JPMorgan - KASE

not expected to, have any operations. The issuer’s ability to meet its financial obligations under
the notes will depend on payments under the intercompany loan. These payments and our ability
to satisfy our obligations under the guarantees will depend on our future operating
performance, which is subject to prevailing economic conditions, industry cycles and financial,
business and other factors, many of which are beyond our control. There can be no assurance
that our business will continue to generate cash flows at or above current levels. If we are unable
to generate sufficient cash flows from operations to service the intercompany loan, we may be
required, among other things, to seek additional financing in the debt market, to refinance or
restructure all or a portion of our indebtedness, to sell selected assets or to reduce or delay
planned capital expenditures or acquisitions. There can be no assurance that any of these
measures will enable us to service our indebtedness under the intercompany loan or meet our
obligations under the guarantees, or that any such financing, refinancing or sale of assets would
be available on economically favorable terms. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Liquidity and Capital Resources”.
Your right to receive payments under the guarantees, and the issuer’s right to receive payments
under the intercompany loan, will be effectively subordinated to our existing and future secured
indebtedness and all of the existing and future indebtedness of our non-guarantor subsidiaries.
Our ability to make restricted payments and other investments under the indenture could
materially increase this risk.
The guarantees will be general unsecured, unsubordinated obligations of the guarantors and the
intercompany loan will be a general unsecured, unsubordinated obligation of HKM, in each case,
ranking pari passu in right of payment with all senior indebtedness of the guarantors, including
borrowings under our Term Facility. In the event of bankruptcy, liquidation or reorganization
relating to us, the assets of the guarantors will be available to pay obligations on the guarantees
and the intercompany loan, as applicable, and such other senior indebtedness of the guarantors;
however, the guarantees and the intercompany loan will be effectively subordinated to secured
indebtedness of the guarantors to the extent of the assets securing any such indebtedness. In the
event of a bankruptcy, liquidation or reorganization, any assets of the guarantors which may
remain after payment to our secured creditors may not be sufficient to pay the amounts due on
the guarantees or the intercompany loan, as applicable. As of September 30, 2002, on a pro
forma basis giving effect to the borrowings under our Term Facility, the repayment of our
predecessor term facility and the redemption of our Senior Notes (see “Use of Proceeds”), the
guarantors would have had approximately $384.4 million of secured indebtedness outstanding
and our non-guarantor subsidiaries would have had no indebtedness outstanding. The indenture
will permit the guarantors from time to time to incur substantial additional secured
indebtedness, subject to certain restrictions.
In addition, the guarantees and the intercompany loan will be effectively subordinated to all
indebtedness of our non-guarantor subsidiaries. The indenture will permit our non-guarantor
subsidiaries from time to time to incur additional indebtedness, subject to certain restrictions.
Further, the terms of the indenture permit us to, among other things, repurchase our capital
stock, pay dividends in respect thereof or make investments of a material amount without
substantial restrictions. As a result of these payments, our shareholders may be able to be paid in
respect of their interests while notes are still outstanding notwithstanding the restricted
payments covenant pertaining to the notes. See “Description of the Notes — Certain Covenants”.
The issuer may not be able to repurchase your notes.
Upon the occurrence of specific change of control events affecting us, you will have the right to
require the issuer to offer to repurchase your notes at 101% of their principal amount, plus
accrued and unpaid interest and any other amounts due, if any. The issuer’s ability to repurchase
your notes upon such a change of control event may be limited by the terms of our other debt
agreements and our access to funds at the time of the repurchase. Upon a change of control
event, we may be required immediately to repay the outstanding principal, any accrued interest
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