SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
READ-RITE CORPORATION
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
APPLIED MAGNETICS CORPORATION
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(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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The following is to be distributed by Applied Magnetics Corporation
to analysts on or after February 24, 1997.
APPLIED MAGNETICS CORPORATION
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Overview of Proposed Combination
with Read-Rite Corporation
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February 24, 1997
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APPLIED MAGNETICS CORPORATION
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This document contains certain forward looking statements with respect to
the financial condition, results of operations and business of Applied
Magnetics Corporation ("Applied Magnetics"), and assuming the consummation
of the proposed business combination, a combined Applied
Magnetics/Read-Rite Corporation. In addition, the ability of Applied
Magnetics to realize increases in operating income resulting from potential
cost savings is also subject to the following uncertainties, among others:
(a) the ability to integrate the Applied Magnetics and Read-Rite
Corporation ("Read-Rite") management and R&D and operations functions on a
timely basis, if at all; and (b) the ability to eliminate duplicative
functions while maintaining acceptable performance levels. Further
information on other factors which could affect the financial results of
Applied Magnetics after the proposed business combination is included in
filings by Applied Magnetics with the Securities and Exchange Commission,
(the "Commission"), including a registration statement on Form S-4 filed
with the Commission on February 24, 1997, and the Commission filings
incorporated by reference therein.
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APPLIED MAGNETICS CORPORATION
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Business Combination with Read-Rite - Strategic Rationale
* Creates one of the world's leading disk head suppliers and the leading
supplier of inductive thin film disk heads:
- Approximately 40 million HGAs per quarter
- Annualized revenue of $1.8 billion
* Significant cost savings potential:
- Eliminate redundant components of combined S,G&A and R&D
* Potential benefits of greater scale:
- Strengthened capital structure with a combined equity
capitalization of $3.4 billion
- Enhanced position in an increasingly competitive global
marketplace
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APPLIED MAGNETICS CORPORATION
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Transaction Summary
* Fixed exchange ratio of 0.679 common shares of Applied Magnetics for each
common share of Read-Rite.
* Based on Applied Magnetics' closing price on February 21, 1997, the exchange
ratio of 0.679 results in $37.50 for each share of Read- Rite -- a 33%
premium to Read-Rite's closing price on February 21, 1997.
* Tax-free to Read-Rite stockholders.
* Intended to qualify for pooling of interest accounting.
(continued on next page)
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APPLIED MAGNETICS CORPORATION
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* Registered exchange offer and consent solicitation to be completed under the
following proposed time schedule.
Action Estimated Date
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* File the preliminary * February 24
exchange offer and written
consent solicitation
documents with SEC
* Make Hart-Scott-Rodino * February 25
Antitrust filings
* Mail exchange offer to * Week of April 1
stockholders
* Exchange offer and written * Week of April 1
consent solicitation
launched
* Consent solicitation * May/June or earlier upon
completed receipt of consents
representing a majority of
Read-Rite's shares
* Applied Magnetics' * Week of June 1 or earlier
nominees elected and
approve transaction
* Exchange offer and * Week of June 1 or earlier
transaction completed
* Significant conditions to the exchange offer include:
(i) majority of shares are tendered in exchange offer,
(ii) majority of Applied Magnetics' shareholders approve share
issuance to effect transaction,
(iii) Delaware Section 203 conditions are satisfied, and
(iv) all regulatory approvals are received (Hart-Scott-Rodino).
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APPLIED MAGNETICS CORPORATION
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Merger Highlights
* Leading supplier of inductive thin film disk heads.
* Cost savings in excess of $100 million in the first full year.
* Excellent strategic fit between Applied Magnetics' position in thin film and
the complementary MR capacities of both companies.
* Benefits of greater scale.
* Strengthened R&D.
* Formidable global patent position.
* Significant premium for Read-Rite shareholders; long-term shareholder value
enhancement potential for combined company.
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APPLIED MAGNETICS CORPORATION
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Side-by-Side Comparison
($ in Millions, Except Per Share Data)
First Quarter
Fiscal Year 1996 Fiscal Year 1997
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Applied Read- Applied Read-
Magnetics Rite Magnetics Rite
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Revenues $345 $991 $122 $252
Gross Profit 93 104 47 36
Gross Margin 27% 10% 39% 14%
R&D 51 52 11 15
S,G&A 7 44 2 11
Other 3 4 (1) (2)
Pre-Tax Income 33 4 32 9
Net Income 32 (43) 32 6
Earnings Per Share 1.35 (0.92) 1.10 0.12
Total Assets 359 909 399 919
Shareholder's Equity 140 454 172 461
Market Capitalization $1.6 billion $1.3 billion -- --
(2/21/97)
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APPLIED MAGNETICS CORPORATION
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Side-by-Side Comparison - Expense and Manufacturing Efficiency
($ in Millions, Except Per Share Data)
Applied
Magnetics Read-Rite
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R&D Expenses $51 $52(1)
% of Sales 14.8% 5.3%
S,G&A Expenses $7 $44
% of Sales 1.9% 4.4%
Revenue per P,P&E $2.58 $1.75
Dollar
Revenue per Employee $63,000 $50,000
(1) Does not include $9 million charge for Censtor planar technology
acquisition.
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APPLIED MAGNETICS CORPORATION
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APPLIED MAGNETICS
Relative Index Graph (1)
Daily: 08/01/94 to 02/14/97
S&P
Computer
Applied Hardware
Magnetics Read-Rite Index S&P 400
--------- --------- ----- -------
8/5/94 100.00% 100.00% 100.00% 100.00%
10/14/94 89.47 115.35 118.65 104.64
12/23/94 63.16 109.45 121.18 102.91
3/3/95 60.53 99.21 121.56 108.08
05/12/95 100.00 151.97 145.94 117.37
7/21/95 184.21 237.80 157.03 124.30
9/29/95 328.95 229.92 155.78 129.00
12/8/95 321.05 162.99 163.20 136.49
2/16/96 313.16 108.66 179.42 143.06
4/26/96 423.66 135.43 183.26 145.77
7/5/96 226.32 84.25 170.42 146.90
9/13/96 365.79 82.68 n/a 151.09
11/22/96 584.21 150.39 200.03 165.08
1/31/97 1163.16 207.87 225.82 173.44
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(1) Price as a Percent of Base Period Value
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APPLIED MAGNETICS CORPORATION
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Enhanced Earnings Potential
Highlights:
* Applied Magnetics has demonstrated the ability to significantly reduce S,G&A
expense while strengthening its business:
Applied Magnetics
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Fiscal Year S,G&A Expenses % of Revenue
- -------------------------- --------------------- -----------------------
1991 $27.2 7.1%
1992 25.5 8.6
1993 20.1 6.0
1994 17.3 6.2
1995 7.4 2.5
1996 6.5 1.9
- The management team at Applied Magnetics will apply this experience to
reduce the combined company's S,G&A and R&D spending.
* Similarly, the Applied Magnetics team will utilize the same discipline to
increase overall manufacturing efficiency:
- Application of Applied Magnetics' standard costs to Read- Rite's unit
volume would increase Read-Rite's pre-tax income by approximately $150
million.
* Operations will benefit from the combined businesses' economies of scale,
including increased purchasing power for:
- Materials;
- Components; and
- Capital equipment.
* Increased manufacturing volumes will result in reduced unit costs.
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APPLIED MAGNETICS CORPORATION
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Enhanced Earnings Potential
Cost Savings:
* Management believes that significant costs savings can be achieved by
eliminating redundant components of S,G&A and R&D.
Year Ending
September 30,
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1997 1998
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Projected Combined Net Income(1) $266 $363
After-Tax Cost Savings 19 80
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Pro Forma Reported Net Income $285 $443
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Pro Forma Reported Earnings Per Share $4.52 $6.88
Accretion to Applied Magnetics Stand- (15)% 11%
Alone
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(1) Figures based on selected Street estimates.
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APPLIED MAGNETICS CORPORATION
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Enhanced Earnings Potential
Manufacturing Efficiencies:
* Application of Applied Magnetics' standard costs to Read-Rite's unit volume
would result in pre-tax savings of approximately $150 million.
Pre-Tax Manufacturing Savings
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$15 $30 $45 $60 $75
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% of Total 10% 20% 30% 40% 50%
Potential
Savings
Increment to $0.19 $0.37 $0.56 $0.75 $0.93
Projected Reported
1998 EPS
Accretion to 14% 17% 20% 23% 26%
Applied Magnetics
Stand-Alone
Combination of Cost Savings and Manufacturing Efficiencies:
* Combining the effects of S,G&A and R&D savings with manufacturing
efficiencies (estimated at 30% of total potential manufacturing
efficiencies) would result in earnings per share accretion of 20% for
Fiscal Year 1998.
Fiscal
1998
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Projected Combined Net Income $363(1)
After-tax costs savings 80
After-tax impact of manufacturing 36(2)
efficiencies ---------
Pro Forma Reported Net Income $479
---------
Pro Forma Reported Earnings $7.44
Per Share
Accretion to Applied Magnetics 20%
Stand-Alone
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(1) Figures based on selected Street estimates.
(2) Assumes 30% of total potential savings are achieved in 1998.
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