<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   Form 10-Q

         [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934
                 for the quarterly period ended March 31, 1995
                                     OR
         [  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934




KOSS CORPORATION                           Commission file number 0-3295
- - -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)


A DELAWARE CORPORATION                                39-1168275
- - -------------------------------------------------------------------------------
(State or other jurisdiction of           (I.R.S. Employer Identification No.) 
 incorporation or organization)


4129 North Port Washington Avenue, Milwaukee, Wisconsin   53212
- - -------------------------------------------------------------------------------
(Address of principal executive office)                  (Zip Code)


Registrant's telephone number, including area code:     (414) 964-5000


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                            YES  X           NO 
                                ---             ---
At March 31, 1995, there were 3,293,757 shares outstanding of the Registrant's
common stock, $0.01 par value per share.




                                    1 of 11

<PAGE>   2

                       KOSS CORPORATION AND SUBSIDIARIES
                                   FORM 10-Q
                                 March 31, 1995


                                     INDEX



                                                                      Page

PART I   FINANCIAL INFORMATION


         Item 1  Financial Statements

                 Condensed Consolidated Balance Sheets
                 March 31, 1995 (Unaudited) and June 30, 1994            3

                 Condensed Consolidated Statement
                 of Income (Unaudited)
                 Three months and Nine months
                 ended March 31, 1995 and 1994                           4

                 Condensed Consolidated Statement of Cash
                 Flows (Unaudited)
                 Nine months ended March 31, 1995 and 1994               5

                 Notes to Condensed Consolidated Financial

                 Statements (Unaudited) March 31, 1995                   6-7


         Item 2  Management Discussion and Analysis of
                 Financial Condition and Results of Operations           8-9



PART II   OTHER INFORMATION                                              10





                                    2 of 11

<PAGE>   3

                       KOSS CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS




<TABLE>
<CAPTION>
                                                                         March 31, 1995      June 30,1994
                                                                           (Unaudited)           (*)
                                                                       -----------------------------------
 <S>                                                                    <C>                  <C>
 ASSETS
      Current Assets:
           Cash                                                          $   175,546          $    37,355
           Accounts receivable, net                                        8,214,881            7,396,902
           Inventories                                                     9,898,847            7,837,319
           Prepaid expenses                                                  230,263              544,353
           Income tax receivable                                                  --              426,236
           Prepaid income tax                                                268,486              268,486
- - ---------------------------------------------------------------------------------------------------------
                Total current assets                                      18,788,023           16,510,651

      Property and Equipment, net                                          2,200,140            2,168,335
      Intangible and Other Assets                                            531,310              541,420
- - ---------------------------------------------------------------------------------------------------------
                                                                         $21,519,473          $19,220,406
=========================================================================================================

 LIABILITIES AND STOCKHOLDERS' INVESTMENT

      Current Liabilities:

           Accounts payable                                              $ 1,283,580          $ 1,266,553
           Accrued liabilities                                               625,429              734,076
           Current maturities of long-term debt                                6,152               12,376
- - ---------------------------------------------------------------------------------------------------------
                Total current liabilities                                  1,915,161            2,013,005

      Long-Term Debt                                                       2,375,000            2,068,741
      Deferred Income Taxes                                                   87,202               87,202
      Deferred Compensation and Other Liabilities                            985,987              902,830
      Stockholders' Investment                                            16,156,123           14,148,628
- - ---------------------------------------------------------------------------------------------------------
                                                                         $21,519,473          $19,220,406
=========================================================================================================
</TABLE>




*    The balance sheet at June 30, 1994, has been prepared from the audited
financial statements at that date.

See accompanying notes.



                                    3 of 11

<PAGE>   4

                       KOSS CORPORATION AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENT OF INCOME
                                  (Unaudited)




<TABLE>
<CAPTION>
                                                      Three Months                   Nine Months
 Period Ended March 31                             1995        1994             1995             1994
- - ------------------------------------------------------------------------------------------------------------
 <S>                                            <C>            <C>              <C>              <C>
 Net sales                                      $ 7,671,860    $ 7,290,126      $25,850,714      $27,325,173
 Cost of goods sold                               5,721,390      4,939,506       17,648,142       18,235,117
- - ------------------------------------------------------------------------------------------------------------
 Gross profit                                     1,950,470      2,350,620        8,202,572        9,090,056
 Selling, general and
    administrative expense                        1,789,492      1,627,809        6,135,031        5,866,396
- - ------------------------------------------------------------------------------------------------------------
 Income from operations                             160,978        722,811        2,067,541        3,223,660
 Other income (expense)
    Royalty income                                  270,881        242,078        1,294,809          905,891
    Interest income                                  26,755         16,537           68,780           42,713
    Interest expense                                (89,757)       (70,028)        (268,780)        (211,158)
- - ------------------------------------------------------------------------------------------------------------
 Income before income tax provision                 368,857        911,398        3,162,350        3,961,106
 Provision for income taxes                         133,464        345,639        1,226,742        1,534,169
- - ------------------------------------------------------------------------------------------------------------
    Net income                                  $   235,393    $   565,759      $ 1,935,608      $ 2,426,937
============================================================================================================
 Number of common and common
    equivalent shares used in
    computing earnings per share                  3,650,903      3,749,008        3,670,307        3,793,480
============================================================================================================

    Earnings per common and common
    equivalent share                                  $0.06          $0.15            $0.53            $0.64
============================================================================================================
 Dividends per common share                            None           None             None             None
============================================================================================================
</TABLE>



See accompanying notes.





                                    4 of 11

<PAGE>   5

                       KOSS CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)




<TABLE>
<CAPTION>
 Nine Months Ended March 31                                          1995        1994
- - ----------------------------------------------------------------------------------------------
 <S>                                                              <C>            <C>
 CASH FLOWS FROM OPERATING
 ACTIVITIES:
      Net income                                                   $ 1,935,608    $  2,426,937
      Adjustments to reconcile net
           income to net cash provided (used)
           by operating activities:
                Depreciation and amortization                          733,990         552,787
                Deferred compensation and other liabilities            (22,825)       (123,964)
                Income tax receivable                                  426,236              --
                Net changes in operating assets and
                     liabilities                                    (2,657,037)     (1,671,630)
- - ----------------------------------------------------------------------------------------------
                Net cash provided by
                    operating activities:                              415,972       1,184,130
- - ----------------------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING
 ACTIVITIES:
      Acquisition of equipment
           and leasehold improvements                                 (660,402)       (308,683)
- - ----------------------------------------------------------------------------------------------
           Net cash used in
               investing activities                                   (660,402)       (308,683)
- - ----------------------------------------------------------------------------------------------
 CASH FLOWS FROM
 FINANCING ACTIVITIES:
      Repayments under line of credit agreements                   (10,466,740)     (9,245,000)
      Borrowings under line of credit agreements                    10,773,000       8,253,000
      Principal payments on
           long-term debt                                               (9,336)         (9,336)
      Exercise of stock options                                         85,697         323,073
- - ----------------------------------------------------------------------------------------------
            Net cash provided
                by financing activities                                382,621        (678,263)
- - ----------------------------------------------------------------------------------------------
      Net increase in cash                                             138,191         197,184
      Cash at beginning of year                                         37,355         190,448
- - ----------------------------------------------------------------------------------------------
      Cash at end of quarter                                       $   175,546    $    387,632
==============================================================================================
</TABLE>




See accompanying notes




                                    5 of 11

<PAGE>   6

                       KOSS CORPORATION AND SUBSIDIARIES
                                 March 31, 1995
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The financial statements presented herein are based on interim figures and
     are subject to audit.  In the opinion of management, all adjustments
     (consisting only of normal recurring accruals) necessary to present fairly
     the financial condition, results of operations and cash flows at March 31,
     1995, and for all periods presented have been made.

     Certain information and footnote disclosures normally included in
     financial statements prepared in accordance with generally accepted
     accounting principles have been condensed or omitted.  It is suggested
     that these condensed consolidated financial statements be read in
     conjunction with the financial statements and notes thereto included in
     the Registrant's June 30, 1994, Annual Report on Form 10-K.  The income
     from operations for the period ended March 31, 1995, is not necessarily
     indicative of the operating results for the full year.

2.   EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

     Earnings per share are computed based on the average number of common and
     common share equivalents outstanding.  When dilutive, stock options are
     included as share equivalents using the Treasury stock method.  Common
     stock equivalents of 358,023 and 552,108 related to stock option grants
     were included in the computation of the average number of shares
     outstanding for the quarter ending March 31, 1995 and 1994 respectively.

3.   INVENTORIES

     The classification of inventories is as follows:



<TABLE>
<CAPTION>
                                                  March 31, 1995           June 30, 1994
                   ---------------------------------------------------------------------
                   <S>                            <C>                      <C>
                   Raw materials and
                     work in process               $5,951,833               $4,294,347
                   Finished goods                   4,525,328                4,121,286
                   ---------------------------------------------------------------------
                                                   10,477,161                8,415,633
                   LIFO Reserve                      (578,314)                (578,314)
                   ---------------------------------------------------------------------
                                                   $9,898,847               $7,837,319
                   =====================================================================
</TABLE>






                                    6 of 11

<PAGE>   7

4.   STOCK PURCHASE AGREEMENT

     The Company has an agreement with its Chairman, John C. Koss, to purchase
     stock from his estate in the event of his death.  This purchase obligation
     is optional in the part of the personal representation of Mr. Koss'
     estate, and the option must be exercised within 12 months after Mr. Koss'
     death.  The purchase price is 95% of the fair market value of the common
     stock on the date that notice to purchase is provided to the Company.  The
     total number of shares to be purchased 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 within 60 days of
     demand and to execute a promissory note payable quarterly over four years
     at the then-current prime rate of interest for the balance.  The Company
     maintains a $1,150,000 life insurance policy to assist in the funding of
     this obligation.

5.   DEFERRED COMPENSATION

     In 1991 the Board of Directors agreed to continue John C. Koss' current
     base salary in the event he becomes disabled prior to age 70.  After age
     70, Mr. Koss shall receive his current base salary for the remainder of
     this life, whether or not he becomes disabled.  The Company is currently
     recognizing an annual expense of $105,080 in connection with this
     agreement, which represents the present value of anticipated future
     payments.  In connection with this expense, at March 31, 1995 and 1994,
     respectively, the related liabilities in the amounts of $412,370 and
     $297,290 have been included as "Deferred Compensation and other
     Liabilities" on the accompanying balance sheets.





                                    7 of 11

<PAGE>   8

                       KOSS CORPORATION AND SUBSIDIARIES
                                   FORM 10-Q
                                 March 31, 1995

 
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition and Liquidity

Cash generated by operating activities during the nine months ended March 31,
1995 amounted to $415,972.  The Company expects to generate adequate amounts of
cash from operations to meet current future operating needs, but maintains
sufficient borrowing capacity to fund any shortfall.

Working capital was $16,872,862 at March 31, 1995.  The increase of $2,375,216
from the balance at June 30, 1994 represents primarily an increase in accounts
receivable of $817,979 as a result of higher sales volume, and an increase of
$2,061,528 in inventory in anticipation of higher sales.

For the nine months ended March 31, 1995, capital expenditures for new property
and equipment (including production tooling) were $660,402.  Depreciation
charges aggregated $203,893 for the quarter.  For the fiscal year ending June
30, 1995, the Company expects its capital expenditures to be approximately
$1,000,000.  The Company expects to generate sufficient operating funds to
fulfill these expenditures.

Stockholders' investment increased to $16,156,123 at March 31, 1995, from
$14,148,628 at June 30, 1994.  The increase reflects primarily the income for
the nine months.  No cash dividends have been paid since the first quarter of
fiscal 1984.

The Company has an unsecured, revolving credit facility with a bank which runs
through March 15, 1997 and allows the Company to borrow up to a maximum of $8
million.  Borrowings under the new credit facility will bear interest, as
selected by the Company from time to time, (1) at the banks prime rate, or (2)
at a rate equal to 225 basis points in excess of the per annum interest rate at
which U.S. dollar deposits, of an amount comparable to the amount of the
Company's loan and for a period equal to the relevant interest period selected
by the Company, are offered generally to the Company's bank.  This credit
facility includes certain covenants that require the Company to maintain a
minimum tangible net worth and specified current, interest coverage, and
leverage ratios.  Utilization of the available line as of March 31, 1995
totaled $2,720,044, consisting of $2,375,000 in borrowings and $345,044 in
commitments for foreign letters of credit.  Utilization of the Company's
previous line of credit with the same bank as of June 30, 1994 totaled
$2,477,700, consisting of $2,068,741 in borrowings and $408,959 in commitments
for foreign letters of credit.




                                    8 of 11

<PAGE>   9

The Company's Canadian  subsidiary has a line of credit of $550,000.  The
interest rate is the prime rate plus 1-1/2%.  The credit facility is subject to
the availability of qualifying receivables and inventories which serve as
collateral for the borrowings.  Loan advances against the line were $0 at March
31, 1995, and $0 at June 30, 1994.

Results of Operations

Net sales for the quarter ended March 31, 1995, were $7,671,860 compared with
$7,290,126 for the same period in 1994, an increase of $381,734.  Net sales for
the nine months ended March 31, 1995 were $25,850,714 compared with $27,325,173
for the same period in 1994, a decrease of $1,474,459.  This decrease was
primarily a result of slow retail orders in July and August.

Gross profit as a percent of net sales was 25% for the quarter ended March 31,
1995 compared with 32% for the same period in 1994.  For the nine month period
ended March 31, 1995, the gross profit percentage was 32% compared with 33% for
the period in 1994.  The decreases relate to higher than expected labor costs
related to newer customized items and a less profitable mix of products sold.

Selling, general and administrative expenses for the quarter ended March 31,
1995 were $1,789,492 or 23%, as against $1,627,809 or 22%, for the same period
in 1994.  For the nine month period ended March 31, 1995, such expenses were
$6,135,031 or 24%, as against $5,866,396 or 21%, for the same period in 1994.
The increase is attributed to an increase in promotional and marketing
expenses.

For the third quarter ended March 31, 1995, income from operations was $160,978
versus $722,811 for the same period in the prior year.  Income from operations
for the nine months ended March 31, 1995 was $2,067,541 as compared to
$3,223,660 for the same period in 1994.  The decrease is primarily related to
lower gross profits and a general increase in selling and administrative
expenses.

Net interest expense amounted to $89,757 for the quarter as compared to $70,028
for the same period in the prior year.  For the nine month period, the interest
expense amounted to $268,780 compared with $211,158 for the same period in the
prior year.  The increase is a result of the Company borrowing at higher levels
and higher interest rates as compared to the same period last year.

The Company has a license agreement with Hagemeyer, N.V., a diverse
international trading company based in the Netherlands.  Hagemeyer, N.V.  has
business interests in food, appliances, electromechanical and automobile
distribution as well as a solid base of consumer electronic distribution
business in Asia, Europe, and North America.  Royalty income for the quarter
ended March 31, 1995 was $270,881 versus $242,078 in the quarter ended March
31, 1994.  The Company recognizes royalty income when earned.





                                    9 of 11

<PAGE>   10

P
ART II  OTHER INFORMATION


Item 4    Submission of Matters to Vote of Security Holders

          There were no matters submitted to a vote of security holders during
          the quarter ended March 31, 1995.  However, the following information
          relates to the Company's annual meeting of stockholders which was
          held on October 20, 1994:

          There were 3,240,680 shares of common stock eligible to vote at the
          Annual Meeting, of which 2,619,520 shares were present at the Annual
          Meeting in person or by proxy, which constituted a quorum.  The
          following is a summary of the results of the voting:


<TABLE>
<CAPTION>
                                                         Number of Votes
                                                         ---------------
                                                 For                     Withheld
                                                 ---                     --------
          <S>                                    <C>                     <C>
          Nominees for one-year
          terms ending in 1995:

          John C. Koss                            2,616,136                3,384
          Thomas L. Doerr                         2,616,313                3,207
          Victor L. Hunter                        2,616,234                3,286
          Michael J. Koss                         2,616,039                3,481
          Lawrence S. Mattson                     2,615,463                4,057
          Martin F. Stein                         2,615,913                3,607
          John J. Stollenwerk                     2,616,313                3,207
</TABLE>



<TABLE>
<CAPTION>
                                                         Number of Votes
                                                         ---------------
                                                 For          Against     Abstain
                                                 ---          -------     -------
          <S>                                    <C>          <C>         <C>
          Appointment of Price
          Waterhouse L.L.P. as
          independent auditors
          for the year ended June 30, 1995        2,614,986    2,640       1,894
</TABLE>




Item 6   Exhibits and Reports on Form 8-K

         (a) Exhibits Filed.

             10  Loan Agreement dated February 17, 1995 by and between the
                 Company and LaSalle National Bank

             27  Financial Data Schedule

         (b) Reports on Form 8-K.  Not applicable.  There were no reports on
             Form 8-K filed by the Company during the period covered by this
             report.


                                    10 of 11

<PAGE>   11


                                   Signatures

         Pursuant to the requirements of the Securities and Exchange Act of
         1934, the Registrant has duly caused this report to be signed on its
         behalf by the undersigned thereunto authorized.


                                      KOSS CORPORATION



         Dated:  5/11/95              /s/ Michael J. Koss
                 -------              ----------------------------
                                      Michael J. Koss, President,
                                      Chief Executive Officer,
                                      Chief Financial Officer

         Dated:  5/11/95              /s/ Sue Sachdeva
                 -------              ----------------------------
                                      Sue Sachdeva
                                      Vice President -- Finance





                                    11 of 11

<PAGE>   12


                                 EXHIBIT INDEX





<TABLE>
<CAPTION>
           Designation
           of Exhibit                                Exhibit Title
           ----------                                -------------
                <S>                                  <C>
                10                                   Loan Agreement dated
                                                     February 17, 1995

                27                                   Financial Data Schedule
                                                                            
</TABLE>






<PAGE>   1

                                                         EXHIBIT 10



                                 LOAN AGREEMENT
                      
                       DATED _______________________, 1995

                                  BY AND AMONG

                             LASALLE NATIONAL BANK

                                      AND

                                KOSS CORPORATION






<PAGE>   2

                            LASALLE NATIONAL BANK -
                                KOSS CORPORATION
                                 LOAN AGREEMENT


                                  EXHIBIT LIST

Exhibit 2.3                       Revolving Note

Exhibit 4(E)                      Liens

Exhibit 4(G)                      Litigation

Exhibit 4(I)                      Taxes

Exhibit 4(J)                      Defaults Under Other Agreements

Exhibit 4(M)                      Officers

Exhibit 4(N)                      Insurance

Exhibit 5.1(H)                    Certain Leases

Exhibit 6.1(A)(vi)                Opinion of Counsel

Exhibit 9.18                      Real Property Description

<PAGE>   3

                                 LOAN AGREEMENT


                 THIS LOAN AGREEMENT (the "Agreement") is made and entered into
this ____ day of _________________, 1995, by and among LASALLE NATIONAL BANK, a
national banking association (the "Lender"), and KOSS CORPORATION, a Delaware
corporation ("Borrower").

                 THE PARTIES HERETO agree as follows:

                           ARTICLE ONE.  DEFINITIONS

                 SECTION 1.1.  DEFINED TERMS.  In addition to the terms defined
elsewhere in this Agreement or any Exhibit hereto, the following terms shall
have the following meanings:

                 (A)      "AFFILIATE" shall mean any Person which, directly or
indirectly, owns or controls, on an aggregate basis, at least a 5% interest in
any other Person, or which is controlled by or is under common control with any
other Person.  For purposes of this definition, "control" shall mean the
possession, directly or indirectly,
 of the power to direct or to cause the
direction of management and policies, whether through ownership of voting
securities, by contract or otherwise.

                 (B)      "CODE" shall mean the Internal Revenue Code of 1986,
along with the regulations issued pursuant thereto, as amended from time to
time.

                 (C)      "DOCUMENTS" shall mean this Agreement, the Revolving
Note, the Environmental Warranty and any other instruments or documents
required or contemplated hereunder or thereunder, whether now existing or at
any time hereafter arising.

                 (D)      "ENVIRONMENTAL LAWS" shall mean all federal, state
and local laws, rules, regulations, ordinances, orders and consent decrees
relating to environmental matters, including, without limitation, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Toxic Substances Control Act, the
Clean Water Act, the Clean Air Act, and the Superfund Amendments and
Reauthorization Act of 1986, and State and Federal Superlien and Environmental
Cleanup Programs and Laws.

                 (E)      "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, along with the regulations issued pursuant thereto, as
amended from time to time.

                 (F)      "EVENT OF DEFAULT" or "EVENTS OF DEFAULT" shall have
the meaning set forth in Section 7.1 of this Agreement.

                 (G)      "LIABILITIES" shall mean all liabilities,
indebtedness and obligations of Borrower to the Lender, howsoever created,
arising or evidenced, whether now existing or

<PAGE>   4

hereafter arising, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, primary or
secondary, joint or several, whether existing or arising through discount,
overdraft, purchase, direct loan, participation, operation of law, or
otherwise, including, without limitation, all liabilities, indebtedness and
obligations of Borrower to the Lender pursuant to any letter of credit, any
standby letter of credit or any of the Documents, and reasonable outside
attorneys' and paralegals' fees or charges relating to the preparation of the
Documents and the enforcement of Lender's rights, remedies, powers and security
interests under this Agreement, including, without limitation, the drafting of
any documents in the preparation and enforcement of the Loans.

                 (H)      "LOANS" shall mean collectively, the Revolving Loans
and each Letter of Credit.

                 (I)      "NET WORTH" shall mean the total amount of issued and
outstanding capital stock, plus paid in capital and retained earnings, less
treasury stock.

                 (J)      "NOTE" shall mean the Revolving Note.

                 (K)      "PERSON" shall mean any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated organization,
association, limited liability company, corporation, institution, entity, party
or government (whether national, federal, state, county, city, municipal or
otherwise including, without limitation, any instrumentality, division, agency,
body or department thereof).

                 (L)      "PRIME RATE" shall mean, as of the date of any
determination, the rate per annum then most recently announced publicly by the
Lender as its prime rate of interest in Chicago, Illinois.  The Prime Rate is
the interest rate charged by the Lender on commercial loans to a substantial
number of the Lender's good business customers, but it is not necessarily the
Lender's lowest interest rate charged to any customer.  The Prime Rate is
subject to change by the Lender without notice of any kind.

                 (M)      "REVOLVING LOAN" or "REVOLVING LOANS" shall mean the
loans being made by the Lender on a revolving basis pursuant to Section 2.1 of
this Agreement.

                 (N)      "REVOLVING NOTE" shall mean the revolving note given
to the Lender by Borrower pursuant to Section 2.3 of this Agreement.

                 (O)      "TANGIBLE NET WORTH" shall mean Borrower's Net Worth
minus the aggregate amount of any asset that would be treated as an intangible
under generally accepted accounting principles.

                 (P)      "UCC" shall mean the Uniform Commercial Code as
enacted and amended in the State of Illinois.





                                       2

<PAGE>   5

                 SECTION 1.2.  OTHER TERMS.  Accounting terms used in this
Agreement that are not specifically defined shall have the meanings customarily
given them in accordance with generally accepted accounting principles.  Terms
used in this Agreement that are defined in the UCC, shall, unless the context
indicates otherwise or are otherwise defined in this Agreement, have the
meanings provided for by the UCC.

                              ARTICLE TWO.  LOANS

                 SECTION 2.1.  LOAN AMOUNT.

                 (A)      Subject to the terms and conditions of this
Agreement, on the date upon which all of the terms and conditions of the
Documents have been met or fulfilled to the satisfaction of Lender (the
"Closing Date"), the Lender agrees to make loans to Borrower on a revolving
basis (such loans being herein called individually, a "Revolving Loan," and
collectively, the "Revolving Loans") from time to time in such amounts as
Borrower may from time to time request up to an aggregate amount outstanding of
$8,000,000.00; provided, however, that (i) each borrowing by Borrower hereunder
with respect to any Revolving Loan shall be in the aggregate principal amount
of at least $10,000.00; (ii) the Lender's commitment to make Revolving Loans
shall remain in effect for a period to and including March 15, 1997 (the
"Revolver Termination Date"); (iii) notwithstanding any provision herein to the
contrary (1) upon the occurrence and continuance of any Event of Default, and
in each such event, the Lender may, in its sole discretion, immediately cease
to make Revolving Loans; and (2) on the Revolver Termination Date, Borrower
shall repay to the Lender all Revolving Loans, plus interest accrued to the
date of payment; and (iv) commencing July 1, 1995, for a period of at least 30
consecutive days during each fiscal year of Borrower, the amount of Revolving
Loans outstanding shall not exceed $2,000,000.00.

                 (B)      The Lender agrees to issue letters of credit
(individually, a "Letter of Credit," and collectively, the "Letters of Credit")
at the Borrower's request on a revolving basis from time to time; provided,
however, (a) in no event shall total amount of Letters of Credit and Revolving
Loans issued and outstanding exceed $8,000,000.00; (b) all Letters of Credit
shall expire prior to March 15, 1997; (c) Borrower shall immediately pay to
Lender an amount equal to all amounts drawn on a Letter of Credit, without
notice or demand by Lender, on the day such draw is paid by Lender; (d) all
Letters of Credit shall be in form and substance and in favor of beneficiaries
satisfactory to Lender; (e) no Letter of Credit shall be issued until Borrower
executes a properly completed application and agreement for such Letter of
Credit, in form satisfactory to Lender; (f) Borrower shall pay a nonrefundable
fee to Lender for each Letter of Credit issued in accordance with Lender's then
current fee schedule; and (g) no Letters of Credit shall be issued upon the
occurrence and continuance of any Event of Default.  Interest on any amount
owed by Borrower to Lender pursuant to this Section 2.1(B) shall be paid upon
demand, and shall accrue at the Prime Rate.  Upon the occurrence and
continuance of an Event of Default, interest shall accrue and be payable of the
Prime Rate plus 2%.





                                       3

<PAGE>   6

                 SECTION 2.2.  USE OF LOAN PROCEEDS.  The proceeds of any
borrowing by Borrower pursuant to the Loans shall be used by Borrower solely
for working capital purposes and for importing products.

                 SECTION 2.3.  REVOLVING NOTE.  The Revolving Loans shall be
evidenced by a promissory note (herein called the "Revolving Note") in the form
attached hereto, and made a part hereof, as Exhibit 2.3, dated the date first
above written, payable to the order of the Lender, in the principal amount of
$8,000,000.00.  The date and amount of each Revolving Loan made by the Lender
and of each repayment of principal thereon received by the Lender shall be
recorded by the Lender in the records of the Lender and the aggregate unpaid
principal amount shown on such records shall be rebuttable, presumptive
evidence of the principal owing and unpaid on such Revolving Note.  The failure
to record any such amount on such records shall not, however, limit or
otherwise affect the obligations of Borrower hereunder or under the Revolving
Note to repay the principal amount of the Revolving Loans together with all
interest accruing thereon.  The unpaid principal amount from time to time
outstanding on the Revolving Note shall, at Borrower's choice, bear interest at
either:  (a) the Prime Rate, adjusted as of each change of the Prime Rate (each
Revolving Loan bearing interest at such rate a "Prime Rate Loan"); or (b)
provided that an Event of Default has not occurred and is not continuing, a
rate per annum that shall be 225 basis points in excess of the per annum rate
of interest at which U.S. dollar deposits of an amount comparable to the amount
of the Revolving Loan and for a period equal to the relevant Interest Period
(as hereinafter defined) are offered generally to Lender (rounded upward if
necessary, to the nearest 1/16 of 1.0%)  in the London Interbank Eurodollar
market at 10:00 a.m. (London time) two Business Days prior to the commencement
of each Interest Period ("LIBOR" and each Revolving Loan bearing interest at
such rate a "LIBOR Loan"), such rate to remain fixed for such Interest Period.
"Interest Period" shall mean one-month, two-month or three-month periods as
selected from time to time by the Borrower by irrevocable notice (in writing,
by telex, telegram or cable) given to Lender not less than two Business Days
prior to the first day of each respective Interest Period commencing on the
date hereof; provided that:  (i) each such Interest Period may be continued
upon its expiration by Borrower by irrevocable notice (in writing, by telex,
telegram or cable) given to Lender not less than two Business Days prior to the
expiration thereof, which notice shall specify that such Interest Period shall
continue for a one-month, two month or three month period; (ii) the final
Interest Period shall be such that its expiration occurs on or before the
stated maturity date hereof; (iii) if for any reason the Borrower shall fail to
select time a period, then interest on such LIBOR Loan shall accrue and be
payable at the Prime Rate; and (iv) each such LIBOR Loan shall be in an amount
of at least $1,000,000.00, and shall be in $100,000.00 increments.  "Business
Day" shall mean any day other than a Saturday, Sunday or a day on which banks
in London, England, and Chicago, Illinois, are required or permitted by law to
close.

                 The Lender's determination of LIBOR as provided above shall be
conclusive, absent manifest error.  Further, if Lender determines in good faith
(which determination shall be conclusive, absent manifest error), prior to the
commencement of any Interest





                                       4

<PAGE>   7

Period that:  (a) U.S. dollar deposits of sufficient amount and maturity for
funding the Revolving Loan are not available to Lender in the London Interbank
Eurodollar market in the ordinary course of business; or (b) by reason of
circumstances that affect the London Interbank Eurodollar market, adequate and
fair means do not exist to ascertain the rate of interest to be applicable to
the Revolving Loan, Lender may, at its sole and absolute option, promptly
notify the Borrower that interest on the Revolving Loan shall be determined
using the Prime Rate.

                 If, after the date hereof, the introduction of, or any change
in any applicable law, treaty, rule, regulation or guideline or in the
interpretation or administration thereof by any governmental authority or any
central bank or other fiscal, monetary or other authority having jurisdiction
over the Lender or its lending office (a "Regulatory Change"), shall, in the
opinion of counsel to Lender, make it unlawful for the Lender to make or
maintain the Revolving Loan evidenced hereby, then Lender may, at its sole and
absolute option, promptly notify the Borrower that interest on the Revolving
Loan shall be determined using the Prime Rate.  If, for any reason, the
Revolving Loan is paid prior to the last Business Day of any Interest Period,
the Borrower agrees to indemnify Lender against any loss, including any loss on
redeployment of the funds repaid, cost or expense incurred by Lender as a
result of such prepayment.  If any Regulatory Change, whether or not having the
force of law, shall (a) impose, modify or deem applicable any assessment,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of or loans by, or any other acquisition of
funds or disbursements by, Lender; (b) subject Lender or the Revolving Loan to
any tax, duty, charge, stamp tax, or fee or change the basis of taxation of
payments to Lender of principal or interest due from the Borrower to the Lender
hereunder (other than a change in the taxation of the overall net income of
Lender); or (c) impose on the Lender any other condition regarding the
Revolving Loan or the Lender's funding thereof, and the Lender shall determine
(which determination shall be conclusive absent manifest error) that the result
of the foregoing is to increase the cost to Lender of making or maintaining the
Revolving Loan or to reduce the amount of principal and interest received by
the Lender hereunder, then the Borrower shall pay to the Lender, on demand,
such additional amounts as the Lender shall, from time to time, determine are
sufficient to compensate and indemnify the Lender for such increased costs or
reduced amount.

                 Notwithstanding any provision in this Section 2.3 to the
contrary, upon the occurrence and continuance of an Event of Default, the
Revolving Note shall bear interest at a rate 2% in excess of the rate on LIBOR
Loans.  The accrued interest on (i) Prime Rate Loans shall be payable monthly
on the first day of each month commencing with the first day of the month while
such Prime Rate Loan is outstanding; and (ii) LIBOR Loans shall be payable the
last day of the Interest Period applicable thereto.

                 SECTION 2.4.  OPTIONAL PREPAYMENT.  Borrower may from time to
time, prepay the Note in whole or in any part.  Prepayments of LIBOR Loans
shall be made only with payment of a penalty.





                                       5

<PAGE>   8

                 ARTICLE THREE.  NEGATIVE PLEDGE AND CONVEYANCE

                 Without Lender's prior written consent, Borrower agrees that
it will neither (a) sell, transfer, convey, assign, hypothecate or dispose,
whether by gift or otherwise, unless such is made on an arm's length basis for
fair market value; nor (b) create or permit to exist any mortgage, pledge,
title retention lien, or any other lien, encumbrance or security interest, in
and to its assets, except as provided in Article 4(E) and Section 5.1(E)
hereof, whether such assets are now owned or existing, or hereafter existing or
acquired.

                 ARTICLE FOUR.  REPRESENTATIONS AND WARRANTIES

                 Borrower represents and warrants to the Lender that as of the
date hereof:

                 (A)      ORGANIZATION, ETC.  Borrower is duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and is duly qualified and in good standing or has applied for qualification as
foreign corporation authorized to do business in each jurisdiction where,
because of the nature of its activities or properties, the failure to so
qualify would have a material adverse effect upon Borrower's financial
condition.

                 (B)      AUTHORIZATION;  NO CONFLICT.  The execution and
delivery of the Documents are all within its corporate powers and have been
duly authorized by all necessary action.  Borrower has, or by the time of the
execution and delivery of the Documents shall have, received all necessary
governmental or regulatory approval for the execution and delivery of the
Documents (if any shall be required), and said execution and delivery does not
and will not contravene or conflict with any provision of (i) law, rule,
regulation or ordinance; (ii) its articles of incorporation or by-laws; or
(iii) any agreement binding upon it or any of its properties, as the case may
be.

                 (C)      VALIDITY AND BINDING NATURE.  The Documents are the
legal, valid and binding obligations of it, enforceable against it, in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization and other similar laws of general
application affecting the rights and remedies of creditors and except as the
availability of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.

                 (D)      TITLE TO ASSETS.  Except as set forth in Section (E)
of this Article Four, it has good and marketable title to all its assets free
and clear of all:  (i) liens, encumbrances, security interests or mortgages;
(ii) zoning, building, fire, health or environmental code violations of any
governmental authority that have been finally determined and that are material
to Borrower's financial condition; and (iii) violations of any covenants,
conditions or restrictions of record that have been finally determined and that
are material to Borrower's financial condition.


                                      6

<PAGE>   9
                 (E)      LIENS.  None of its assets are subject to any
mortgage, pledge, title retention lien, or other lien, encumbrance or security
interest, except:  (i) for current taxes not delinquent or taxes being
contested in good faith and by appropriate proceedings and for which adequate
reserves have been established; (ii) liens arising in the ordinary course of
business for sums not due or sums being contested in good faith and by
appropriate proceedings and for which adequate reserves have been established,
but not involving any deposits, advances or borrowed money or the deferred
purchase price of property or services; (iii) liens specifically permitted
pursuant to this Agreement; and (iv) to the extent set forth in Exhibit 4(E)
attached hereto and made a part hereof, which Exhibit shall be prepared by
Borrower in good faith to the best of its knowledge and belief.

                 (F)      FINANCIAL STATEMENTS.  Its financial statement dated
June 30, 1994, and for the fiscal year then ended, and unaudited and unreviewed
financial statement dated December 31, 1994 (the "Last Statement Date"), and
for the fiscal period then ended, copies of which have been previously
delivered to Lender, have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of the preceding
fiscal year, and fairly present its consolidated financial condition on such
dates and the results of its operations for the periods then ended, and since
the Last Statement Date there has been no material adverse change in such
financial condition or operations.

                 (G)      LITIGATION.  No litigation (including, without
limitation, derivative actions), arbitration proceedings, administrative
proceedings or governmental proceedings are pending or threatened against it
which would, if adversely determined, materially and adversely affect its
financial condition or continued operations, except:  (i) for litigation for
which it is fully insured against any loss; and (ii) as set forth on Exhibit
(G) attached hereto and made a part hereof, including estimates of the dollar
amounts involved, which Exhibit shall be prepared by Borrower in good faith to
the best of its knowledge and belief.

                 (H)      NO VIOLATIONS OF LAWS.  To the best of Borrower's
knowledge and belief, it is not in material violation of any law, statute,
ordinance, rule, regulation, judgment, decree, order, writ or injunction of any
federal, state or local authority, court, agency, bureau, board, commission,
department or governmental body, and it has not received any notice, letter or
other communication that concerns such.

                 (I)      TAXES.  Except as set forth on Exhibit 4(I) attached
hereto and made a part hereof, Borrower has paid when due all taxes except as
contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of Borrower's officers), have been
established with respect thereto.

                 (J)      NO DEFAULT OR EVENT OF DEFAULT.  To the best of
Borrower's knowledge and belief, and except as described on Exhibit 4(J)
attached hereto, there exists no event or condition under any mortgage,
indenture, lease, contract, agreement, instrument, judgment, decree or order to
which it is a party or may be subject, or by which it or any of its properties
may be bound, which constitutes a material default or an Event of Default





                                       7

<PAGE>   10

thereunder, or will, with the passage of time, constitute a material default or
event of default thereunder, which has any reasonable likelihood of resulting
in an adverse change in its business, assets, operations, properties, prospects
or condition, financial or otherwise.

                 (K)      FEDERAL LAWS AND REGULATIONS.  It is not (i) an
"investment company" or a company "controlled", whether directly or indirectly,
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended; (ii) a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended; or (iii) engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System).

                 (L)      FISCAL YEAR.  Its fiscal year ends on June 30 of each
year.

                 (M)      OFFICERS OF BORROWER.  Each Person listed on Exhibit
4(M), attached hereto and made a part hereof, holds the respective office or
offices in it set forth next to his or her name on such Exhibit.

                 (N)      INSURANCE.  Exhibit 4(N), attached hereto and made a
part hereof, sets forth all of Borrower's property and casualty insurance
policies.  Exhibit 4(N) includes the insurer's(s') name(s), policy number(s),
expiration date(s), amount(s) of coverage, type(s) of coverage and the annual
premium(s).

                 (O)      SOLVENCY.  Borrower is now and, after giving effect
to the Loans to be made hereunder, and the pledges to be made pursuant to the
Documents will be, solvent in that it:  (i) owns property whose fair saleable
value is greater than the amounts required to pay all of its debts,
liabilities, and obligations, including contingent debts; (ii) is able to pay
all of its indebtedness as such indebtedness matures; and (iii) has sufficient
capital to carry on its business and transactions and all business and
transactions in which it is about to engage.

                            ARTICLE FIVE.  COVENANTS

                 SECTION 5.1.  BORROWER.  Until all the Liabilities are paid in
full, or unless otherwise agreed to by Lender in writing, Borrower covenants
and agrees that:

                 (A)      FINANCIAL STATEMENTS AND CERTIFICATES.  It will
furnish to the Lender: (i) within 90 days after the close of each its fiscal
years, a copy of its annual audited report prepared on a consolidating and
consolidated basis and in conformity with generally accepted accounting
principles, duly reviewed by certified public accountants of recognized
standing selected by it and approved by the Lender, together with a certificate
from such accountants to the effect that, in making the examination necessary
for the signing of such





                                       8

<PAGE>   11

annual review report by such accountants, they have not become aware of any
Event of Default that has occurred and is continuing, or if they have become
aware of any such event, describing it and the steps, if any taken or being
taken to cure it; (ii) within 30 days after the close of each calendar month, a
copy of its unaudited internal financial statements on a consolidated and
consolidating basis, as well as a calculation of the financial covenants to be
maintained by Borrower hereunder; (iii) monthly, a certificate signed by an
officer of the Borrower certifying that except as described therein, (1) no
Event of Default has occurred and is continuing, (2) no litigation, arbitration
proceeding or governmental or regulatory proceeding has been instituted or
adversely determined, or is threatened which is materially adverse to it on a
consolidated basis, all as of the date of such certificate, and (3) that
Borrower is in compliance with the terms of the Loan Agreement; (iv) copies of
all publicly released or filed statements or documents including, without
limitation, 10-K reports, 10-Q reports, press releases and financial
statements; (v) annual business plan including forecast and projections; and
(vi) such other information as the Lender from time to time reasonably
requests.

                 (B)      BOOKS, RECORDS AND INSPECTIONS.  It will:  (i)
maintain complete and accurate books and records; (ii) permit reasonable access
by the Lender to its books and records; and (iii) permit the Lender, upon
reasonable notice, to inspect its properties, whether real or personal, and
operations.

                 (C)      INSURANCE.  It will maintain such insurance as may be
required by law and such other insurance to the extent and against such hazards
and liabilities as is customarily maintained by companies similarly situated,
and as are reasonably acceptable to Lender.

                 (D)      TAXES AND LIABILITIES.  It will pay when due all
taxes, assessments and other liabilities except as contested in good faith and
by appropriate proceedings and for which adequate reserves have been
established.

                 (E)      LIENS.  It will not create or permit to exist any
mortgage, pledge, title retention lien, or other lien, encumbrance or security
interest with respect to any assets now owned or hereafter acquired, except:
(i) liens for current taxes not delinquent or for taxes being contested in good
faith and by appropriate proceedings and for which adequate reserves have been
established; (ii) liens arising in the ordinary course of business for sums not
due or sums being contested in good faith and by appropriate proceedings and
for which adequate reserves shall have been established and not involving any
advances or borrowed money or the deferred purchase price of property or
services; and (iii) those described in Section 4(E) of this Agreement.

                 (F)      GUARANTIES, LOANS OR ADVANCES.  (i) Except for
transactions with Affiliates that are effected upon reasonable terms and
conditions, it will not become or be a guarantor or surety of, or otherwise
become or be responsible in any manner (whether by agreement to purchase any
obligations, stock, assets, goods, services, or to supply or advance





                                       9

<PAGE>   12

any funds, assets, goods or services or otherwise) with respect to any
undertaking of any other Person, or make or permit to exist any loans or
advances to any other Person, except for the endorsement, in the ordinary
course of collection, of instruments payable to it or to its order, and except
for intercompany transactions that are reflected on Borrower's financial
statements from time to time.  (ii) Except for transactions with non-Affiliates
that are made for reasonably equivalent value, Borrower will not become or be a
guarantor or surety of, or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods,
services, or to supply or advance any funds, assets, goods or services or
otherwise) with respect to any undertaking of any other non-Affiliates, or make
or permit to exist any loans or advances to any other non-Affiliates, except
for the endorsement, in the ordinary course of collection, of instruments
payable to it or to its order.

                 (G)      MERGERS, CONSOLIDATIONS AND SALES.  It will not sell,
transfer, convey or lease all or any material part of its assets, or sell or
assign, with or without recourse, any accounts receivable, except with the
prior written consent of the Lender; provided, however, the terms of this
Section 5.1(G) shall not apply to Borrower's license of its tradenames,
trademarks and/or patents.

                 (H)      SELF-DEALING.  It will not purchase, acquire or lease
any property from, or sell, transfer or lease any property to: (a) any
Affiliate; (b) any officer, director or shareholder of it or any Affiliate; or
(c) any member of the immediate family of any of the foregoing, except:  (i) on
terms reasonably comparable to the terms which would prevail in an arms-length
transaction between unaffiliated third parties; (ii) for existing leases
described on Exhibit 5.1(H), attached hereto and made a part hereof; and (iii)
for the purchase of land adjacent to the Property (as hereinafter defined) from
any officer, director or shareholder of it, provided such purchase is on terms
reasonably comparable to the terms which would prevail in an arms-length
transaction between unaffiliated third parties.

                 (I)      VIOLATION OF LAW.  Borrower will use its best efforts
comply in all material respects with all laws, statutes, ordinances, rules,
regulations, judgments, decrees, orders, writs or injunctions of any federal,
state or local authority, court, agency, bureau, board, commission, department
or governmental body, including, without limitation, Environmental Laws, and
maintain and keep in force any and all licenses, permits, franchises, or other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its businesses, if such violation or failure to obtain would
materially and adversely effect its business, profits, properties or financial
condition.

                 (J)      UNCONDITIONAL PURCHASE OBLIGATIONS.  It will neither
enter into nor be a party to any contract for the purchase of materials,
supplies or other property or services in excess of $100,000.00, if such
contract requires that payment be made by it regardless of whether or not
delivery is ever made of such materials, supplies or other property or
services.





                                       10

<PAGE>   13

                 (K)      MAINTENANCE OF BUSINESS.  It will preserve its
corporate existences in the jurisdictions of establishment as may be required
by law, and will provide written notice to Lender of material changes in its
business operations.

                 (L)      USE OF PROCEEDS.  It will not permit any proceeds of
the Loans to be used either directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of "purchasing or carrying any margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended from time to time.

                 (M)      GOOD TITLE.  It will shall at all times maintain good
and marketable title to all of its assets.

                 (N)      OFFICERS OF BORROWER.  Borrower shall provide written
notice to Lender of changes in its officers from those listed on Exhibit 4(M).

                 (O)      CERTIFICATION.  All reports, certificates, schedules,
notices and financial information submitted by it to the Lender pursuant to
this Agreement shall be certified as materially correct by a proper accounting
officer of it.

                 (P)      MATERIAL ADVERSE CHANGE.  It shall give the Lender
prompt written notice of any event, occurrence or other matter which has
resulted or may (in its reasonable judgment) result in a material adverse
change in its financial condition or business operations.

                 (Q)      NO DEFAULT OR EVENT OF DEFAULT.  Except as described
on Exhibit 4(K) attached hereto, it shall not permit to exist any event or
condition under any mortgage, indenture, lease, contract, agreement,
instrument, judgment, decree or order to which it is a party or may be subject,
or by which it or any of its properties may be bound, which constitutes a
material default or an event of default thereunder, or will, with the passage
of time, constitute a material default or event of default thereunder, and
which Borrower reasonably believes will result in a material adverse change in
its business, assets, operations, properties, prospects or financial condition.

                 (R)      MAXIMUM LEVERAGE.  Borrower, on a consolidated basis,
shall not cause, suffer or permit the ratio of (i) its liabilities, to (ii) its
Tangible Net Worth, to be greater than 1.50 to 1.0.

                 (S)      TANGIBLE NET WORTH.  Borrower, on a consolidated
basis, shall not cause, suffer or permit its Tangible Net Worth (including
adjustments for transactions with Affiliates) to be less than $10,000,000.00 at
any time.

                 (T)      MINIMUM FIXED CHARGE COVERAGE.  Borrower, on a
consolidated basis, shall not cause, suffer or permit the ratio of (i) its
earnings from operations before interest, income taxes, depreciation,
amortization, other non-cash charges and disability payments to





                                       11

<PAGE>   14

John C. Koss, to (ii) interest expense on all its liabilities, indebtedness and
obligations, to be less than 2.10 to 1.0.

                 (U)      CURRENT RATIO.  Borrower, on a consolidated basis,
shall not cause, suffer or permit the ratio of (i) its current assets (cash on
hand, cash equivalents, marketable equity securities, accounts receivable, less
an allowance for doubtful accounts, and inventory, valued at the lower of cost
or market, calculated on a first in/first out basis in accordance with
generally accepted accounting principles consistently applied, to (ii) its
current liabilities (all liabilities payable within one year, including the
portion of long term liabilities to be paid within one year, as determined in
accordance with generally accepted accounting principles consistently applied,
and, without duplication, the total outstanding amount of the Loan, to be less
than 2.50 to 1.0.

                 (V)      COMMITMENT FEE.  Borrower shall pay to Lender a
$20,000.00 nonrefundable fee each year.  Such fee shall be prorated for any
partial year that the Loans are outstanding.

                       ARTICLE SIX.  CONDITIONS PRECEDENT

                 SECTION 6.1.  CONDITIONS PRECEDENT TO THE LOANS. Lender's
obligation to make the Loans, including, without limitation, its obligation to
make the Revolving Loans and issue Letters of Credit from time to time, are
subject to the fulfillment of each and every one of the following conditions
prior to or contemporaneously with the making of each and every such extension
of credit:

                 (A)      DELIVERY OF DOCUMENTS.  Lender shall have received
each of the following, in form and substance satisfactory to Lender and its
counsel:

                          (i)     Certified copies of all corporate actions
         taken and consents made by Borrower to authorize the obtaining of
         credit by Borrower pursuant to this Agreement, the Revolving Loans,
         the Letters of Credit and the transactions otherwise provided for or
         contemplated under this Agreement and the execution and delivery of,
         and performance in accordance with the respective terms of, the
         Documents;

                          (ii)    Certificates of the Secretary of Borrower
         certifying the names of the officer or officers of Borrower authorized
         to sign the Documents, together with a sample of the true signature of
         each such officer.  Lender may conclusively rely on such certificates
         until formally advised by a like certificate of any changes therein;

                          (iii)   Certificates of insurance and loss payable
         clauses covering Borrower's assets that meet the requirements of this
         Agreement;





                                       12

<PAGE>   15

                          (iv)    The Revolving Note duly executed;

                          (v)     Certified copies of all documents evidencing
         any and all required consents and governmental or regulatory
         approvals, if any, with respect to the Documents;

                          (vi)    The executed opinion of counsel of the law
         firm of Whyte, Hirschboeck Dudek S.C., counsel to Borrower, addressed
         to the Lender and dated the date of this Agreement in the form
         attached hereto, and made a part hereof, as Exhibit 6.1(A)(vi);

                          (vii)   Certified copies of the Articles of
         Incorporation or Charter and By-laws of Borrower, as restated or
         amended as to the date of this Agreement;

                          (viii)  Certificates of good standing for Borrower
         from the appropriate governmental authority in the jurisdiction of its
         incorporation, in the principal places in which Borrower conducts
         business; and

                          (ix)    Such other instruments or documents as the 
         Lender may reasonably request.

                 (B)      NO EVENT OF DEFAULT.  No Event of Default shall have
occurred and be continuing, may occur with the giving of notice, the passage of
time, or both, or shall result from the making of any Loan;

                 (C)      CONTINUATION OF REPRESENTATIONS AND WARRANTIES.  The
representations and warranties contained in Article Four of this Agreement
shall be true and correct as of the making of any Loan, with the same effect as
though made on such dates.

                       ARTICLE SEVEN.  EVENTS OF DEFAULT

                 SECTION 7.1.  EVENTS OF DEFAULT.  Each of the following acts,
occurrences or omissions shall constitute an event of default under this
Agreement (herein referred to as an "Event of Default"), whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment or order of any
court or any order, rule or regulation of any governmental or nongovernmental
body or tribunal:

                 (A)      Borrower shall default in the payment when due of any
amount due and owing by Borrower to Lender under the Revolving Note or Letters
of Credit; or

                 (B)      Except for and other than the Event of Default set
forth in Section 7.1(A) of this Agreement, Borrower shall default in the
payment of any other amount owing by Borrower to Lender pursuant to the
Documents or pursuant to any other agreement,





                                       13

<PAGE>   16

note, instrument or guarantee between Borrower and Lender, and said default
shall continue unremedied for five days after written notice thereof from
Lender to Borrower; or

                 (C)      Any representation or warranty made by Borrower
contained in the Documents shall at any time prove to have been incorrect in
any material respect when made, and which continues for five days after notice
thereof has been received by Borrower; or

                 (D)      Borrower shall default in the performance or
observance of any term, covenant, condition or agreement on its part to be
performed or observed under the Documents (not constituting an Event of Default
under any other clause of this Section 7.1 of this Agreement) and such default
shall continue unremedied for five days after written notice thereof from
Lender to Borrower shall have been received by Borrower; or

                 (E)      Either:  (i) the Borrower shall become insolvent or
generally fail to pay, or admit in writing its inability to pay, its debts as
they become due, or a proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt or receivership law or
statute is filed by or against Borrower, or Borrower makes an assignment for
the benefit of creditors; provided, however, that no Event of Default shall
exist pursuant to this Subsection E, Clause (i) due to an involuntary
bankruptcy case, proceeding or petition filed against Borrower unless such
involuntary case, proceeding or petition shall not have been dismissed or
withdrawn within 60 days after the date of such involuntary filing; or (ii)
corporate or other action shall be taken by Borrower for the purpose of
effectuating any of the foregoing; or

                 (F)      If notice is given that Borrower's assets are subject
to levy, attachment, seizure or confiscation; or

                 (G)      There shall occur any uninsured loss, theft, damage
to or destruction of Borrower's assets in excess of $250,000.00; provided,
however, that the deductible amount on any insurance policy currently in effect
on such assets shall not be considered an uninsured loss pursuant to this
Subsection G; or

                 (H)      Borrower shall be dissolved, whether voluntarily or
involuntarily, and Borrower has not taken all actions required to become
reinstated; or

                 (I)      Subject to any applicable cure period, (i) for
amounts in excess of $100,000.00 in the aggregate, an event of default or
events of default (howsoever designated) as defined in any note, security
agreement, mortgage, indenture, loan agreement, agreement, document or
instrument pursuant to which there may be issued, secured or evidenced any
indebtedness for money borrowed by Borrower, whether such indebtedness now
exists or shall hereafter be created, shall occur; (ii) any event shall occur
which would permit such indebtedness to  be declared due and payable prior to
its date of maturing or due dates; or (iii) Borrower shall default in the
payment when due of any principal of or interest on any





                                       14

<PAGE>   17

indebtedness for money borrowed or guaranteed by Borrower; or (iv) Borrower
shall default in the payment when due, or in the performance or observance of,
any material obligation of, or material condition agreed to by, Borrower with
respect to any purchase or lease of any real or personal property or services,
or the purchase of stock or other interest in any Person; or

                 (J)      There shall occur a cessation of a substantial part
of the business of Borrower for a period which significantly effects Borrower's
capacity to continue its business, on a profitable basis; or Borrower shall
suffer the loss or revocation of any governmental license or permit now held or
hereafter acquired by Borrower which is necessary for the continued or lawful
operation of its business (and which has not been reinstated within 90 days of
such loss or revocation); or Borrower shall be enjoined, restrained or in any
way prevented by court, governmental or administrative order from conducting
all or any material part of its business affairs.

                            ARTICLE EIGHT.  REMEDIES

                 SECTION 8.1.  REMEDIES UPON DEFAULT.  In addition to Lender's
rights under applicable law, upon the occurrence and continuance of any Event
of Default, and the expiration of any applicable cure period, and in every such
event:

                 (A)      Notwithstanding anything to the contrary in the
Documents, the Lender may, in its sole and arbitrary discretion, declare the
principal of and interest on the Revolving Loans and the Revolving Note, and
all other amounts owed under the Documents, to be forthwith due and payable
(and Letters of Credit to be cancelled) without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived; and

                 (B)      Lender may require Borrower to make its assets and
the records pertaining thereto, available to Lender for inspection and audit by
Lender at their then current location.

                 SECTION 8.2.  REMEDIES ARE SEVERABLE AND CUMULATIVE.  All
provisions contained herein pertaining to any remedy of the Lender shall be and
are severable and cumulative.  Any notification required pursuant to this
Article Eight or under applicable law shall be reasonably and properly given to
Borrower at the address and by any of the methods of giving such notice as set
forth in Section 9.3 of this Agreement, at least 5 days before taking any
action.

                          ARTICLE NINE.  MISCELLANEOUS

                 SECTION 9.1.  NO WAIVER; MODIFICATIONS IN WRITING.  Any
failure or delay on the part of the Lender in exercising any right, power or
remedy pursuant to the Documents shall not operate as a waiver thereof, nor
shall any single or partial exercise of





                                       15

<PAGE>   18

any such right, power or remedy preclude any other or further exercise thereof,
or the exercise of any other right, power or remedy. No amendment,
modification, supplement, termination or waiver of or to any provision of the
Documents, nor any consent to any departure by Borrower therefrom, shall be
effective unless the same shall be in writing and signed by the Lender.  Any
waiver of any provision of the Documents and any consent to any departure by
Borrower from the terms of any provision of the Documents shall be effective
only in the specific instance and for the specific purpose for which given.  No
notice to or demand on Borrower in any case shall entitle Borrower to any other
or further notice or demand in similar or other circumstances.

                 SECTION 9.2.  SET-OFF.  The Lender shall have the right to
set-off, appropriate and apply toward payment of any of the Liabilities in such
order of application as the Lender may from time to time and at any time elect,
any cash, credit, deposits, accounts, securities and any other property of
Borrower which is in transit to or in the possession, custody or control of the
Lender, or any agent or bailee of the Lender.

                 SECTION 9.3.  NOTICES, ETC.  All notices, demands,
instructions and other communications required or permitted to be given to or
made upon any party hereto shall be in writing personally delivered or sent by
First Class Mail, postage prepaid, or by facsimile machine, and shall be deemed
to be given for purposes of this Agreement on the day that such writing is
delivered or sent by facsimile machine or three days after such notice is sent
by mail to the intended recipient thereof in accordance with the provisions of
this Section 9.3.  Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this Section 9.3 of this Agreement,
notices, demands, instructions and other communications in writing shall be
given to or made upon the respective parties hereto at their respective
addresses indicated for such party below:

         If to Borrower:                     Koss Corporation
                                             4129 N. Port Washington Ave.
                                             Milwaukee, Wisconsin  53212
                                             Attention:  Sujata Sachdeva
                                             Phone:  (414) 964-5000
                                             Fax No.:  (414) 964-8615

         With copies to:                     Richard W. Silverthorn, Esq.
                                             Whyte, Hirschboeck Dudek S.C.
                                             111 East Wisconsin Ave., Suite 2100
                                             Milwaukee, Wisconsin  53202
                                             Phone:  (414) 273-2100
                                             Fax No.:  (414) 273-5000

         If to the Lender:                   LaSalle National Bank
                                             120 South LaSalle Street
                                             Chicago, Illinois 60603
                                             Attention:  Thomas J. Bieke
                                             Phone:  (312) 904-7621
                                             Fax No.:  (312) 904-6242





                                       16

<PAGE>   19

         With a copy to:                      Robert M. Mintz, Esq.
                                              Fox and Grove, Chartered
                                              311 South Wacker Drive, Suite 6200
                                              Chicago, Illinois  60606
                                              Phone:  312/876-0500
                                              Fax No.:  312/362-0700

                 SECTION 9.4.  COSTS, EXPENSES AND TAXES.  Borrower agrees that
its primary banking relationship and accounts shall be with Lender and that
Borrower shall be liable for all fees, costs, and expenses customarily charged
by Lender in connection with such relationship and accounts.  Borrower may
maintain such other accounts as it deems necessary.  Borrower agrees to pay all
fees plus out-of-pocket expenses of the Lender (including, without limitation,
field audit expenses and costs of outside consultants, appraisers, counsel and
paralegals to the Lender) in connection with the preparation, administration
and enforcement of the Documents and the administration and enforcement of the
Loans.  In addition, Borrower shall pay any and all stamp, transfer and other
taxes payable or determined to be payable in connection with the execution and
delivery of the Documents and agrees to hold the Lender harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes.  If any action, suit or proceeding
arising from any of the foregoing is brought against the Lender, Borrower, to
the extent and in the manner directed by the Lender, will resist and defend
such action, suit or proceeding or cause the same to be resisted and defended
by counsel designated by Borrower.  The obligations of Borrower under this
Section 9.4 shall survive the termination of this Agreement and the discharge
of the other obligations of Borrower under the Documents.

                 SECTION 9.5.  COMPUTATIONS.  Where the character or amount of
any asset or liability or item of income or expense is required to be
determined, or any consolidation or other accounting computation is required to
be made, for the purpose of this Agreement, such determination or calculation
shall, to the extent applicable and except as otherwise specified in this
Agreement, be made in accordance with generally accepted accounting principles
applied on a basis consistent with those at the time in effect.

                 SECTION 9.6.  FURTHER ASSURANCES.  Borrower agrees to do such
further acts and things and to execute and deliver to the Lender such
additional agreements, documents and instruments as the Lender may reasonably
require or deem advisable to carry into effect the purposes of the Documents,
or to better assure and confirm unto the Lender its rights, powers and remedies
under the Documents.

                 SECTION 9.7.  COUNTERPARTS.  This Agreement executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together shall constitute but one and the same agreement.





                                       17

<PAGE>   20

                 SECTION 9.8.  BINDING EFFECTS; ASSIGNMENTS.  This Agreement
shall be binding upon, and inure to the benefit of Borrower and its successors
and assigns.  Borrower shall not assign any of its rights nor delegate any of
its obligations under this Agreement without the prior written consent of the
Lender and no such consent by the Lender shall, in any event, relieve Borrower
of any of its obligations under this Agreement.  Lender may assign its rights
hereunder.

                 SECTION 9.9.  HEADINGS.  Captions contained in this Agreement
are inserted only as a matter of convenience and in no way define, limit or
extend the scope or intent of this Agreement or any provision of this Agreement
and shall not affect the construction of this Agreement.

                 SECTION 9.10.  ENTIRE AGREEMENT.  This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all prior agreements and understandings,
whether oral or written, related to the subject matter of the Agreement.

                 SECTION 9.11.  GOVERNING LAW.  This Agreement shall be deemed
to be a contract made under and for all purposes shall be construed in
accordance with the internal laws, and not the choice of laws, of the State of
Illinois.

                 SECTION 9.12.  SEVERABILITY OF PROVISIONS.  Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective only to the extent of such prohibition
or unenforceability without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.

                 SECTION 9.13.  CONFLICT.  In the event of any conflict between
this Agreement and any other instrument, document or agreement, including, but
not limited to, the Note, the Environmental Warranty, or any other instrument
or document required or contemplated hereunder or thereunder, the terms and
provisions of this Agreement shall govern and control.

                 SECTION 9.14.  JURISDICTION; WAIVERS.  BORROWER ACKNOWLEDGES
THAT THIS AGREEMENT IS BEING SIGNED BY THE LENDER IN PARTIAL CONSIDERATION OF
LENDER'S RIGHT TO ENFORCE IN THE JURISDICTION STATED BELOW THE TERMS AND
PROVISION OF THIS AGREEMENT AND THE DOCUMENTS.  BORROWER CONSENTS TO
JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN THE COUNTY OF COOK FOR SUCH
PURPOSES AND THEY WAIVE ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND
VENUE.  LENDER AND BORROWER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY WITH RESPECT TO ANY MATTER





                                       18

<PAGE>   21

WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOANS,
THE DOCUMENTS OR THE TRANSACTIONS WHICH ARE THE SUBJECT OF THE DOCUMENTS.

                 SECTION 9.15.  CAPITAL ADEQUACY INDEMNIFICATION.  If Lender
shall determine at any time after the date hereof that the adoption of any law,
rule or regulation regarding capital adequacy, or any change therein or in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Lender's capital as a consequence of its
obligations hereunder to a level below that which the Lender could have
achieved but for such adoption, change or compliance (taking into consideration
the Lender's policies with respect to capital adequacy) by an amount deemed by
Lender to be material, then the Borrower shall pay to Lender upon demand such
amount or amounts, in addition to the amounts payable under the other
provisions of this Agreement or under the Note, as will compensate Lender for
such reduction.  Determinations by Lender for purposes of this Section 9.15 of
the additional amount or amounts required to compensate lender in respect of
the foregoing shall be conclusive in the absence of manifest error.  In
determining such amount or amounts, Lender may use any reasonable averaging and
attribution methods.  Lender represents that as of the date of this Agreement
it is not aware of any claim it may have under this Section 9.15.

                 SECTION 9.16.  APPLICATION OF PAYMENTS.  Borrower waives the
right to direct the application of any and all payments at any time or times
hereafter received by lender on account of any obligations owed by Borrower to
Lender and Borrower agrees that Lender shall have the right to apply the
proceeds of payments received by Lender to the obligations in any order or
manner as Lender may deem advisable, including, without limitation, the
continuing exclusive right to apply and reapply such proceeds and payments in
any order or manner as lender may deem advisable.

                 SECTION 9.17.  INDEMNIFICATION.  Except for any Indemnified
Liabilities (as hereinafter defined) resulting from, arising out of, or
relating to Lender's acts or omissions, and in consideration of the execution
and delivery of the Documents by Lender and agreement of Lender to make the
Loans hereunder, Borrower hereby agrees to indemnify, exonerate and hold Lender
and each of its officers, directors, employees, attorneys and agents
(collectively, the "Bank Parties"), free and harmless from any against any and
all actions, causes of action, suits, losses, liabilities and damages, and
expenses in connection therewith, including, without limitation, reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by
the Bank Parties, or any of them, as a result of, or arising out of, or
relating to: (a) any transaction financed or to be financed in whole or in part
directly or indirectly with the proceeds of any Revolving Loan; (b) the
execution and delivery of the Documents by Borrower; (c) Borrower's possession,
use,





                                       19

<PAGE>   22

operation or control of any of its assets.  If and to the extent that the
foregoing undertakings may be unenforceable for any reason, Borrower jointly
and severally agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.  All obligations of Borrower under this Section 9.17 shall
survive any termination of this Agreement.

                 SECTION 9.18.  ENVIRONMENTAL WARRANTY AND INDEMNITY.  Borrower
hereby represents and warrants to Lender that it, occupies the property(ies)
more fully described on Exhibit 9.18 attached hereto and made a part hereof
(the "Property").  Borrower hereby represents and warrants to Lender that to
Borrower's knowledge, no hazardous or toxic substances, within the meaning of
any applicable statute or regulation, whether federal, state or local, are
presently stored or otherwise located on the Property in violation of
Environmental Laws; provided, however, Borrower is aware of the presence of
asbestos around certain plumbing fixtures, and of the presence of an empty
underground storage tank located on the Property.  Borrower covenants and
agrees with Lender that while any Liabilities are outstanding, all toxic
substances within the definition of Environmental Laws, which may be used by
any person for any purpose upon the Property, shall be used or stored thereon
in accordance with all laws, regulations, and requirements for such storage
promulgated by any governmental authority, and that the Property will not be
used for the principal purpose of storing such substances.

                 Borrower hereby agrees to give Lender immediate notice of any
violation or suspected violation of any federal, state, or local statute, rule,
or regulation dealing with the presence or suspected presence of any hazardous,
toxic, or environmentally dangerous substances or condition affecting the
Property.  Borrower hereby unconditionally gives Lender the right, but not the
obligation, and Lender does not so obligate itself, to undertake to contain and
clean up releases of hazardous substances on the Property before the costs of
doing so exceeds the value of the Property.  Upon the written request of Lender
to Borrower, Lender, its attorneys, employees, agents or other persons or
entities designated by Lender, shall, from time to time and at any time, be
allowed to enter upon the Property and conduct environmental examinations and
environmental audits of the Property, all in form, manner and type as Lender
may then require in its sole discretion.  Borrower shall fully cooperate and
make the Property, all improvements on the Property and the land which is the
subject of the Property available to Lender at such times as Lender may request
in order to conduct such environmental examinations and environmental audits.

                 Borrower hereby indemnifies and saves Lender harmless of and
from any and all loss, costs (including reasonable attorneys' fees), liability
and damage whatsoever incurred by Lender, by reason of any violation by
Borrower of any applicable statute, rule or regulation for the protection of
the environment which occurs upon the Property or any adjacent parcels of real
estate that affect the Property or by reason of the imposition of any
governmental lien for the recovery of environmental cleanup costs expended by
reason of such violation; provided however, that to the extent Lender is
strictly liable under any such statute, Borrower's obligation to Lender under
this indemnity shall likewise be without





                                       20

<PAGE>   23

regard to fault on the part of the undersigned with respect to the violation of
law which results in liability to the Lender.  Borrower further agrees that
this indemnity and the representations and warranties contained herein shall
continue and remain in full force and effect beyond the term of the Liabilities
and shall be terminated only when there is no further obligation of any kind
whether in law or equity or otherwise of Lender in connection with any such
environmental clean-up costs, environmental liens, or environmental matters
involving the Property.

                 SECTION 9.19.  PRIOR LOAN DOCUMENTS.  This Loan Agreement and
all of the documents and agreements related hereto, supersede and replace the
Loan Agreement between Lender and Borrower dated June 25, 1992, as amended, and
all documents and instruments related thereto, which are hereafter null and
void and of no further force and effect.

                 IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered at Chicago, Illinois, as of the
date first above written.

BORROWER:                         KOSS CORPORATION


                                  By:_____________________________________


                                  Title:__________________________________




ATTEST:                           By:_____________________________________


                                  Title:__________________________________




LENDER:                           LASALLE NATIONAL BANK


                                  By:_____________________________________


                                  Title:__________________________________






                                       21

<PAGE>   24

                                 REVOLVING NOTE


$8,000,000.00                                        ____________________, 1995
                                                              Chicago, Illinois


                 FOR VALUE RECEIVED, the undersigned hereby promises to pay to
the order of LaSalle National Bank, a national banking association, or its
assigns (the "Lender"), the principal sum of $8,000,000.00, as set forth in
Section 2.1 of that certain Loan Agreement dated the date hereof by and among
Lender and the undersigned (the "Loan Agreement"), on March 15, 1997, or such
earlier date as set forth in the Loan Agreement.  The undersigned may borrow,
repay and reborrow hereunder in accordance with the provisions of the Loan
Agreement.

                 The undersigned further promises to pay to the order of
Lender, interest on the aggregate unpaid principal amount outstanding hereunder
from time to time from the date hereof until paid in full, at the rate per
annum which shall be determined in accordance with the Loan Agreement.  Accrued
interest shall be payable as provided in the Loan Agreement.  The undersigned
may from time to time prepay this Note in whole or in part.  Prepayments of
LIBOR Loans shall be made only with payment of a penalty.

                 The undersigned hereby waives presentment, demand, notice of 
dishonor and protest.

                 Capitalized terms not otherwise defined herein shall have the
same meaning as set forth in the Loan Agreement.  This Note is the Revolving
Note referred to in the Loan Agreement.  The Loan Agreement, among other
things, contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events upon the terms and conditions therein
specified.  The terms and provisions of the Loan Agreement are incorporated in
their entirety into this Note by this reference.

                 This Note has been delivered at Chicago, Illinois, and shall
be governed by the internal laws, and not the choice of laws, of the State of
Illinois.  Whenever possible, each provision of this Note shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision, or the
remaining provisions

<PAGE>   25

of this Note, or any provision of the Loan Agreement or any other agreement
between the undersigned and Lender.

                                        KOSS CORPORATION


                                        By:_____________________________________


                                        Title:__________________________________



                                        ATTEST:


                                        By:_____________________________________


                                        Title:__________________________________






                                       2

<PAGE>   26
                                  EXHIBIT 4(E)
                                     LIENS


Secured Party                                                  Collateral

Advanta Leasing Corp.                      Micro general 1080
2 Echelon Plaza, Suite 300                 Manifest with remote platform;
Voorhees, NY 08043                         2 80-column printers

IBM Credit Corporation                     IBM equipment referenced on IBM
Dept. C4D MS 7                             Sup #146941 dated 5/28/92,
290 Harbor Drive                           including all additions,
Stamford, CT 06904                         accessions and upgrades

First United Leasing Corp.                 1 Premier 367 Parcel Express
100 Corporate North                        Manifest with 8865 Scale NS
Bannockburn, IL 60015                      0036, 9938 Accum Printer S.N.
                                           4092, 7214, Label Printer S.N.
                                           02406, 7325 Document Printer
                                           (lease)

M&I Madison Bank                           Canon Fax L770, S.M. UBJI1723
(assignee of Madison Leasing               and 1 toner cartridge
 Co., Inc.)
P.O. Box 1129
2101 W. Beltline Highway
Madison, WI 53701

<PAGE>   27

                                  EXHIBIT 4(I)
                                     TAXES


                                      NONE

<PAGE>   28

                                 EXHIBIT 4 (G)
                                   Litigation


1.   AM Transportation, Inc. v. Koss Corporation and Michael F. Moore, Case No.
     94 L 533 (Illinois).

     a.    Count I -- Slander Per Se

           Plaintiff seeks $200,000 from each defendant for injury to its
           reputation and other compensatory damages, and $500,000 from each
           defendant in punitive damages, plus attorneys' fees and costs.

     b.    Count II -- Slander Per Quod

           Plaintiff seeks not less than $200,000 from each defendant as
           compensatory damages, and $500,00 from each defendant in punitive
           damages, plus attorneys' fees and costs.

     c.    Count III -- Wrongful Interference With Ongoing Business
           Relationship and Contractual and Economic Expectancy.

           Plaintiff seeks from defendant Michael F. Moore an amount in excess
           of $200,000 in lost business and other damages, and $500,000 in
           punitive damages, plus attorneys' fees and costs.

     Koss Corporation carried a Commercial General Liability Policy with Home
Insurance Company with coverage limits of $1,000,000 per occurrence and no
deductible.  Home Insurance Company has accepted the defense of this action on
behalf of Koss Corporation and Michael F.  Moore but has advised that the
general liability policy does not cover punitive damages.

     Koss Corporation also carried a Supercover Umbrella Excess Liability
Policy with Fireman's Fund Insurance Company with coverage limits of
$10,000,000 and no deductible.  This policy provides the first layer
umbrella/excess liability coverage over the general liability policy with Home
Insurance Company, subject to the same denial of coverage for punitive damages
by Home Insurance Company under the general liability policy.

     In addition, Koss Corporation carried an Executive Protection Policy with
Federal Insurance Company, with coverage limits of $3,000,000 for each loss,
and a $250,000 deductible.  Federal Insurance Company has admitted coverage
subject to a reservation of rights and a denial of coverage for punitive
damages.

     This case is still in the discovery phase.






<PAGE>   29


     2.    Dorothy Harris v. Koss Corporation, Case No. 94-CV-012542
           (Wisconsin).

           Plaintiff was an employee of a company that is not affiliated with
           Koss Corporation but that occupies space in the same building.
           Plaintiff slipped in the parking lot leased by Koss Corporation.
           Home Insurance Company has accepted the defense of this case on
           behalf of Koss Corporation.  Policy limits are $1,000,000 per
           occurrence with no deductible.

     3.    Jose v. Alvarez v. Koss Corporation,
           EEOC Charge No. 260941103
           ERD Case No. 9453251

                      and

           Melania Alvarez v. Koss Corporation
           EEOC Charge No. 260941102
           ERD Case No. 9453252

           Both cases alleges the claimants were terminated based on their
           national origin.  Both claimants were employees of temporary
           employment agencies and were assigned to work at Koss Corporation.
           Both claimants failed to show up for work on several occasions
           without notice.  Potential exposure includes reinstatement and back
           pay.  Claimants could also pursue compensatory damages in state or
           federal court, but this is unlikely.






<PAGE>   30

                                 EXHIBIT 5.1(H)
                                 Certain Leases



     The Company leases its headquarters located at 4129 N. Port Washington
Avenue, Milwaukee, Wisconsin from the Chairman of the Board, John C. Koss.






<PAGE>   31

                                  EXHIBIT 4(J)
                         Defaults Under Other Arguments



                                      NONE






<PAGE>   32

                                  EXHIBIT 4(M)
                                    Officers



     John C. Koss                     Chairman

     Michael J. Koss                  President
                                      Chief Executive Officer
                                      Chief Operating Officer
                                      Chief Financial Officer

     John C. Koss, Jr.                Vice President - Sales

     Sujata Sachdeva                  Vice President - Finance

     Richard W. Silverthorn           Secretary and General Counsel






<PAGE>   33

                                  EXHIBIT 4(N)
                                   Insurance



List all property and casualty insurance policies.

     Insurer's Name(s)
     Policy Number(s)
     Expiration Date(s)
     Amount(s) of Coverage
     Type(s) of Coverage
     Annual Premium(s)






<PAGE>   34

                                    EXHIBITS

                                       TO

                                 LOAN AGREEMENT

                                 BY AND BETWEEN

                                KOSS CORPORATION

                                      AND

                             LASALLE NATIONAL BANK

                            DATED FEBRUARY 17, 1995






<PAGE>   35

                                  EXHIBIT 4(N)
                                   INSURANCE


1.   Business Auto Coverage

     Insurer's Name:                 CNA (Transportation Insurance Co.)
     Underlying Insurers:            Transcontinental,
                                     Transportation, Twin City Fire
                                     as indicated in Declaration
     Policy Number:                  A1 30606700
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          $4,728.00


2.   Umbrella Coverage

     Insurer's Name:                 CNA (Transportation Insurance Co.)
     Policy Number:                  A1 30606714
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          $7,850.00


3.   Commercial General Liability Coverage

     Insurer's Name:                 CNA (American Casualty Co. of
                                     Reading, Pa.)
     Policy Number:                  P1 30606681
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          $17,261.00


4.   Commercial Property Coverage

     Insurer's Name:                 CNA (American Casualty Co. of
                                     Reading, Pa.)
     Policy Number:                  P1 30606681
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          Premium is part of $17,261 premium
                                     for general liability policy (See #3)






<PAGE>   36

5.   Employee Benefits Liability Coverage

     Insurer's Name:                 CNA (American Casualty Co. of
                                     Reading, Pa.)
     Policy Number:                  P1 30606681
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          Premium is part of $17,261 premium
                                     for general liability policy (See #3)

6.   Commercial Inland Marine Coverage

     Insurer's Name:                 CNA (American Casualty Co. of
                                     Reading, Pa.)
     Policy Number:                  P1 30606681
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          Premium is part of $17,261 premium
                                     for general liability policy (See #3)

7.   Commercial Crime Coverage

     Insurer's Name:                 CNA (American Casualty Co. of
                                     Reading, Pa.)
     Policy Number:                  P1 30606681
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          Premium is part of $17,261 premium
                                     for general liability policy (See #3)

8.   Mini and Micro Computer Systems Coverage

     Insurer's Name:                 CNA (American Casualty Co. of
                                     Reading, Pa.)
     Policy Number:                  P1 30606681
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          Premium is part of $17,261.00
                                     premium under general liability
                                     policy (See #3 above)






<PAGE>   37

9.   Signs Coverage

     Insurer's Name:                 CNA (American Casualty Co. of
                                     Reading, Pa.)
     Policy Number:                  P1 30606681
     Expiration Date:                8/31/95
     Amount(s) of Coverage:          See Attached Declaration
     Type(s) of Coverage:            See Attached Declaration
     Total Annual Premiums:          Premium is part of $17,261.00
                                     premium under general liability
                                     policy (See #3 above)


10.  Workers Compensation Coverage

     Insurer's Name:                 ITT Hartford
     Policy Number:                  83WBAS7673
     Expiration Date:                8/31/95
     Type(s) of Coverage:            Statutory
     Amount(s) of Coverage:          Statutory
     Total Annual Premiums:          $50,595.00


11.  Industrial Risk Insurance Package (IRI)

     Insurer's Name:                 Industrial Risk Insurance Company
     Policy Number:                  022742
     Expiration Date:                8/31/95
     Type(s) and Amount(s)
      of Coverage:                   Real & Personal Property-$15,127,000
                                     Business Interruption-$31,750,000
     Total Annual Premiums:          $27,127.00

12.  Directors and Officers Policy

     Insurer's Name:                 Federal Insurance Company (Chubb)
     Policy Number:                  81199099C
     Expiration Date:                5/23/95
     Amount(s) of Coverage:          $5,000,000
     Type(s) of Coverage:            Director and Officer Liability






<PAGE>   38




                               EXHIBIT 6.1(A)(vi)
                               OPINION OF COUNSEL
                   [WHYTE HIRSCHBOECK DUDEK S.C. LETTERHEAD]




                               February 17, 1995



LaSalle National Bank
120 South LaSalle Street
Chicago, Illinois 60603

Gentlemen:

     We have acted as counsel for Koss Corporation, a Delaware corporation
("Borrower"), in connection with the execution of that certain Loan Agreement
(the "Loan Agreement") by and between you and the Borrower dated the date first
above written.  All capitalized terms used herein, not defined herein, shall
have meanings ascribed thereto in the Loan Agreement.

     We are rendering this opinion pursuant to Section 6.1(A)(vi) of the Loan
Agreement.

     In rendering this opinion, we have conferred with and have made inquiry of
officers of Borrower and have examined the originals or copies certified to our
satisfaction of the Documents, the Charter (Articles of Incorporation), minute
books and stock record books of Borrower, and such other documents that have
been made available to us for purposes of this opinion.  In our examination we
have assumed the genuineness of all signatures and the authenticity of all
documents submitted to us as certified or photostatic copies.  As to all
questions of fact material to our opinion, we have relied upon a certificate of
an officer of Borrower (the "Officer's Certificate") and certificates from
governmental agencies.

     On the basis of the foregoing, it is our opinion that:

     1.    Borrower is duly incorporated and in good standing under the laws of
the State of Delaware.  Borrower is current in the filing of its Annual Report
in Wisconsin and is a foreign corporation authorized to transact business in
Wisconsin.

     2.    Borrower has the full corporate power and corporate authority to
execute, deliver, and perform its obligations under, the Documents.

     3.    The execution and delivery of the Documents and the performance by
Borrower of its obligations thereunder have been






<PAGE>   39

WHYTE HIRSCHBOECK DUDEK S.C.


  LaSalle National Bank
  FEBRUARY 17, 1995
  Page 2


duly authorized and approved by all necessary corporate action, and have
received all necessary governmental or regulatory approval.

     4.    The execution and delivery of the Documents and the performance by
Borrower of its obligations thereunder do not (a) violate any presently
existing and applicable law, statute, or regulation of the United States or of
Wisconsin except where such violation would not have a material adverse effect
on the assets, financial condition, or operations of Borrower, or (b) to our
knowledge, constitute a breach of any term or condition of any document or
agreement binding upon Borrower, or (c) to our knowledge, result in a violation
of any order or decree of any court or governmental agency.

     5.    The Documents (a) constitute the legal, valid and binding
obligations of Borrower, and (b) are enforceable against Borrower in accordance
with their terms.

     6.    To our knowledge, there are no judgments outstanding against
Borrower.

     7.    To our knowledge, Borrower is not in default with respect to any
order, writ, injunction or decree of any court.

           The opinions set forth herein are subject to the following
assumptions and qualifications:

           A.    Wherever we indicate that our opinion with respect to the
existence or absence of facts is based on our knowledge, our opinion is, with
your permission, based solely on the Officer's Certificate and the current
conscious awareness of facts or other information of the attorneys currently
with this firm who have represented Borrower in connection with the
transactions contemplated by the Loan Agreement.

           B.    Our opinion as to the enforceability of any of the Documents
is limited by:

           (i)  Applicable bankruptcy, receivership, reorganization,
     insolvency, moratorium, fraudulent conveyance or transfer, and other
     similar laws and judicially developed doctrines related thereto now or
     hereafter in effect relating to or affecting creditors' rights and
     remedies generally;

           (ii)  General principles of equity, regardless of whether such
     enforcement is considered in a proceeding in






<PAGE>   40

WHYTE HIRSCHBOECK DUDEK S.C.


  LaSalle National Bank
  February 17, 1995
  Page 3


     equity or at law, including the availability of specific performance,
     injunctive relief and other equitable remedies; and

           (iii)  The possibility that certain remedies, waivers, and other
     provisions of the Agreement and Loan Documents may not be enforceable;
     nevertheless, such unenforceability will not render the Documents invalid
     as a whole or preclude (i) the judicial enforcement of the obligation of
     the Borrower to repay the principal, together with interest thereon (to
     the extent not deemed a penalty) as provided in the Note, or (ii) the
     acceleration of the obligation of the Borrower to repay such principal,
     together with such interest, upon a material default in a material
     provision of the Loan Agreement.

           C.    We express no opinion regarding the enforceability of
provisions relating to prepayment penalties and late payment fees, grant of
power of attorney to the Lender, the establishment of fiduciary relationships,
obligations of indemnification or contribution, or waiver of trial by jury.

           D.    We express no opinion regarding the enforceability of
provisions relating to conflicts of laws, choice of law provisions, or consent
to service, jurisdiction or venue.

           E.    We have not reviewed and do not opine as to:  (i) compliance
of the Property with applicable zoning, health, safety, building,
environmental, land use or subdivision laws, ordinances, codes, rules or
regulations; or (ii) labor, pension and employee benefit laws, rules and
regulations.

           Except as expressly set forth herein, our opinion is limited to the
laws of the United States and the laws of the State of Wisconsin in effect on
the date hereof as they presently apply.  This opinion is given as of the date
hereof, it is intended to apply only to those facts and circumstances which
exist as of the date hereof, and we assume no obligation or responsibility to
update or supplement this opinion to reflect any facts or circumstances which
may hereafter come to our attention, any changes in laws which may hereafter
occur, or to inform the addressee of any change in circumstances occurring
after the date of this opinion which would alter the opinions rendered herein.

           This opinion is limited to the matters set forth herein.  No opinion
may be inferred or implied beyond the matters expressly






<PAGE>   41

WHYTE HIRSCHBOECK DUDEK S.C.


  LaSalle National Bank
  February 17, 1995
  Page 4


contained herein.  These opinions are being provided solely for the purpose of
complying with the requirements of Section 6.1(A)(vi) of the Loan Agreement,
and are being rendered solely for the benefit of the addressee.  This letter
may not be used or relied upon for any other purpose, or furnished to, used by
or referred to by any other party, or copied, quoted or referred to in any
other report or document, or filed with any governmental authority, without our
prior written consent.

                                     Very truly yours,

                                     WHYTE HIRSCHBOECK DUDEK S.C.



                                     By: _________________________________
                                         Richard W. Silverthorn






<PAGE>   42



                                  EXHIBIT 9.18

Exhibit 9.18 sets forth a legal description of the property located at 4129 N.
Port Washington Avenue (Parcel 1) and 4189 N. Port Washington Avenue (Parcel
2).  Koss Corporation occupies certain portions of Parcel 1 and Parcel 2.

PARCEL 1

All that part of Lots 1 to 5 inclusive in Block 3 in Kriz Park, being a
Subdivision of a part of the South West 1/4 of Section 5, in Township 7 North,
Range 22 East, in the City of Milwaukee and that part of Lots 1 - 7 - 8 - 9 -
12 and 13 in Block 3 in H. A. Schwartzburg's Subdivision in the South West 1/4
of Section 5, in Township 7 North, Range 22 East, in the City of Milwaukee and
all that part of the South West 1/4 of Section 5, in Township 7 North, Range 22
East, in the City of Milwaukee, County of Milwaukee, State of Wisconsin,
bounded and described as follows:  Commencing at a point in the North line of
H. A. Schwartzburg's Subdivision 60.0 feet West of the East line of said 1/4
Section; thence Westerly along said North line 615.60 feet to the North East
corner of Lot 1, Block 3 of said Subdivision; thence Southerly along the East
line of said Lot 1, 13.5 feet to a point; thence Westerly and parallel to the
North line of said Lot 1, 120.0 feet to a point; thence Northerly along the
West line of said Lot 1, 13.5 feet to a point; thence Westerly along the North
line of said H. A. Schwartzburg's Subdivision 20.0 feet to a point; thence
Southerly along the East line of Lots 13, 12 and 7 of Block 3 of said
Subdivision 103.8 feet to a point; thence Westerly and parallel to the North
line of said Lot 7, 19.08 feet, thence Southerly and parallel to the East line
of said Lot 7, 27.50 feet, thence Northwesterly 191.11 feet to a point in the
North line of Lot 13 of said H. A. Schwartzburg's Subdivision which point, is
1.50 feet East of the North West corner of said Lot 13; thence Easterly along
the North line of said Lot 13, 8.83 feet to a point; thence Northwesterly 51.48
feet to a point in the center line of vacated N. 8th Street which point is
186.69 feet South of the North line of Kriz Park extended East; thence South
along the center line of N. 8th Street as vacated, 7.97 feet to a point; thence
North 39 degrees 46' 30" West 38.46 feet to a point; thence North 19 degrees 
28' 30" West 174.73 feet to a point in the North line of said Kriz Park; 
thence Easterly along the North line of said Kriz Park and its extension East 
1018.01 feet to the point in the Southwesterly right of way line of the C.M. 
St. P. & P. R.R.; thence Southeasterly along said right of way line 9.35 feet 
to a point; thence Southerly along the West line of North Port Washington Road
216.77 feet to the place of commencement.
Also, that part of the South West 1/4 of Section 5, in Township 7 North, Range
22 East in the City of Milwaukee, County of Milwaukee, State of Wisconsin
described as follows:  Commencing at the North line of H. A. Schwartzburg's
Subdivision and 33 feet West of the East line of said 1/4 Section; thence West
27 feet; thence North 216.77 feet; thence South East along the South West line
of the Chicago, St. Paul and Pacific Railroad right of way to the West






<PAGE>   43



line of North Port Washington Avenue; thence South to the place of beginning.

Tax Key No. 243-9998-111-1
Address:  4129 N. Port Washington Avenue


PARCEL 2

That part of the South West 1/4 of Section 5, in Township 7 North,
Range 22 East, in the City of Milwaukee, County of Milwaukee, State of
Wisconsin, lying West of the right of way of the Chicago, Milwaukee, St. Paul
and Pacific Railroad Company, which is bounded and described as follows: 
Beginning at an old stone monument where a line 1239.48 feet North of and
parallel to the South line of said 1/4 Section intersects the Southwesterly
line of the right of way of the Chicago, Milwaukee, St. Paul and Pacific
Railroad; thence due West on a line 1020.47 feet to a point in the Easterly
line of the North-South Expressway right of way which is on the North line of
and 60.00 feet West of the Northeast corner of Lot 1 in Block 3 in Kriz Park, a
recorded Subdivision; thence North 18 degrees 11' 05" West along said right of
way line 63.15 feet to a point which is 80.00 feet West of and 60.00 feet North
of the Northeast corner of Lot 1 in Block 3 in Kriz Park; thence North 36
degrees 20' 57" West along said right of way line 185.00 feet to a point which
is 209.00 feet North of the North line of Kriz Park; thence due West and
parallel to the North line of Kriz Park 245.00 feet to a point in the Westerly
line of said right of way, which is 209.00 feet North of and 30.00 feet East of
the Northeast corner of Lot 20 in Block 2 in Kriz Park; thence South 13 degrees
45' 30" West along the Westerly line of said right of way 128.69 feet to a
point on the extended East line of Lot 20 in Block 2 in Kriz Park; thence South
00 degree 16' 40" West on the extension of the East line of Lot 20 in Block 2
in Kriz Park 34.00 feet to a point; thence West on a line 50.00 feet North of
and parallel to the North line of Kriz Park 40.00 feet to a point; thence North
00 degree 16' 40" East 38.92 feet to a point; thence North 13 degrees 45' 30"
East 290.12 feet to a point; thence North 89 degrees 47' 10" East 70.32 feet to
a point in the Westerly line of State of Wisconsin Highway Easement Parcel No.
396, being the Westerly line of a North-South Expressway; thence Northerly on
said Westerly expressway easement line 257.41 feet on an arc whose center is to
the East, whose radius is 1702.02 feet and whose chord bears North 07 degrees
40' 47" East 257.17 feet to a point; thence South 89 degrees 53' 08" East 796.95
feet to a point in the Westerly line of said Railroad right of way; thence
Southeasterly along said right of way line 498.66 feet on the arc of a curve
whose center lies to the South West, whose radius is 3514.92 feet and whose
chord bears South 39 degrees 55' 21" East 498.23 feet to a point; thence South
35 degrees 51' 30" East along said right of way line 298.78 feet to the point
of beginning.

(Tax Key No. 243-9994-116-0)
Address:  4189 N. Port Washington Avenue








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<S>                             <C>
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<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               MAR-31-1995
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