It was hardest on Nancy. "All she'd ever wanted was to have all her chicks in a row, and now they were all in trouble," John Jr. says. Her husband and the boys could throw themselves into work, but she had only worry, prayer, and needlework. Then, six months into the bankruptcy, at 7:30 on a spring morning, long after John and the boys had gone to work, the phone rang while Nancy was in the kitchen. The voice on the other end asked, "Is it true that the bank foreclosed on your house?"
"Who is this?" she stammered. Foreclosure to her meant that a man with a black cape and a mustache threw you out on the street. She felt sick, as if somebody had kicked her in the stomach.
The canner was an enterprising reporter from The Milwaukee Journal: First Chicago had called the $900,000 left on Joh Koss's note on his house. The foreclosure eventually would be thrown out of court and fail as a pressure tactic. But to this day, Nancy cannot speak of Richard Peterson by name, or forgive him for what he put her family through -- "although as a Christian," she adds, "I know that I should."
The family remained unsinkable. The day after the foreclosure attempt, Koss threw a thank-you party for 100 of its customers and suppliers in the factory lunch-room. A local jazz band played as the guests enjoyed cocktails and hors d'oeuvres. Then the elder Koss stepped to the podium and told the crowd that their support and patience had given them "a reasonably good start toward a turnaround."
Koss had plenty of reason to be thankful toward his guests. Customer faith in the Koss brand had only grown stronger since the bankruptcy filing. Radio Shack had increased its order, while Sears had switched from selling "Sears Audio . . . by Koss," to the Koss brand name alone. "We had nothing but his reputation to go on, but that was enough," says Michael Malone, a divisional manager for Service Merchandise Co. "The Koss name has always meant quality." Many of the suppliers, promised 30-day payment on all new orders, had shipped on open account after Koss received the cash collateral back. "We've known the Koss family for a long time," says Craig Adelman, of Adelman Travel Systems Inc. "They're good people, and we wanted to help them out." Circulating among the guests, John Jr. also found a deep reservoir of sympathy among his accounts: "Everybody hates banks -- they said 'go get 'em," he remembers.
Koss, as usual, was the life of the party. For door prizes he gave his guests digital radios. "Enjoy them," he joked. "Each one cost me $10,000."
There were new reasons to celebrate over the summer. The repackaged family of Koss high-end stereophones, now pitched as "Born in the U.S.A.," was riding the Springsteen wave, while a new line of low-priced, replacement phones was opening up shelf space with such mass retailers as Caldor and Target stores. And there was new product in the development pipeline, calculated to make a big splash when the company finally emerged from Chapter 11 protection.
Operational back to basics was also paying off. An accounting staff cut in half now closed the books each month in half the time it used to take. Shipping moved faster, too, no longer required to circulate five different copies of each order. Under Dodson each new product line had had its own sizable staff of engineers and marketers. Now, Koss did it with three people, twice as fast, for one-quarter of the cost.
On the shop floor, the remaining employees still talked about Black Monday, and chafed under the 30% pay cut. But the loyalty of 17-year veteran Marionette Dawson, a supervisor, was typical: "I felt scared, but I knew this was Mr. Koss's life, and he would do everything he could. Mr. Koss could have closed the doors and kept his house, but he sold the house to save our jobs."
Sold the house. The cars. The antiques. He and Nancy were still broke. But the company was at last coming out of its financial hole. By the summer of 1985, Koss Corp. had paid off $1.5 million of the bank debt and had accumulated $3 million in certificates of deposit to handle short-term cash demands. And by the end of September, Koss could report that, for the three quarters since the bankruptcy court filing, operations had been profitable.
Yet the better the company performance, the more snarled became the relations between Koss and Peterson. Koss was still trying to negotiate an agreement based on a five-year payback of the $14-million in bank debt. And Peterson was still sticking with his demands for market-rate interest, a speedier payback, and a tangle of controls that Koss found too inflexible -- "a book of can't dos as thick as the Yellow Pages," he complained. By the fall of 1985, the two men couldn't meet in the same room, and they were forced to negotiate through lawyers shuttling back and forth between them.
After four reorganization plans were rejected, Koss finally had had enough. Suspecting his bankers had had enough, too, he offered them $9 million in cash as full settlement -- about 60? on the dollar. The bankers agreed, with this condition: he'd have to pay by the end of the year of consent to their reorganization plan, which seemed certain to include liquidation.
Koss was surprised at how fast they'd jumped -- he had been ready to go to $10 million. "Obviously, there was just no good faith left," he says. Although Koss didn't have the full $9 million in hand, the company had managed to squirrel away $3.5 million from the sale of inventory, $2 million from the sale of Calibron, and another $1.5 million from the sale/lease back of the Milwaukee plant. The rest Koss borrowed, on the strength of the turnaround, from First Bank of Milwaukee and five local investors he knew through YPO.
On December 17, 1985, Koss Corp. emerged from the protection of the bankruptcy court, three days short of a year from the original filing.
