled to receive a bonus based upon the
Company's sales in export markets.

The Compensation Committee annually reviews and determines the
compensation of Michael J. Koss, President and Chief Executive Officer.
Michael J. Koss' salary is based on his experience, responsibilities,
historical salary levels for himself and other executive officers of the
Company, and the salaries of Chief Executive Officers of other light
assembly or manufacturing companies. Michael J. Koss is also eligible to
receive a bonus calculated as a percentage of the Company's earnings
before interest and taxes. He also participates in the Company's Flexible
Incentive Plan.

COMPENSATION COMMITTEE
JOHN C. KOSS
LAWRENCE S. MATTSON
JOHN J. STOLLENWERK

THE REPORT OF THE COMPENSATION COMMITTEE SHALL NOT BE DEEMED INCORPORATED
BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS
PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933 OR UNDER
THE SECURITIES EXCHANGE ACT OF 1934 (TOGETHER, THE "ACTS"), EXCEPT TO THE
EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY
REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.

STOCK PRICE PERFORMANCE INFORMATION

The graph and table below set forth information comparing the yearly
cumulative total return on the Company's Common Stock over the past five years
with the yearly cumulative total return on (i) stocks included in The Nasdaq
Stock Market (US Companies) Index, and (ii) a group of peer companies ("Peer
Group"). The Peer Group consists of Boston Acoustics, Inc., Digital Video
Systems, Inc., and Phoenix Gold International, Inc. The Peer Group used last
year also included Sensory Science Corporation, which is not included in this
year's Peer Group as a result of its acquisition by another company. For
purposes of the graph and table, it is assumed that on June 30, 1997, $100 was
invested in the stock of each of (i) the Company, (ii) the companies on The
Nasdaq Stock Market (US Companies) Index, and (iii) the companies in the Peer
Group (the cumulative return for the investment in the stock of companies in the
Peer Group is weighted according to the relative market capitalization of each
company as adjusted at the end of each fiscal year shown on the table). The
graph and table also assume that all dividends paid were reinvested in the stock
of the issuing companies. THE STOCK PRICE PERFORMANCE INFORMATION SHOWN IN THE
GRAPH AND TABLE BELOW SHOULD NOT BE CONSIDERED INDICATIVE OF FUTURE PERFORMANCE.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
JUNE 2002

[PERFORMANCE CHART]

1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----

Koss Corp $ 100.00 $ 115.71 $ 138.57 $ 181.43 $ 357.14 $ 394.81
NASDAQ US $ 100.00 $ 131.62 $ 189.31 $ 279.93 $ 151.75 $ 102.81
Peer Group $ 100.00 $ 88.16 $ 68.19 $ 52.96 $ 45.68 $ 45.07

RELATED TRANSACTIONS

BUILDING LEASE. The Company leases its main plant and offices in Milwaukee,
Wisconsin, from its Chairman, John C. Koss, under a lease which expires on June
30, 2003 (subject to renewal) at a current rent of $380,000 per year. The
Company is responsible for all property maintenance, insurance, taxes and other
normal expenses related to ownership. The Company believes that the lease is on
terms no less favorable to the Company than those that could be obtained from
unaffiliated parties.

STOCK REPURCHASES. The Company has previously announced its intention to
repurchase shares of Common Stock in the open market or in private transactions
as such shares become available from time to time, because the Company believes
that its stock is undervalued in the current market and that such repurchases
enhance the value to stockholders. Consistent with this policy, the Company
repurchased 301,202 shares during the fiscal year ended June 30, 2002. The
Company believes that purchases of Common Stock enhance stockholder value and
will continue from time to time to engage in such transactions either on the
open market or in private transactions.

The Company has an agreement with its Chairman, John C. Koss, to repurchase
Common Stock from his estate in the event of his death. The repurchase price is
95% of the fair market value of the Common Stock on the date that notice to
repurchase is provided to the Company. The total number of shares to be
repurchased shall be sufficient to provide proceeds which are the lesser of
$2,500,000 or the amount of estate taxes and administrative expenses incurred by
his estate. The Company is obligated to pay in cash 25% of the total amount due
and to execute a promissory note at the prime rate of interest for the balance.
The Company maintains a $1,150,000 life insurance policy to fund a substantial
portion of this obligation. At June 30, 2002, $1,490,000 has been classified as
a Contingently Redeemable Equity Interest on the Company's financial statements
reflecting the estimated obligation in the event of execution of the agreement.

SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC and
with The Nasdaq Stock Market reports of ownership and changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.

Based solely on review of such reports furnished to the Company or
representations that no other reports were required, the Company believes that,
during the 2002 fiscal year, all filing requirements applicable to its officers,
directors, and greater than 10% beneficial owners were complied with except as
follows:

- John C. Koss will file two late reports covering two transactions (the
minimum required distribution of shares and in-service withdrawal of
shares allocated to his KESOT account, and the gifting of shares to
grandchildren);

- Michael J. Koss filed two late reports covering two transactions (a
grant of 60,000 stock options on April 24, 2002, and an exercise (with
no corresponding resale) of 20,000 stock options of June 27, 2002);

- John C. Koss, Jr. filed one late report covering the grant of 40,000
stock options on April 24, 2002;

- Sujata Sachdeva filed one late report covering the grant of 10,000
stock options on April 24, 2002; and

- Lenore Lillie filed one late report covering the grant of 10,000 stock
options.

ITEM 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR

The Board of Directors, following the recommendation of its Audit
Committee, has retained PricewaterhouseCoopers as independent accountants to
audit the consolidated financial statements of the Company and its subsidiaries
for the fiscal year ending June 30, 2003. PricewaterhouseCoopers has served the
Company as its independent auditors since September 1992. Representatives of
PricewaterhouseCoopers are expected to be present at the Meeting, and will have
the opportunity to make a statement if they desire to do so. The
PricewaterhouseCoopers representatives are expected to be available to respond
to appropriate questions at the Meeting.

AUDIT FEES. The aggregate fees billed by PricewaterhouseCoopers for
professional services rendered for the audit of the Company's annual
consolidated financial statements and the reviews of the consolidated financial
statements included in the Company's quarterly 10-Q filings, for the fiscal year
ended June 30, 2002, were $79,000.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The
aggregate fees billed by PricewaterhouseCoopers for professional services
rendered in connection with consulting on financial information systems design
implementation, for the fiscal year ended June 30, 2002, were $0.

ALL OTHER FEES. The aggregate fees billed by PricewaterhouseCoopers for
professional services rendered, which primarily related to income tax
compliance, tax consulting, audits of employee benefit plans, and other services
for the fiscal year ended June 30, 2002, were $80,900.

The Audit Committee has considered whether the performance of the services
described above under the caption "All Other Fees" is compatible with
maintaining PricewaterhouseCoopers' independence.

Although this appointment is not required to be submitted to a vote by
stockholders, the Board believes it appropriate, as a matter of policy, to
request that the stockholders ratify the appointment. If stockholder
ratification (by the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy at the Meeting) is not received,
the Board will reconsider the appointment. Unless otherwise directed, the proxy
will be voted in favor of the ratification of such appointment.

THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" RATIFICATION OF
PRICEWATERHOUSECOOPERS AS INDEPENDENT
ACCOUNTANTS FOR THE YEAR ENDING JUNE 30, 2003

ITEM 3. TRANSACTION OF OTHER BUSINESS

The Board of Directors of the Company is not aware of any other matters
that may come before the meeting. If any other matters are properly presented to
the meeting for action, it is the intention of the persons named as proxies in
the enclosed form of proxy to vote such proxies in accordance with their best
judgment on such matters.

STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING

There are no stockholder proposals on the agenda for the Meeting. In order
to be eligible for inclusion in the Company's proxy materials for its 2003
annual meeting, a stockholder proposal must be received by the Company no later
than May 27, 2003 and must otherwise comply with the applicable rules of the
Securities and Exchange Commission. To avoid controversy over when a stockholder
proposal is received, stockholder proposals should be sent by certified mail,
return receipt requested, and should be addressed to the Secretary of the
Company.

PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!

ANNUAL MEETING OF STOCKHOLDERS
KOSS CORPORATION

OCTOBER 17, 2002

\/ Please Detach and Mail in the Envelope Provided \/

A [X] PLEASE MARK YOUR |_
VOTES AS IN THIS
EXAMPLE.

FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as to vote for all nominees
specified below) listed at right
FOR AGAINST ABSTAIN
1. ELECTION / / / / Nominees: 2. PROPOSAL TO RATIFY THE / / / / / /
OF 1 - John C. Koss APPOINTMENT OF
DIRECTORS: 2 - Thomas L. Doerr PRICEWATERHOUSECOOPERS
(Instructions: To withhold authority to vote for any 3 - Michael J. Koss LLP AS INDEPENDENT
indicated nominee, write the number(s) of the 4 - Lawrence S. Mallson AUDITORS OF THE
nominee(s) in the space provided below.) 5 - Martin F. Stein CORPORATION FOR THE FISCAL
6 - John J. Stollenwerk YEAR ENDING JUNE 30, 2003.
_____________________________________________________
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED
TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.

Check appropriate box. Name Change? / /

Indicate changes below:
Address Change? / /

___________________________
___________________________
___________________________

Signature ______________________________ Date: ____________, 2002 Signature ______________________________ Date: ____________, 2002

NOTE: Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney,
executors, administrators, trustee or guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized
person.

PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!

ANNUAL MEETING OF STOCKHOLDERS
KOSS CORPORATION

KESOT PLAN

OCTOBER 17, 2002

\/ Please Detach and Mail in the Envelope Provided \/

A [X] PLEASE MARK YOUR |_
VOTES AS IN THIS
EXAMPLE.

Check appropriate box. Name Change? / /

Indicate changes below:
Address Change? / /

___________________________
___________________________
___________________________

Signature ______________________________ Date: ____________, 2002 Signature ______________________________ Date: ____________, 2002