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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-12
KOSS CORPORATION
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(Name of Registrant as Specified in Its Charter)
Richard W. Silverthorn, Esq.
Whyte Hirschboeck Dudek S.C.
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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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 18, 2001
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
Meeting) of Koss Corporation will be held at the offices of the Company at 4129
North Port Washington Avenue, Milwaukee, Wisconsin, on Thursday, October 18,
2001, at 9:00 a.m. local time to consider and act on the following proposals:
1. The election of seven (7) directors;
2. A proposal to amend the Company's 1990 Flexible Incentive Plan to
increase the number of shares available for grant thereunder;
3. The ratification of the appointment of PricewaterhouseCoopers LLP,
independent accountants, as auditors of the Company for the fiscal
year ending June 30, 2002; and
4. 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 21, 2001 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
/s/ Richard W. Silverthorn
Richard W. Silverthorn, Secretary
Milwaukee, Wisconsin
September 7, 2001
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NOTE TO PRINTER: LEAVE THIS PAGE (INSIDE FRONT COVER) BLANK
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KOSS CORPORATION
PROXY STATEMENT
2001 ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 18, 2001
-----------------------
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 2001 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 offices of the
Company, 4129 North Port Washington Avenue, Milwaukee, Wisconsin, 53212, on
Thursday, October 18, 2001, 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 seven (7) directors for one-year terms;
(ii) a proposal to amend the Company's 1990 Flexible Incentive Plan to increase
the number of shares available for grant thereunder; (iii) a proposal to ratify
the appointment of PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"),
independent accountants, as independent auditors for the fiscal year ending June
30, 2002; and (iv) 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
7, 2001.
QUORUM AND VOTING INFORMATION. Only stockholders of record of the Company's
$.01 par value common stock ("Common Stock") at the close of business on August
21, 2001 (the "Record Date"), are entitled to vote at the Meeting. As of the
Record Date, there were 1,913,378 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 seven 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 approve the amendment to the 1990 Flexible Incentive Plan, to ratify
the appointment of PricewaterhouseCoopers as independent accountants for the
year ending June 30, 2002, 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" the proposal to amend the Company's 1990 Flexible
Incentive Plan and "against" ratification of PricewaterhouseCoopers as the
Company's auditors for the year ending June 30, 2002.
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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, "FOR" the proposal to amend the Company's 1990 Flexible Incentive Plan,
and "FOR" the ratification of PricewaterhouseCoopers as the Company's auditors
for the year ending June 30, 2002. 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, 2001, although not a part of this Proxy Statement, is delivered
herewith.
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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. In accordance with the
By-Laws, the Board of Directors has by resolution fixed the number of Directors
at seven. 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 seven 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 seven 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, 71, 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, 57, 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.
VICTOR L. HUNTER, 54, has been a director of the Company since 1987.
Mr. Hunter is the President of Hunter Business Group, LLC, a service
company specializing in business-to-business direct marketing. Mr.
Hunter holds an MBA from the Harvard Business School.
MICHAEL J. KOSS, 47, 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, 69, 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, 64, Mr. Stein has been a director of the Company since
1987. He is the former Chairman of Eyecare One, Inc., which included
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, 61, 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.
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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, 2001. 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, Mr. Stollenwerk, and Mr. Hunter,
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, 2001. 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, 2001, 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. 44 Vice President - Sales 1988
Sujata Sachdeva 37 Vice President - Finance 1992
Lenore E. Lillie 42 Vice President - Operations 1998
Richard W. Silverthorn* 46 Secretary and General Counsel 1993
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* Mr. Silverthorn is an attorney and shareholder with the law firm of Whyte
Hirschboeck Dudek S.C., Milwaukee, Wisconsin, which law firm serves as
legal counsel to the Company.
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BENEFICIAL OWNERSHIP OF COMPANY SECURITIES
SECURITY OWNERSHIP BY NOMINEES AND MANAGEMENT. The following table sets
forth, as of August 1, 2001, 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 August 1, 2001, based
solely on the review of Schedule 13D or 13G information statements of such
beneficial owner filed with the SEC, 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)...................................................... 728,266 37.5%
Michael J. Koss (5) .................................................. 570,717 28.7%
John Koss, Jr. (6) ................................................... 150,147 7.6%
Thomas L. Doerr....................................................... 0 *
Victor L. Hunter...................................................... 1 *
Lawrence S. Mattson................................................... 0 *
Martin F. Stein....................................................... 4,500 *
John J. Stollenwerk................................................... 4,500 *
Sujata Sachdeva (7)................................................... 3,046 *
Lenore E. Lillie (8).................................................. 7,571 *
All directors and executive Officers as a group (11 persons) (9)...... 1,361,969 67.4%
Koss Family Voting Trust, John C. Koss, Trustee (10).................. 292,336 15.0%
Koss Employee Stock Ownership Trust ("KESOT") (11).................... 296,020 15.2%
FMR Corp. (12)........................................................ 91,000 4.7%
Dimensional Fund Advisors Inc. (13)................................... 201,900 10.4%
----------------
(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, 2001.
(3) All percentages shown in the above table are based on 1,943,378
shares outstanding on August 1, 2001, 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, 2001. 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, 2001. For informational purposes
only, between August 1, 2001 and the August 21 Record Date, the
Company repurchased and retired 30,000 shares. 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) 277,196 shares owned
directly or by his spouse; (ii) 55,517 shares as a result of his
position as an officer of the Koss Foundation; (iii) 292,336
shares as a result of his position as trustee of the Koss Family
Voting Trust; (iv) 26,000 shares as a result of his position as
co-trustee of the John C. and Nancy Koss Revocable Trust; and (v)
77,217 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) 227,197 shares owned
directly or by reason of family relationships; (ii) 27,859 shares
by reason
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of the allocation of those shares to his account under the KESOT
and his ability to vote such shares; (iii) 47,500 shares with
respect to which he holds options which are exercisable within 60
days of August 1, 2001; and (iv) 296,020 shares which are held by
the KESOT (see Note (9), below). The 27,859 shares allocated to
Michael J. Koss' KESOT account, over which he holds voting power,
are included within the aforementioned 296,020 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) 98,702 shares owned
directly or by reason of family relationships; (ii) 31,250 shares
with respect to which he holds options which are exercisable
within 60 days of August 1, 2001; and (iii) 20,195 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) 0 shares with respect to which she holds options
which are exercisable within 60 days of August 1, 2001; and (iii)
3,046 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) 1,250 shares owned
directly; (ii) 0 shares with respect to which she holds options
which are exercisable within 60 days of August 1, 2001; and (iii)
6,321 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 11 people, nine of whom are listed on the
accompanying table, plus Richard W. Silverthorn (Secretary and
General Counsel). To avoid double-counting: (i) the 296,020 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 292,336 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 only
included 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 292,336 shares
are included in the number of shares shown as beneficially owned
by John C. Koss (see Note (4), above).
(11) The KESOT holds 296,020 shares. Authority to vote these shares is
vested in KESOT participants to the extent shares have been
allocated to individual KESOT accounts. All 296,020 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
296,020 KESOT shares.
(12) 82 Devonshire Street, Boston MA 02109.
(13) 1299 Ocean Ave., 11th Floor, Santa Monica, CA 90401. The
following is qualified in its entirety by reference to a Schedule
13G statement dated February 2, 2001 by Dimensional Fund Advisors
(the "Schedule 13G"): Dimensional Fund Advisors Inc.
("Dimensional"), an investment advisor registered under Section
203 of the Investment Advisors Act of 1940, furnishes investment
advice to four investment companies registered under the
Investment Company Act of 1940, and serves as investment manager
to certain other investment vehicles, including commingled group
trusts and separate accounts. (These investment companies and
investment vehicles are the "Funds"). In its role as investment
advisor and investment manager, Dimensional possesses both voting
and investment power over the securities of the Issuer described
in this schedule that are owned by the Funds. All securities
reported in this schedule are owned by the Funds, and Dimensional
disclaims beneficial ownership of such securities.
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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, 2001, 2000,
and 1999 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
$100,000 (collectively, including the CEO, the "Named Executive Officers").
LONG-TERM
COMPENSATION (1)
--------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- --------------------------
SECURITIES
UNDERLYING
FISCAL YEAR OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND PRINCIPAL ENDED SALARY BONUS COMPENSATION(2) STOCK AWARDS SARS(3) COMPENSATION(4)
POSITION JUNE 30 ($) ($) ($) ($) (#) ($)
----------------------- ----------- ---------- ---------- --------------- ------------ ------------ ---------------
John C. Koss 2001 $ 150,000 $ 267,185 $ 0 $ 0 0 $ 17,062
Chairman of the Board 2000 150,000 164,855 0 0 0 135,769
1999 150,000 206,012 0 0 0 140,461
Michael J. Koss 2001 $ 185,000 $ 374,060 $ 81,438 $ 0 30,000 $ 17,842
Chief Executive Officer 2000 175,000 230,797 230,263 0 20,000 14,881
1999 165,000 288,417 0 0 50,000 23,559
John Koss, Jr. 2001 $ 136,500 $ 150,000 $ 183,000 $ 0 20,000 $ 15,884
Vice President - Sales 2000 130,000 34,020 51,900 0 15,000 13,426
1999 125,000 22,165 0 0 25,000 16,526
Sujata Sachdeva 2001 $ 86,250 $ 23,221 $ 118,963 $ 0 5,000 $ 15,172
Vice President - Finance 2000 75,000 17,200 37,601 0 5,000 8,219
1999 52,000 11,500 19,039 0 5,000 8,511
Lenore E. Lillie 2001 $ 86,250 $ 23,221 $ 434,088 $ 0 5,000 $ 14,651
Vice President - 2000 75,000 17,200 53,388 0 5,000 8,862
Operations 1999 71,500 12,650 4,413 0 5,000 11,223
-----------
(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 401k Plan for the accounts of John C.
Koss ($7,500 in 2001, $7,500 in 2000 and $7,486 in 1999), Michael J.
Koss ($10,500 in 2001, $10,500 in 2000 and $9,964 in 1999), John Koss,
Jr. ($9,880 in 2001, $11,870 in 2000 and $3,917 in 1999), Ms. Sachdeva
($11,224 in 2001, $7,849 in 2000 and $2,618 in 1999), and Ms. Lillie
($10,752 in 2001, $7,866 in 2000 and $3,186 in 1999); (ii) Company
contributions to the KESOT for the accounts of John C. Koss ($5,917 in
2001, $289 in 2000 and $12,090 in 1999), Michael J. Koss ($5,917 in
2001, $289 in 2000 and $12,090 in 1999), John Koss, Jr. ($5,917 in 2001,
$289 in 2000 and $12,090 in 1999), Ms. Sachdeva ($3,914 in 2001, $167 in
2000 and $5,716 in 1999), and Ms. Lillie ($3,749 in 2001, $168 in 2000
and $7,247 in 1999); (iii) premiums paid by the Company for life
insurance for John C. Koss ($3,645 in 2001, $12,900 in 2000 and $5,805
in 1999), Michael J. Koss ($1,425 in 2001, $4,092 in 2000 and $1,505 in
1999), John Koss, Jr. ($87 in 2001, $1,267 in 2000 and $519 in 1999),
Ms. Sachdeva ($34 in 2001, $203 in 2000 and $177 in 1999), and Ms.
Lillie ($150 in 2001, $828 in 2000 and $790 in 1999); and (iv) for the
fiscal years 2000 and 1999, an annual accrued expense of $115,080 in
connection with the Company's agreement to continue to pay John C. Koss
his current base salary for the remainder of his life, whether or not he
becomes disabled.
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STOCK OPTIONS GRANTED DURING FISCAL YEAR. The following table provides
certain information concerning stock options granted to Named Executive Officers
during the fiscal year ended June 30, 2001.
INDIVIDUAL GRANTS
-----------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES OPTIONS/ SARS ANNUAL RATES OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS/ EMPLOYEES IN EXERCISE OR ----------------------------------------
SARS GRANTED FISCAL YEAR BASE PRICE EXPIRATION
NAME (#) (1) ($ 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 30,000 37.5% $36.86 April 25, 2006 $ 100,500 $ 177,300 $ 513,300
John Koss, Jr. 20,000 25.0% 36.86 April 25, 2006 67,000 118,200 342,200
Sujata Sachdeva 5,000 6.3% 33.51 April 25, 2011 0 46,300 102,300
Lenore E. Lillie 5,000 6.3% 33.51 April 25, 2011 0 46,300 102,300
-----------
(1) The percentages set forth in this table are based on 80,000 total stock
option shares granted for the fiscal year ended June 30, 2001, which
does not include an additional 15,000 stock option shares approved by
the Board of Directors to be granted at $33.51 per share to a future
employee who is to be hired as a Vice President-Information Technology
and e-commerce.
(2) Based on the "fair market value" as determined under the Company's 1990
Flexible Incentive Plan (which provides that the "fair market value" for
purposes thereof is the average of the closing prices on the five
trading days immediately preceding the grant of such option) of $33.51
per share on April 25, 2001, the date such options were granted. The
exercise price for Michael J. Koss and John Koss, Jr., is equal to 110%
of the "fair market value," as so determined, 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, 2001 and held by the
Named Executive Officers on June 30, 2001.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
SHARES UNEXERCISED OPTIONS/SARS AT FISCAL OPTIONS AT FISCAL YEAR END (1)
ACQUIRED ON VALUE 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 6,250 $ 81,438 47,500 72,500 $ 913,100 $ 780,600
John Koss, Jr. 7,500 183,000 31,250 46,250 599,713 476,163
Sujata Sachdeva 5,000 118,963 0 12,500 0 143,525
Lenore E. Lillie 16,250 434,088 0 13,750 0 169,050
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(1) Based on the $31.25 per share market value of the Common Stock on June 30,
2001, 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,
2001 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.
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- 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, 2001 the KESOT held 296,020 shares of Common
Stock (approximately 15.2% 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, 2001, no officer had an officer loan that exceeded $60,000.
- 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 (example,
if Mr. Koss had worked 25 years, then 2% multiplied by 25 years would
amount to 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.
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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 2001.
The responsibilities of the Committee are set forth in its Charter, which is
reviewed and amended periodically, as appropriate. The Charter is attached as
Appendix A to this Proxy Statement. 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, 2001 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, 2001 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
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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
VICTOR L. HUNTER
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.
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STOCK PRICE PERFORMANCE INFORMATION
The graph and table on the next page 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., Phoenix Gold International, Inc., and Sensory Science
Corporation. For purposes of the graph and table, it is assumed that on June 30,
1996, $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 ON THE NEXT PAGE SHOULD NOT
BE CONSIDERED INDICATIVE OF FUTURE PERFORMANCE.
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KOSS CORPORATION
Total Cumulative Shareholder Return for 5 Year Period Ending June 30, 2001
[LINE GRAPH]
JUNE 30, 1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- --------
Koss Corporation............ $100.00 $129.63 $150.00 $178.71 $235.19 $462.96
NASDAQ...................... 100.00 121.60 160.06 230.22 340.37 184.51
Peer Group.................. 100.00 108.17 73.22 70.71 62.24 48.10
*Assumes that the value of the investment in Koss Corporation Common Stock and
in each index was $100 on June 30, 1996 and that all dividends were reinvested.
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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 462,241 shares during the fiscal year ended June 30, 2001. These
462,241 shares were automatically retired and returned to the status of
authorized but unissued shares. 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, 2001, $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 2001 fiscal year, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were satisfied.
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ITEM 2. APPROVAL OF AMENDMENT TO 1990 FLEXIBLE INCENTIVE PLAN
In 1990, the Board of Directors created, and the stockholders approved, a
Flexible Incentive Plan (the "Plan"). 225,000 shares of Company Common Stock
were initially reserved for issuance pursuant to the Plan. Under the terms of
the Plan, each successive year, additional shares equal to one-fourth of 1
percent (0.25%) of the number of outstanding shares as of the first day of the
Company's applicable fiscal year will be reserved for issuance pursuant to the
Plan. At the Company's 1992 Annual Meeting, the stockholders approved an
amendment to the Plan authorizing the reservation of an additional 250,000
shares of Company Common Stock for issuance to Plan participants. At the
Company's 1993 Annual Meeting, the stockholders approved an amendment to the
Plan authorizing the reservation of an additional 300,000 shares of Company
Common Stock for issuance to Plan participants. At the Company's 1997 Annual
Meeting, the stockholders approved another amendment to the Plan authorizing the
reservation of an additional 300,000 shares of Company Common Stock for issuance
to Plan participants.
1,005,037 of the shares allocated to the Plan are subject to options which
have been granted to key employees of the Company since the Plan's creation. The
Board of Directors has determined that incentive compensation rewards, such as
the Plan, engender commitment towards increased corporate performance and are,
therefore, in the best interest of both the Company and its stockholders. In the
Board's opinion, the reservation of 300,000 additional shares for the Plan is
necessary to achieve this goal. Therefore, the Board of Directors proposes that
an additional 300,000 shares be reserved for issuance to participants under the
Plan.
DESCRIPTION OF THE PLAN. The Plan provides for benefits (collectively
"Benefits") to be awarded to eligible participants in the form of stock options,
Stock Appreciation Rights ("SARs"), Phantom Stock Rights, Cash Appreciation
Rights, Restricted Stock, cash awards and other stock-based awards. If and to
the extent required by Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), any award to a person who is subject to Section 16
of the Exchange Act shall not be: (i) transferable other than by will or the
laws of descent and distribution and shall be exercisable during his or her
lifetime only by him or her, his or her guardian or legal representative; and
(ii) sold for at least six months after grant, except upon death or disability.
NUMBER OF AUTHORIZED SHARES. Currently, the total number of shares of
Common Stock which could be issued in connection with Benefits is 1,156,889, of
which 1,005,037 are the subject of Benefits which have been issued since the
Plan was adopted in 1990. If an option and/or SAR, Phantom Stock Right or Cash
Appreciation Right expires, terminates or is surrendered without having been
fully exercised, or if shares of Restricted Stock are forfeited, the unpurchased
shares or forfeited shares of Common Stock subject to the option, SAR, Phantom
Stock Right or Cash Appreciation Right or grant of Restricted Stock shall again
be made available for the purpose of the Plan. Of the 1,005,037 shares subject
to Benefits which have been issued, 977,500 shares were issued in the form of
stock options and 27,537 shares were issued in the form of restricted stock. Of
the 977,500 stock options issued, 706,250 options have been exercised and
271,250 remain unexercised as of the date of this Proxy Statement.
Notwithstanding any other provision in the Plan, if the Common Stock of the
Company is changed by reason of any merger, reorganization, recapitalization,
stock dividend, spin-off, split-up, spin-out or other change in the corporate
structure affecting the Common Stock, such substitution or adjustment shall be
made in the aggregate number of shares reserved for issuance under the Plan, in
the number and stock option price of shares subject to outstanding stock options
granted under the Plan, as may be determined to be appropriate by the committee
administering the Plan.
ADMINISTRATION OF THE PLAN. The Plan is administered by the Compensation
Committee of the Board of Directors (the "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. All
determinations made by the Committee shall be in its sole discretion and shall
be final and binding on all participants.
The Committee consists of not less than the minimum number of persons who
under Rule 16b-3 of the Exchange Act ("Rule 16b-3") meet the definition of
"non-employee directors" as defined in Rule 16b-3 under the Exchange Act. The
members of the Committee are appointed by and serve at the pleasure of the Board
of Directors, which may appoint members in substitution for members previously
appointed and fill vacancies in the Committee. The Committee may select one of
its own members as its Chairman, and it shall determine the times and places to
hold
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meetings. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of the members. Any
decision or determination reduced to writing and signed by a majority of the
members shall be as effective as if it had been made by a majority vote at a
meeting dully called and held.
Except as required by Rule 16b-3 with respect to Benefits granted to
persons who are subject to Section 16 of the Exchange Act (consisting of
directors and officers), the Committee may delegate its authority to any
employee or committee.
AMENDMENT, TERMINATION, AND CHANGE IN CONTROL. The Board of Directors may
amend the Plan at any time. The Board may not amend the Plan without stockholder
approval if such amendment (i) would cause stock options which are intended to
qualify as "incentive stock options" under the Internal Revenue Code (described
below) to fail to so qualify, (ii) would cause the Plan to fail to meet the
requirements of Rule 16b-3, or (iii) would violate applicable law.
The Plan has no fixed termination date and shall continue in effect until
terminated by the Board of Directors.
The amendment or termination of the Plan will not adversely affect any
Benefit granted prior to such amendment or termination. However, any Benefit may
be modified or canceled by the Committee if and to the extent permitted in the
Plan or applicable agreement or with the consent of the participant to whom such
Benefit was granted. The Committee may convert previously granted Incentive
Stock Options to Nonqualified Stock Options (described below). The Committee may
provide in the applicable agreement that a previously granted Benefit shall be
forfeited if the participant competes with the Company or its affiliates or is
terminated for cause.
If there is a Change in Control or a Potential Change in Control, Stock
Appreciation Rights outstanding for at least six months, and any stock options
which are not then exercisable, will become fully exercisable and vested.
Likewise, the restrictions and deferral limitations applicable to Restricted
Stock and other stock-based awards will terminate and such shares and awards
will be deemed fully vested. Stock Options, Stock Appreciation Rights,
Restricted Stock and other stock-based awards will, unless otherwise determined
in the Committee in its sole discretion, be cashed out on the basis of the
Change in Control Price, as defined in the Plan and as described below.
The Change in Control price will be the highest price per share paid in any
transaction reported on any national securities exchange or any generally
recognized automated quotation system, or the highest mean between bid and asked
prices quoted on any other recognized quotation system or through which shares
of Company Stock are traded or quoted or paid or offered in any bona fide
transaction relating to a Potential or Actual Change in Control of the Company,
at any time during the immediately preceding 90 day period as defined by the
Committee. A Change in Control occurs if (i) any person becomes a beneficial
owner directly or indirectly of 20% or more of the total voting stock of the
Company (subject to certain exception), or (ii) during any 24-month period the
individuals who comprised of the Board of Directors of the Company at the
beginning of such period no longer represent a majority of the Board (subject to
certain exceptions), or (iii) a transaction occurs which requires stockholder
approval, and involves the acquisition of the Company by asset purchase, merger
or otherwise. A Potential Change in Control means (i) approval by the
stockholders of an Agreement which, if completed, would constitute a Change in
Control, or (ii) the acquisition by a person of 5% or more of the total voting
stock of the Corporation and the adoption by the Board of a resolution that a
Potential Change in Control, as defined in the Plan, has occurred.
ELIGIBILITY FOR PARTICIPATION. Benefits may be awarded to individuals
selected by the Committee.
BENEFITS.
- STOCK OPTIONS. Stock options granted under the Plan intended to
qualify for special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), are referred to as
"Incentive Stock Options" ("ISOs") and options not intended to so
qualify are referred to as "Nonqualified Stock Options" (or "NQOs").
The per share option price in the case of Incentive Stock Options
shall be no less than (i) the fair market value of the shares on the
date the option is granted for non-affiliates or (ii) 110% fair market
value of the shares on the date the option is granted for affiliates.
The other terms of options shall be determined by the Committee, and,
in the case of options intended to qualify as Incentive Stock Options,
shall meet all requirements of Section 422 of the Code. Currently,
such requirements are (i) the option must be granted within ten years
from the adoption of the Plan, (ii) the option
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may not have a term longer than ten years, (iii) the option must be
non-transferable other than by will or the laws of descent and
distribution and may be exercised only by the optionee during his or
her lifetime, and (iv) the maximum aggregate fair market value of
Common Stock with respect to which such options are first exercisable
by an optionee in any calendar year may not exceed $100,000.
Payment for shares purchased pursuant to the exercise of options may
be made either (i) in cash, or (ii) with the consent of the Committee,
(a) by exchanging shares of the Company's Common Stock having an
aggregate fair market value equal to the cash exercise power of the
option being exercised, (b) in other property, rights or credits, or
(c) by any combination of the foregoing.
- STOCK APPRECIATION RIGHTS. Participants who elect to receive payment
of Stock Appreciation Rights shall receive an amount in cash, in
Common Stock or in any combination thereof, as determined by the
Committee, equal to the amount, if any, by which the fair market value
of one share of Common Stock on the date of such election exceeds the
fair market value of one share of Common Stock on the date which the
Stock Appreciation Right was granted.
The Committee may grant a Stock Appreciation Right to a participant in
tandem with a stock option, in which case the exercise of the option
shall cause a corresponding reduction in Stock Appreciation Rights
then standing to a participant's credit which were granted in tandem
with the option, and the payment of a Stock Appreciation Right shall
cause a corresponding reduction in shares under such option.
- RESTRICTED STOCK. The Committee may grant shares of Restricted Stock
at no cost to the participant. Such shares shall be issued at the time
of the grant but held by the Company for the benefit of the
participant and shall be subject to forfeiture until those conditions
set forth in the Restricted Stock Agreement are satisfied. Stock
certificates representing shares of Restricted Stock shall bear a
legend referring to the Plan, noting the risk of forfeiture of the
shares and stating that such shares are nontransferable until all
restrictions have been satisfied and any restrictive legend has been
removed. As of the date Restricted Stock is granted, the grantee shall
be entitled to full voting and dividend rights with respect to all
shares of such stock.
- PHANTOM STOCK RIGHTS. The Committee may grant a participant the right
to receive the excess of the fair market value or other attribute of
one or more shares of stock over the fair market value or other
attribute of the shares of stock on the date the right was awarded.
- CASH APPRECIATION RIGHTS. The Committee, in its discretion, may grant
a participant Cash Appreciation Rights. Cash Appreciation Rights shall
entitle a participant, subject to the terms and conditions of the Plan
and applicable agreement, to receive, upon exercise of all or a
portion of a related stock option (if any related stock option is
granted in the discretion of the Committee) granted pursuant to the
Plan, or upon the surrender of all or a portion of a related stock
option granted in exchange for the exercise of Stock Appreciation
Rights, if any, granted to the stock option holder pursuant to the
Plan, a payment in cash equal to the sum of (a) the increase in income
taxes, if any, incurred by the participant as a result of the full or
partial exercise of the related stock option or, if appropriate, the
related Stock Appreciation Right, and (b) the increase in income
taxes, if any, incurred by the participant as a result of receipt of
this cash payment.
The amount of the cash payment shall be determined by the Committee in
its discretion. However, the cash payment for a Cash Appreciation
Right shall not exceed the increase, if any, of the fair market value
of a share of stock on the date of exercise of the related stock
option or, if appropriate, of the related Stock Appreciation Right
over the fair market value of a share of stock on the date of grant of
the related stock option.
OPTION AWARDS. The Committee may grant cash awards and other stock-based
awards at such times, in such amounts, and subject to such terms and conditions
as it deems appropriate.
FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of the federal
income tax consequences of the Plan, based on current income tax laws,
regulations and rulings. Any time a distribution is made under the Plan, whether
in cash or in shares of stock, the Company may withhold from such payment any
amount necessary to satisfy federal, state and local income tax withholding
requirements with respect to the distribution. Such withholding shall be in
cash. If the Company elects not to so withhold, or sufficient cash is not
available from the distribution to satisfy the withholding requirements, the
participant shall pay, or arrange to pay, such amounts required to be withheld.
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- INCENTIVE STOCK OPTIONS. Subject to the effect of the Alternative
Minimum Tax, discussed below, an optionee does not recognize income on
the grant of an Incentive Stock Option. If an optionee exercises an
Incentive Stock Option in accordance with the terms of the option and
does not dispose of the shares acquired within two years from the date
of the grant of the option nor within one year from the date of
exercise, the optionee will not recognize any income by reason of the
exercise and the Company will be allowed no deduction by reason of the
grant or exercise. The optionee's basis in the shares acquired upon
exercise will be the amount paid upon exercise. (See the discussion
below for the tax consequences of the exercise of an option with stock
already owned by the optionee.) Provided the optionee holds the shares
as a capital asset at the time of sale or other disposition of the
shares, his or her gain or loss, if any, recognized on the sale or
other disposition will be the difference between the amount realized
on the disposition of the shares and his or her basis in the shares.
The gain or loss will be a capital gain or a capital loss.
If an optionee disposes of the shares within two years from the date
of grant of the option or within one year from the date of exercise of
an option (an "Early Disposition"), the optionee will recognize
ordinary income at the time of such Early Disposition which will equal
the excess, if any, of the lesser of (i) the amount realized on the
Early Disposition, or (ii) the fair market value of the shares on the
date of exercise, over the optionee's basis in the shares. The Company
will be entitled to a deduction in an amount equal to the ordinary
income recognized by the optionee. The excess, if any, of the amount
realized on the Early Disposition of such shares over the fair market
value of the shares on the date of exercise will be long-term or
short-term capital gain, depending upon the holding period of the
shares, provided the optionee holds the shares as a capital asset at
the time of the Early Disposition. If an optionee disposes of such
shares for less than his or her basis in the shares, the difference
between the amount realized and his or her basis will be a long-term
or short-term capital loss, depending upon the holding period of the
shares, provided the optionee holds the shares as a capital asset at
the time of disposition.
The excess of the fair market value of the shares at the time the
Incentive Stock Option is exercised over the exercise price for the
shares is an item of adjustment for purposes of computing Alternative
Minimum Tax.
- NONQUALIFIED STOCK OPTIONS. Nonqualified Stock Options do not qualify
for the special tax treatment accorded to Incentive Stock Options
under the Code. An optionee recognizes ordinary income at the time of
the grant of the option in an amount equal to the difference between
the fair market value of the stock on the date of grant of the option
and the exercise price of the option. The optionee also recognizes a
capital gain at the time of the sale of the underlying shares of stock
in an amount equal to the difference between the fair market value of
the stock on the date of sale and the optionee's basis in the
underlying shares of stock. However, if the sale of the stock by the
optionee at a profit would subject him or her to suit under Section
16(b) of the Exchange Act (the "Section 16(b) Restriction"), the
optionee will not recognize ordinary income until the Section 16(b)
Restriction lapses. Upon the lapse of the Section 16(b) Restriction,
the optionee will recognize income equal to the excess, if any, of the
fair market value of the stock at the time the Section 16(b)
Restriction lapses over the option price. The optionee may elect to
recognize income upon receipt of the stock and not at the time the
Section 16(b) Restriction lapses, in which cash the tax consequences
to the optionee are the same as if he or she were not subject to the
Section 16(b) Restriction.
As a result of the optionee's exercise of a Nonqualified Stock Option,
the Company will be entitled to deduct as compensation an amount equal
to the amount of ordinary income included in the optionee's gross
income. The Company's deduction will be taken in the Company's taxable
year in which the option is exercised unless the optionee is subject
to the Section 16(b) Restriction, in which case the Company's
deduction will be taken in the taxable year in which the optionee must
include the amount in his or her gross income.
The excess of the fair market value of the stock on the date of
exercise of a Nonqualified Stock Option over the exercise price is not
an item of "tax preference" as such term is used in the Code.
- STOCK APPRECIATION RIGHTS. Recipients of Stock Appreciation Rights do
not recognize income upon the grant of such an award. When a
participant elects to receive payment under a Stock Appreciation
Right, he or she recognizes ordinary income in an amount equal to the
cash and fair market value of shares received, and the Company is
entitled to a deduction equal to such amount.
- PHANTOM STOCK RIGHTS. Recipients of Phantom Stock Rights do not
recognize income upon the grant of such an award. The recipient
recognizes ordinary income in an amount equal to the cash received and
the
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Company is entitled to a deduction equal to such an amount. The
recipient recognizes the income when his or her right to receive the
award is vested and not subject to substantial risk of forfeiture and
he or she has a right to receive the cash value of the award.
- CASH APPRECIATION RIGHTS. Recipients of Cash Appreciation Rights
recognize ordinary income upon receipt of the payment equal to the
amount of cash received. The Company is entitled to a deduction equal
to such an amount.
- PAYMENT IN SHARES. If the optionee exercises an option and surrenders
stock already owned by him or her ("Old Shares"), the following rules
apply:
1. To the extent the number of shares acquired ("New Shares")
exceeds the number of Old Shares exchanged, the optionee will
recognize ordinary income on the receipt of such additional
shares (provided the option is not an Incentive Stock Option) in
an amount equal to the fair market value of such additional
shares less any cash paid for them and the Company will be
entitled to a deduction in an amount equal to such income. The
basis of such additional shares will be equal to the fair market
value of such shares (or, in the case of an Incentive Stock
Option, the cash, if any, paid for the additional shares) on the
date of exercise and the holding period for such additional
shares will commence on the date the option is exercised (or, in
the case of a Nonqualified Stock Option, the date the Section
16(b) Restriction, if applicable, lapses if the optionee has not
elected to recognize income upon the exercise of the option).
2. Under proposed regulations promulgated by the Internal Revenue
Service, if the optionee exercises an Incentive Stock Option by
surrendering Old Shares, the holding period for the New Shares
will begin on the date the New Shares are transferred to the
optionee for purposes of determining whether there is an Early
Disposition of the New Shares, and if the optionee makes an Early
Disposition of the New Shares, he or she will be deemed to have
disposed of the New Shares with the lowest basis first. If the
optionee exercises an Incentive Stock Option by surrendering Old
Shares which were acquired through the exercise of an Incentive
Stock Option or an option granted under an employee stock
purchase plan, and if the surrender occurs prior to the
expiration of the holding period applicable to the type of option
under which the Old Shares were acquired, the surrender will be
deemed to be an Early Disposition of the Old Shares. The federal
income tax consequences of an Early Disposition are discussed
above.
3. Based upon prior rulings of the Internal Revenue Service in
analogous areas, it is believed that if an optionee exercises an
Incentive Stock Option and surrendered Old Shares and if he or
she disposes of the New Shares received upon exercise within two
years from the date of the grant of the option or within one year
from the date of exercise, the disposition of the New Shares will
constitute an Early Disposition to the extent the number of New
Shares received upon exercise and disposed of exceeds the number
of Old Shares surrendered.
- RESTRICTED STOCK. Grantees of Restricted Stock do not recognize income
at the time of the grant of such stock. However, when shares of
Restricted Stock become free from substantial risk of forfeiture,
grantees recognize ordinary income in an amount equal to the fair
market value of the stock on the date all restrictions are satisfied.
Alternatively, the grantee of Restricted Stock may elect to recognize
income upon the grant of the stock and not at the time the
restrictions lapse.
- TAXATION OF PREFERENCE ITEMS. Section 55 of the Code imposes an
Alternative Minimum Tax equal to the excess, if any, of (i) 20% (21%
in the case of a taxpayer other than a corporation) of the optionee's
"alternative minimum taxable income" over (ii) his or her "regular"
federal income tax. Alternative minimum taxable income is determined
by adding the optionee's items of tax preference to the optionee's
adjusted gross income and then subtracting certain allowable
deductions and an exemption amount.
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- CHANGE IN CONTROL. If there is an acceleration of the vesting or
payment of benefits and/or an acceleration of the exercisability of
stock options upon a Change in Control, all or a portion of the
accelerated benefits may constitute "Excess Parachute Payments" under
Section 280G of the Code. The employee receiving an Excess Parachute
Payment incurs an excise tax of 20% of the amount of the payment in
excess of the employee's average annual compensation over the five
taxable years preceding the year of the Change in Control, and the
Company is not entitled to a deduction for such payment.
The foregoing is only a summary of the federal income tax consequences of
the Plan and is based on the Company's understanding of present federal tax laws
and regulations.
THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO AMEND THE
COMPANY'S 1990 FLEXIBLE INCENTIVE PLAN.
ITEM 3. 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, 2002. 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 financial
statements and the reviews of the financial statements included in the Company's
quarterly 10-Q filings, for the fiscal year ended June 30, 2001, were $64,900.
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, 2001, were $0.
ALL OTHER FEES. The aggregate fees billed by PricewaterhouseCoopers for
professional services rendered by the Company's principal accountant, primarily
relating to tax and other consulting, for the fiscal year ended June 30, 2001,
were $56,200.
The Audit Committee has considered whether the provision 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, 2002
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ITEM 4. 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 2002 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 2002
annual meeting, a stockholder proposal must be received by the Company no later
than May 10, 2002 and must otherwise comply with the applicable rules of the
Securities and Exchange Commission (the "SEC"). 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.
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APPENDIX A
KOSS CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE.
The main function of the Audit Committee is to assist the Company's Board
of Directors ("Board") in fulfilling its oversight responsibilities by: (i)
reviewing the financial reports and other financial information provided by the
Company to its constituencies, (ii) monitoring the Company's systems of internal
financial and accounting controls, and (iii) monitoring and providing oversight
to the Company's auditing, accounting and financial reporting processes
generally. Consistent with this function, the Audit Committee should encourage
continuous improvement of, and should strive to foster adherence to, the
Company's policies, procedures and practices at all levels. The Audit
Committee's primary duties and responsibilities are to:
- Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
- Review and appraise the audit efforts of the Company's independent
auditors, providing for the independent auditors to account to the
Board through the Audit Committee.
- Create an open avenue of communication among the independent auditors,
financial and senior management, and the Board.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities enumerated below.
II. COMPOSITION AND GOVERNANCE ISSUES.
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be outside directors, free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee. A
director will not be deemed independent if he or she is: (1) employed by the
Company or any affiliate of the Company within the past five years; (2)
currently compensated by the Company or any affiliate of the Company, other than
compensation for board service or benefits under retirement plans; (3) a member
of the immediate family of any person who, within the past five years, has been
an executive officer of the Company or any affiliate of the Company; (4) a
partner in, or controlling shareholder or executive officer of, a company which
has made or received significant payments to or from the Company within the past
five years; and (5) an executive officer of another company, where any of the
Company's executives serves on the other company's compensation committee. All
members of the Committee shall have a working familiarity with basic finance and
accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise.
The members of the Committee shall be annually elected by the Board at a
meeting of the Board and shall maintain such positions until their successors
shall be duly elected and qualified. Unless a Chair is elected by the full
Board, the members of the Committee may designate a Chair by majority vote of
the full Committee membership.
III. MEETINGS.
The Committee shall meet at least twice annually and more frequently as
circumstances dictate. As part of its commitment to open communication, the
Committee should meet as needed, and at least annually, with management and the
independent accountants in separate executive sessions to discuss any matters
that the Committee or each of these groups believe should be discussed
privately.
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IV. ROLES AND RESPONSIBILITIES.
A. INTERNAL CONTROL
- Evaluate whether management is properly and adequately emphasizing
the importance of internal control measures throughout the
organization.
- Inquire of the independent auditors about fraud, illegal acts,
deficiencies in internal control, and other matters effecting
internal controls within the Company.
- Focus on the extent to which the Company and its external auditors
or other designees review the effectiveness and security of the
Company's computer systems and applications, and the need for and
adequacy of contingency plans for processing financial information
in the event of a systems failure; and
- Ascertain whether internal control recommendations made by the
accounting department and external auditors have been implemented
by management.
B. FINANCIAL REPORTING
1. General
- Review significant accounting and reporting issues, including
issued and pending professional and regulatory
pronouncements, and understand their impact, or potential
impact, on the Company's financial statements and operations;
and
- Inquire of management and the external auditors as to the
existence of any significant financial, accounting or
reporting risks or exposures and the Company's plans to
address such risks. Seek the auditor's judgment about the
quality of the Company's accounting and reporting practices,
including the clarity and accuracy of the Company's financial
disclosures and the degree of aggressiveness or conservatism
of the Company's accounting policies and underlying
estimates.
2. Annual Financial Reports
- Review the annual financial statements and determine whether
they are complete and consistent with information known to
Committee members, and assess through inquiry whether the
financial statements reflect appropriate accounting
principles;
- Review all complex and/or unusual transactions such as
restructuring charges and derivative disclosures which are
material to the Company's financial statements;
- Understand the basis for the Company's accounting in
material, judgmental areas such as those involving valuation
of assets and liabilities, including, for example, the
accounting for and disclosure of obsolete or slow-moving
inventory; warranty, product, and environmental liabilities;
litigation reserves; and other commitments and contingencies;
- Meet with management and the external auditors to review the
financial statements and the results of the audit; and
- Consider management's handling of proposed audit adjustments
identified by the external auditors.
3. Interim Financial Statements
- Gain an understanding as to how management develops and
summarizes quarterly financial information, the extent to
which the external auditors review quarterly financial
information, and whether that review is performed on a pre-
or post-issuance basis;
- If (1) the quarterly earnings result will be below the
consensus estimate of analysts following the Company or (2)
if the financial results include any extraordinary charges,
any significant unusual adjustments, significant management
judgments, accounting
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estimates, new accounting policies or there is a disagreement
between the independent auditors and management, meet with
management and, if a pre-issuance review was completed, with
the external auditors, either telephonically or in person, to
review the interim financial statements and the results of
the auditors review. (This may be done by the Committee
chairperson or the entire Committee as determined by the
Chairman).
C. REVIEW OF COMPLIANCE
- If applicable, review the results of management's
investigation and follow-up (including disciplinary action)
on any fraudulent acts or accounting irregularities;
- Be satisfied that compliance matters have been considered in
the preparation of the financial statements; and
- review the findings of any examinations or reviews by
regulatory agencies such as the Securities and Exchange
Commission.
D. EXTERNAL AUDIT
- Review the external auditors' proposed audit scope and
approach;
- Review and approve audit fees to the external auditors;
- Review and confirm the independence of the external auditors
by reviewing a statement to be provided by the external
auditors on the nonaudit services provided and the auditors'
assertion of their independence in accordance with
professional standards; and
- Review the performance of the external auditors and recommend
to the Board the appointment or discharge of the external
auditors.
E. OTHER RESPONSIBILITIES
- Ensure that significant findings and recommendations made by
the external auditors are received and discussed on a timely
basis;
- Review, with the Company's counsel, any legal matters that
could have a significant impact on the Company's financial
statements;
- If necessary, institute special investigations and, if
appropriate, hire special counsel or experts to assist;
- Perform other oversight functions as requested by the full
Board; and
- Review and reassess the adequacy of the charter on an annual
basis and receive approval of changes from the Board.
F. REPORTING RESPONSIBILITIES
- Regularly update the Company's Board about Committee
activities and make appropriate recommendations.
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KOSS(R) CORPORATION THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
4129 North Port Washington Avenue The undersigned hereby appoints John C. Koss and Lawrence S. Mattson as Proxies,
Milwaukee, Wisconsin 53212 each with full power of substitution for himself, and hereby authorizes them to
represent and to vote, as designated below, all the shares of common stock of
PROXY Koss Corporation held as of the record date and which the undersigned is entitled to
vote at the Annual Meeting of Stockholders to be held on October 18, 2001 and any or
all adjournments thereof, with like effect as if the undersigned were personally
present and voting.
Properly executed proxies received by the Company will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
proxy will be voted FOR the election of all seven nominees listed for director
and FOR Proposals 2 and 3. If any other matters properly come before the
meeting, this proxy will be voted in accordance with the best judgment of the
Proxies appointed. The undersigned hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and the Proxy Statement furnished therewith.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
\/ DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED \/
KOSS CORPORATION 2001 ANNUAL MEETING
1. ELECTION OF DIRECTORS: 1 - John C. Koss 2 - Thomas L. Doerr 3 - Victor L. Hunter | | FOR all | | WITHHOLD AUTHORITY
4 - Michael J. Koss 5 - Lawrence S. Mattson nominees to vote for all
6 - Martin F. Stein 7 - John J. Stollenwerk listed to nominees listed
the left to the left.
(except as
specified below).
-------------------------------------
(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) | |
of the nominee(s) in the box provided to the right). -------------------------------------
2. PROPOSAL TO APPROVE THE AMENDMENT TO THE FLEXIBLE INCENTIVE PLAN. | | FOR | | AGAINST | | ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITORS OF THE CORPORATION FOR THE FISCAL YEAR ENDING JUNE 30, 2002. | | FOR | | AGAINST | | ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Check appropriate box Date ____________, 2001 NO. OF SHARES
Indicate changes below: | | Name Change? | | -------------------------------------
Address Change? | |
-------------------------------------
Signature(s) in Box
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.
29
KOSS(R) CORPORATION I, the undersigned participant in the Koss Corporation Employee Stock
KESOT PARTICIPANTS Ownership Plan and Trust ("KESOT"), having received the Notice of Annual
4129 North Port Washington Avenue Meeting of Stockholders of Koss Corporation ("Company") and the Proxy
Milwaukee, Wisconsin 53212 Statement furnished therewith ("Proxy Statement"), hereby instruct Michael
J. Koss and Cheryl Mike, as Trustees of the Trust created pursuant to the
PROXY KESOT, to vote the shares of Common Stock of the Company allocated to my
account under the KESOT as of the record date, on the following proposals
to be presented at the Annual Meeting of Stockholders of the Company to be
held on October 18, 2001, and at any or all adjournments thereof, in
accordance with the following instructions below.
YOUR VOTE IS BEING SOLICITED BY THE COMPANY IN ACCORDANCE WITH THE
PROVISIONS OF THE KESOT. THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR ALL NOMINEES FOR DIRECTOR AND IN FAVOR OF PROPOSALS 2 AND 3.
IF YOU RETURN THIS CARD PROPERLY SIGNED BUT DO NOT OTHERWISE SPECIFY,
SHARES ALLOCATED TO YOUR KESOT ACCOUNT WILL BE VOTED FOR ALL NOMINEES
LISTED FOR DIRECTOR AND FOR PROPOSALS 2 AND 3. IF ANY OTHER MATTERS
PROPERLY COME BEFORE THE MEETING, SHARES ALLOCATED TO YOUR KESOT ACCOUNT
WILL BE VOTED BY THE TRUSTEES AS DIRECTED BY THE KESOT COMMITTEE. IF YOU
DO NOT RETURN THIS CARD, SHARES ALLOCATED TO YOUR KESOT ACCOUNT WILL BE
VOTED BY THE TRUSTEES AS DIRECTED BY THE KESOT COMMITTEE.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
\/ DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED \/
KOSS CORPORATION 2001 ANNUAL MEETING
1. ELECTION OF DIRECTORS: 1 - John C. Koss 2 - Thomas L. Doerr 3 - Victor L. Hunter | | FOR all | | WITHHOLD AUTHORITY
4 - Michael J. Koss 5 - Lawrence S. Mattson nominees to vote for all
6 - Martin F. Stein 7 - John J. Stollenwerk listed to nominees listed
the left to the left.
(except as
specified below).
(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) --------------------------------------
of the nominee(s) in the box provided to the right). | |
--------------------------------------
2. PROPOSAL TO APPROVE THE AMENDMENT TO THE FLEXIBLE INCENTIVE PLAN. | | FOR | | AGAINST | | ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITORS OF THE CORPORATION FOR THE FISCAL YEAR ENDING JUNE 30, 2002. | | FOR | | AGAINST | | ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Check appropriate box Date ________, 2001 NO. OF SHARES
Indicate changes below:
Address Change? | | Name Change? | | -------------------------------------
| |
-------------------------------------
Signature(s) in Box
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.