<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration Statement No. 333-24183
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 7, 1997
$300,000,000
[READ-RITE CORPORATION LOGO]
6 1/2% CONVERTIBLE SUBORDINATED NOTES DUE SEPTEMBER 1, 2004
---------------------
The Notes are convertible at any time prior to maturity, unless previously
redeemed or repurchased, into shares of Common Stock, par value $0.0001 per
share ("Common Stock"), of Read-Rite Corporation (the "Company") at a conversion
rate of 24.8524 shares per each $1,000 principal amount of Notes (equivalent to
a conversion price of approximately $40.24 per share), subject to adjustment in
certain circumstances. On August 19, 1997, the last reported bid price of the
Common Stock, which is quoted under the symbol "RDRT" on the Nasdaq National
Market, was $27 3/4 per share.
Interest on the Notes is payable on March 1 and September 1 of each year,
commencing March 1, 1998. The Notes will not be subject to redemption prior to
September 7, 2000 and will be redeemable on and after such date at the option of
the Company, in whole or in part, upon not less than 20 nor more than 60 days'
notice to each Holder, at the prices set forth herein plus accrued and unpaid
interest, if any, to the redemption date. See "Description of Notes -- Optional
Redemption". The Notes are not entitled to any sinking fund. The Notes will
mature on September 1, 2004.
In the event of a Change of Control, each Holder of Notes may require the
Company to repurchase its Notes, in whole or in part, for cash or, at the
Company's option, Common Stock (valued at 95% of the average closing prices for
the five trading days immediately preceding the second trading day prior to the
repurchase date) at a repurchase price of 100% of the principal amount of Notes
to be repurchased, plus accrued interest to the repurchase date. See
"Description of Notes -- Repurchase at Option of Holders Upon a Change in
Control".
The Notes are unsecured obligations subordinated in right of payment to all
existing and future Senior Debt of the Company and will be effectively
subordinated in right of payment to all indebtedness and other liabilities of
the Company's subsidiaries. As of June 30, 1997, the Company had approximately
$178.8 million outstanding indebtedness that would have constituted Senior Debt
(including $100.0 million of the Company's 7.53% Senior Notes due September 15,
2000 (the "Senior Notes") to be prepaid from the proceeds of this offering). As
of the same date, the Company's subsidiaries had approximately $142.4 million
outstanding indebtedness and other liabilities. See "Description of
Notes -- Subordination".
SEE "RISK FACTORS" ON PAGE S-7 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
----------------- ------------ -------------
<S> <C> <C> <C>
Per Note.......................... 100% 2.5% 97.5%
Total(4).......................... $300,000,000 $7,500,000 $292,500,000
</TABLE>
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(1)Plus accrued interest, if any, from August 25, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting estimated expenses of $350,000 payable by the Company.
(4) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional $45,000,000 principal amount of Notes at the initial
public offering price shown above, less the underwriting discount, solely to
cover over-allotments, if any. If such option is exercised in full, the
total initial public offering price, underwriting discount and proceeds to
the Company will be approximately $345,000,000, $8,625,000, and
$336,375,000, respectively. See "Underwriting."
---------------------
The Notes offered hereby are offered by the Underwriters as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the Notes will be
ready for delivery in book-entry form only through the facilities of The
Depository Trust Company ("DTC") in New York, New York, on or about August 25,
1997 against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST
SMITH BARNEY INC.
---------------------
The date of this Prospectus Supplement is August 20, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES AND THE
COMMON STOCK OF THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY
BID, IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
S-2
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes appearing
elsewhere in this Prospectus Supplement, including information incorporated by
reference herein. Unless otherwise indicated, all information in this Prospectus
Supplement assumes that the Underwriters' over-allotment option is not
exercised. As used in this Prospectus Supplement, unless otherwise indicated,
references to the "Company" and "Read-Rite" are to Read-Rite Corporation and its
consolidated subsidiaries.
This Prospectus Supplement contains forward-looking statements that involve
risks and uncertainties. The Company's actual results of operations could differ
materially from those anticipated in such forward-looking statements as a result
of certain factors set forth under "Risk Factors" and elsewhere in this
Prospectus Supplement.
THE COMPANY
Read-Rite Corporation is the world's leading independent supplier of
magnetic recording heads for rigid disk drives. The Company supplies magnetic
recording heads as head gimbal assemblies ("HGAs"), and for certain of its
customers incorporates multiple HGAs into headstack assemblies ("HSAs"). The
Company's products are sold primarily for use in 3.5" form factor rigid disk
drives. Read-Rite believes it supplies HGAs and HSAs for a broader range of disk
drive products than any other independent supplier. During the first nine months
of fiscal 1997, the Company supplied HGAs in volume for 20 different disk drive
products to 6 customers, and supplied HSAs in volume for 36 different disk drive
products to 3 customers. During the first nine months of fiscal 1997, the
Company sold on average approximately 25.4 million HGAs per quarter (including
HGAs incorporated into HSAs), and approximately 3.7 million HSAs per quarter.
Read-Rite also produces magnetic recording heads for use in quarter-inch
cartridge ("QIC") tape drives. During the first nine months of fiscal 1997, the
Company supplied QIC tape heads in volume for 10 different products to 4
customers, accounting for approximately 1.3% of the Company's net sales for the
period.
The Company's magnetic recording heads are based on advanced inductive thin
film technology and magnetoresistive ("MR") thin film technology. In the first
nine months of fiscal 1997, approximately 77.2% of the Company's net sales were
from sales of inductive thin film products, and approximately 22.8% were from
sales of MR products. During such period, the Company supplied MR products in
volume for 6 different disk drive products to 3 customers. Substantially all of
the new disk drive programs being undertaken by the Company's customers are
based on recording heads utilizing MR technology. Accordingly, the Company
expects that recording heads based on MR technology will represent an increasing
proportion of its shipments in the future. In addition to its focus on
increasing the performance of its current generation of MR heads, the Company is
also pursuing longer-term development of "spin valve," giant MR and other
advanced technologies to extend the areal density capabilities of its MR heads.
The Company's primary customers are Western Digital Corporation ("Western
Digital"), Quantum Corporation ("Quantum"), and Maxtor Corporation ("Maxtor"),
representing 43%, 29%, and 12%, respectively, of the Company's net sales in
fiscal 1996 and 52%, 20% and 9%, respectively, of the Company's net sales in the
first nine months of fiscal 1997. The Company's other disk drive customers
include Iomega Corporation, Micropolis Corporation and Samsung Electronics.
The Company's principal wafer manufacturing facilities are located at its
headquarters in Milpitas, California, and in Fremont, California. The Company
has its head or "slider" fabrication and HGA assembly facilities in Bangkok,
Thailand, and its HSA assembly facilities in Penang, Malaysia and Manila, the
Philippines. Read-Rite SMI Corporation, the Company's joint venture in Japan
with Sumitomo Metal Industries, Ltd., operates a wafer manufacturing facility
near Osaka, Japan, performs a portion of its slider fabrication and HGA assembly
operations through its Thailand subsidiary, and subcontracts the balance of such
operations to the Company's Thailand subsidiary. The Company also has sales and
customer support offices in Singapore and Colorado.
Read-Rite was incorporated in California in 1981 and reincorporated in
Delaware in 1985. The Company's executive offices are located at 345 Los Coches
Street, Milpitas, California 95035, telephone number (408) 262-6700.
S-3
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THE OFFERING
SECURITIES OFFERED......... $300,000,000 aggregate principal amount of 6 1/2%
Convertible Subordinated Notes due September 1,
2004 (not including $45,000,000 aggregate principal
amount of Notes subject to the Underwriters'
over-allotment option).
ISSUER..................... Read-Rite Corporation, a Delaware corporation.
OFFERING PRICE............. 100% of the principal amount plus accrued interest,
if any, from August 25, 1997.
INTEREST................... Interest on the Notes is payable semi-annually on
March 1 and September 1 of each year, commencing
March 1, 1998.
CONVERSION RATE............ 24.8524 shares per $1,000 principal amount of Notes
(equivalent to approximately $40.24 per share),
subject to adjustment.
CONVERSION RIGHTS.......... The Notes are convertible at any time on or after
issuance and prior to the close of business on the
maturity date, unless previously redeemed or
otherwise repurchased, at the conversion rate set
forth above. Holders of Notes called for redemption
or repurchase will be entitled to convert the Notes
up to, but not including or after, the date fixed
for redemption or repurchase, as the case may be.
See "Description of Notes -- Conversion Rights".
SUBORDINATION.............. The Notes are subordinated in right of payment to
all existing and future Senior Debt of the Company.
As of June 30, 1997, the Company had approximately
$178.8 million outstanding indebtedness that would
have constituted Senior Debt (including $100.0
million of the Company's 7.53% Senior Notes due
September 15, 2000 (the "Senior Notes") to be
prepaid from the proceeds of this offering). The
Notes are also effectively subordinated in right of
payment to all indebtedness and other liabilities
(including trade payables and excluding
intercompany liabilities) of the Company's
subsidiaries. As of June 30, 1997, the Company's
subsidiaries had approximately $142.4 million
outstanding indebtedness and other liabilities. The
Indenture will not restrict the incurrence of
Senior Debt or other indebtedness by the Company or
any subsidiary. See "Description of
Notes -- Subordination".
OPTIONAL REDEMPTION........ The Notes will not be subject to redemption prior
to September 7, 2000 and will be redeemable on and
after such date at the option of the Company, in
whole or in part, upon not less than 20 nor more
than 60 days' notice to each Holder, at the prices
set forth herein plus accrued and unpaid interest,
if any, to the redemption date. See "Description of
Notes -- Optional Redemption."
REPURCHASE AT OPTION OF
HOLDERS UPON A CHANGE OF
CONTROL.................. Upon a Change in Control (as defined), Holders of
Notes will have the right, subject to certain
conditions and restrictions, to require the Company
to purchase all or part of their Notes at 100% of
the principal amount thereof, plus accrued interest
to the repurchase date. The repurchase price is
payable in cash or, at the option of the Company
but subject to the satisfaction of certain
conditions on the part of the Company, in shares of
Common Stock (valued at 95% of
S-4
<PAGE> 5
the average closing prices of the Common Stock for
the five trading days immediately preceding the
second trading day prior to the repurchase date).
See "Description of Notes -- Repurchase at Option
of Holders Upon a Change in Control."
USE OF PROCEEDS............ The Company intends to use approximately $101.7
million of the net proceeds to prepay the Senior
Notes, and the balance for general corporate
purposes, including capital expenditures and
working capital requirements. See "Use of
Proceeds."
GOVERNING LAW.............. The Subordinated Indenture, the Supplemental
Indenture and the Notes are governed by the laws of
the State of New York.
LISTING.................... The Company does not intend to list the Notes on
any securities exchange or cause them to be quoted
on the Nasdaq National Market. The Underwriters
have advised the Company that they currently intend
to make a market in the Notes. The Underwriters are
not obligated, however, to make a market in the
Notes, and any such market making may be
discontinued at any time at the sole discretion of
the Underwriters without notice.
COMMON STOCK............... The Common Stock is quoted on the Nasdaq National
Market under the symbol "RDRT."
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,(1) JUNE 30,(1)
------------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................. $482,586 $587,647 $638,589 $1,003,040 $991,118 $795,711 $843,892
Operating income........... 66,309 3,156 31,836 177,846 7,789 65,510 92,126
Net income (loss).......... 56,193 6,283 19,694 123,565 (42,986) 20,948 60,515
Net income (loss) per share... 1.48 0.14 0.43 2.60 (0.92) 0.44 1.24
Shares used in per share
calculations............. 37,913 44,658 46,125 47,616 46,755 47,840 48,626
Ratio of earnings to fixed
charges(2)............... 16.2x 2.2x 5.0x 22.7x 1.3x 7.0x 7.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................................... $ 117,498 $ 308,616
Total assets............................................................ 1,028,092 1,226,372
Convertible subordinated notes.......................................... -- 300,000
Other long term debt and capital lease obligations, excluding current
portion............................................................... 164,986 64,986
Stockholders' equity.................................................... 525,734 524,702
</TABLE>
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(1) For purposes of presentation throughout this Prospectus Supplement, the
Company has indicated its fiscal year as ending on September 30 and quarters
as ending on the last day of each calendar quarter. The Company operates and
reports on a 52/53 week fiscal year ending on the last Sunday of September
of each year. Each of the above fiscal years consisted of 52 weeks except
for fiscal 1995 which consisted of 53 weeks.
(2) The ratio of earnings to fixed charges represents the number of times that
fixed charges were covered by earnings. In computing the ratio, earnings
represent pretax income before minority interest and extraordinary credits
plus fixed charges. Fixed charges consist of interest expense and the
portion of rental expense which is considered representative of the interest
factor.
(3) Adjusted to reflect the issuance and sale of the $300 million principal
amount of Notes offered hereby and the application of the net proceeds
thereof. See "Use of Proceeds."
S-6
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RISK FACTORS
An investment in the Notes being offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus
Supplement, before purchasing the Notes offered hereby. This Prospectus
Supplement contains forward-looking statements that involve risks and
uncertainties made by or on behalf of the Company. The actual results of the
Company may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors," as well as elsewhere in this
Prospectus Supplement.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced substantial fluctuations in its quarterly and
annual operating results in the past, and the Company's future operating results
could vary substantially from quarter to quarter. The Company's operating
results for a particular quarter or longer periods can be materially and
adversely affected by numerous factors, such as delayed product introductions,
capacity constraints on certain technologies, low product yields, increased
material costs or material or equipment unavailability, disruptions in foreign
operations, decreased demand for or decreased average selling prices of the
Company's products, increased competition leading to a failure by the Company to
obtain "design-in wins" on one or more customer programs, changes in product
mix, increased operating costs associated with the ramp-up of production as
capacity is added or under-utilization of capacity if demand is less than
anticipated. The Company's sales are generally made pursuant to individual
purchase orders which may be changed or canceled by customers on short notice,
often without material penalties. Changes or cancellations of product orders
could result in under-utilization of production capacity and inventory write-
offs. For example, in the second half of fiscal 1996, and in calendar 1993, the
Company experienced delays and cancellation of orders, reduced average selling
prices, inventory write-offs, increased unit costs due to under-utilization of
production capacity, and, as a consequence of the foregoing, significantly
reduced revenues and gross margins, generating operating losses. The Company
expects periodic fluctuations will occur in the future.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS; RISK OF REDUCED ORDERS
The Company is a component supplier dependent upon a limited number of
customers in a volatile industry characterized by rapid technological change,
short product life cycles, intense competition and steady price erosion. In
addition, as demonstrated during the second half of 1996 when significant orders
were canceled and/or rescheduled by certain customers with little or no advance
warning, demand for the Company's products is highly variable and thus difficult
to predict accurately. This variability was previously demonstrated by the
strong demand in the first half of fiscal 1993 and the significant industry
contraction in the latter half of fiscal 1993. In both cases, these demand
variations materially and adversely affected the Company's business, financial
condition and results of operations.
The Company's primary customers are Western Digital, Quantum and Maxtor,
representing 43%, 29%, and 12%, respectively, of the Company's net sales in
fiscal 1996 and 52%, 20% and 9%, respectively, of the Company's net sales in the
first nine months of fiscal 1997. For the nine months ended June 30, 1997, the
Company produced HGAs in volume for 6 customers, HSAs in volume for 3 customers
and tape drive products in volume for 4 customers. Given the small number of
high performance disk drive and tape manufacturers who require an independent
source of HGA, HSA or tape head supply, the Company expects its dependence on a
limited number of customers to continue. As demonstrated by the significant
reduction in the level of the Company's business late in fiscal 1996 and in the
second half of fiscal 1993, the loss of any customer, or a significant decrease
in orders from one or more customers, may have a material adverse effect on the
Company's business, financial condition and results of operations.
Given the Company's dependence upon a limited number of customers,
acquisitions and consolidations affecting such customers could also have a
material adverse effect on the Company's business,
S-7
<PAGE> 8
financial condition and operating results. For example, Seagate, a competitor of
the Company, acquired the tape head operations of Applied Magnetics Corporation
("AMC") in fiscal 1995, completed the acquisition of Conner Peripherals, Inc.,
then a major customer of the Company in fiscal 1996, and completed the
acquisition of Quinta Corporation, the Company's sole customer for its
magneto-optical head development effort, in August 1997. Seagate has significant
internal disk and tape head manufacturing capacity and does not presently
account for a material percentage of the Company's net sales. Further, in fiscal
1996, Singapore Technologies acquired the disk drive operations of Micropolis
Corporation ("Micropolis"), while Hyundai completed its acquisition of Maxtor.
While the Company has remained a supplier to both Micropolis and Maxtor
notwithstanding these changes in ownership, there can be no assurance that these
customers will continue purchasing a significant quantity of their respective
head requirements from the Company.
Vertical integration by the Company's customers, through which a customer
acquires or increases internal HGA or HSA production capability, could also
materially and adversely affect the Company's business, financial condition and
results of operations. In 1994, Quantum, a principal customer of the Company
with no previous magnetic recording head capacity, acquired Digital Equipment
Corporation's ("DEC") recording head and disk drive operations and tape drive
operations. In May 1997, Quantum further announced the formation of a joint
venture with its primary manufacturing partner in Japan, Matsushita-Kotobuki
Electronics Industries Ltd. ("MKE"), to manufacture MR recording heads for rigid
disk drives. According to the announcement, this new venture will take over
Quantum's existing recording head operations and will be owned 51% by MKE. While
Quantum's original acquisition of DEC's recording head operations has not had a
material adverse effect on the Company's thin film head operations to date, and
Quantum has stated its intention to continue purchasing the majority of its HGA
requirements from merchant suppliers, the Company cannot predict the effect the
formation of a Quantum/MKE recording head joint venture will have on the
Company's business with Quantum. Accordingly, there can be no assurance that
Quantum will continue to purchase a significant portion of its head requirements
from the Company. Other acquisitions or significant transactions by the
Company's customers leading to further consolidation or vertical integration
could also materially and adversely affect the Company's business, financial
condition and results of operations.
RAPID TECHNOLOGICAL CHANGE; TRANSITION TO MR TECHNOLOGY
Technology changes rapidly in the Company's industry. These rapid changes
require the Company both to address obsolescence of old technologies and to
anticipate new technologies. Failure to smoothly transition from old
technologies or to anticipate and execute on new technologies can have a
material adverse effect on the Company's business, financial condition and
results of operations. For example, due to the ever-increasing performance
requirements for recording heads, all of the customer programs using the
Company's MIG products reached end-of-life during the third quarter of fiscal
1996.
Though MIG products accounted for approximately $174 million, or 18% of the
Company's sales for fiscal 1996, the Company's MIG revenues for fiscal 1997 will
be negligible, and the Company is no longer pursuing design-ins with this
technology. The rapid and unexpected decline in MIG sales in the fourth quarter
of fiscal 1996 (from approximately $65 million in the first quarter, $56 million
in the second quarter, $48 million in the third quarter, to $5 million in the
fourth quarter), coupled with the timing of certain new product introductions in
the Company's thin film business and reductions in certain customer programs in
the disk drive industry during the third and fourth quarters, made it difficult
for the Company to transition its MIG facilities as planned to the production of
more advanced inductive or MR products. As a result, during the fourth quarter
of fiscal 1996, the Company reduced its workforce in the Philippines by
approximately 5,000 employees, and incurred significant charges for related
severance costs, equipment and inventory write-offs and facility-related
charges. Additionally, in March 1996, the Company acquired a nonexclusive
license to the intellectual property of Censtor Corporation, including planar
technology, with a goal of combining that technology with the Company's own
inductive technologies and manufacturing processes to extend recording areal
densities for inductive heads beyond conventional advanced thin film inductive
designs. However, due to delays in ramping production
S-8
<PAGE> 9
and to the accelerating shift towards MR, in the latter half of February 1997
the Company decided to discontinue planar product development for hard disk
drive applications and instead to investigate potential uses of this technology
in other development applications. The impact on the Company's business,
financial condition, and results of operations from this decision was not
material.
Currently, the Company's revenues are principally derived from thin film
inductive and MR products, which require substantial investments in product
development and manufacturing equipment and facilities to effectively extend the
performance of these products to compete with new products supporting higher
areal densities. To maintain its market position, the Company must continually
and timely improve its wafer fabrication, slider fabrication, HGA and HSA
technologies and facilities to meet industry demands, at competitive costs. As
the Company's customers continue to move towards fewer, larger programs, and as
competition for this increasingly limited number of large volume programs
continues to increase, the failure by the Company to execute on technologies
necessary to consistently obtain qualification on any of such volume programs
will have a material adverse effect on the Company's business, financial
condition and results of operations.
For example, in the second quarter of fiscal 1996, the Company learned that
to participate in certain key customer programs, Company products would have to
incorporate a technical feature which the Company called "undershoot reduction."
Though the Company began development of necessary processes for undershoot
reduction in the second quarter of fiscal 1996 and successfully reached volume
production in the fourth quarter of fiscal 1996, the significant start-up costs
and delays in new product introductions materially and adversely impacted both
the Company's revenues and gross margins for the second half of fiscal 1996.
The Company shipped over 17.0 million MR heads for 6 disk drive programs to
3 customers in the first nine months of fiscal 1997, accounting for
approximately 21.5% of net revenues during such period. The Company intends to
continue investing significant resources in MR product development and
manufacturing equipment to support the continued rapid shift of its product mix
to MR. There can be no assurance, however, that the Company will be successful
in timely and cost effectively developing and manufacturing MR heads at
acceptable yields and as necessary to achieve consistent design-in wins on new
product programs.
SUBSTANTIAL CAPITAL EXPENDITURES AND WORKING CAPITAL NEEDS
The Company's business is highly capital intensive. To maintain its market
position, the Company must anticipate demand for its products and the path of
new technologies so that production capacity, both in terms of amount and the
proper technologies, will be in place to meet customers' needs. Accurate
capacity planning is complicated by the pace of technological change,
unpredictable demand variations, the effects of variable manufacturing yields,
and the fact that most of the Company's plant and equipment expenditures have
long lead times, thus requiring major commitments well in advance of actual
requirements. The Company's underestimation or overestimation of its capacity
requirements, or failure to successfully and timely put in place the proper
technologies, would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has made substantial capital expenditures and installed
significant production capacity to support new technologies and increased demand
for its products. The Company made capital expenditures in fiscal 1996 of
approximately $265.8 million, compared to approximately $185.1 million for
fiscal 1995, and plans to expend up to $300 million in fiscal 1997, of which
approximately $192.6 million in net capital expenditures had been incurred
through June 30, 1997. As of June 30, 1997, total commitments for construction
or purchase of plant and equipment totaled approximately $127.8 million. There
can be no assurance that the Company's net sales will increase sufficiently to
absorb such additional costs, and that there will not be periods, such as in
fiscal 1996 and in the latter half of fiscal 1993, when net sales declined
quarter to quarter.
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DEPENDENCE ON FOREIGN OPERATIONS; LABOR MATTERS
The Company's production process is also labor intensive. As a result, the
Company conducts substantially all of its HGA machining, assembly and test
operations, HSA assembly and tape head assembly operations offshore, and is thus
subject to the many risks associated with contracting with foreign vendors and
suppliers and with the ownership and operation of foreign manufacturing
facilities, including obtaining requisite governmental permits and approvals,
currency exchange fluctuations and restrictions, variable or higher tax rates,
expiration of tax holidays, political instability, changes in government
policies relating to foreign investment and operations, cultural issues, labor
problems, trade restrictions, transportation delays and interruptions, and
changes in tariff and freight rates. The Company has from time to time
experienced labor organization activities at certain of its foreign operations,
most recently in the first quarter of fiscal 1997, but none of the Company's
employees are currently represented by a union. There can be no assurance,
however, that the Company will continue to be successful in avoiding work
stoppages or other labor issues in the future.
COMPLEX MANUFACTURING PROCESSES
The Company's manufacturing processes involve numerous complex steps. Minor
deviations can cause substantial yield loss, and in some cases, cause production
to be suspended. Yields for new products initially tend to be low as the Company
completes product development and commences volume manufacturing and thereafter
typically increase as the Company ramps to full production. The Company's
forward product pricing reflects this assumption of improving yields; as a
result, material variances between projected and actual yields have a direct
effect on the Company's gross margins and profitability. The difficulty of
forecasting yields accurately and maintaining cost competitiveness through
improving yields will continue to be magnified by ever-increasing process
complexity, and by the compression of product life cycles which requires the
Company to bring new products on line faster and for shorter periods while
maintaining acceptable yields and quality, without, in many cases, reaching the
longer-term, high volume manufacturing conducive to higher yields and declining
costs.
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS
As a high technology company in a narrowly defined industry, the Company is
often dependent upon a limited number of suppliers and subcontractors, and in
some cases on single sources, for critical components or supplies. Limitations
on or interruptions of the supply of certain components or supplies can
materially and adversely affect the Company's production and results of
operations. The Company has limited alternative sources of certain key materials
such as wafer substrates, photoresist, wires and suspensions, and frequently
must rely on a single equipment supplier for a given equipment type due to lack
of viable alternatives or to insure process consistency. Accordingly, capacity
constraints or production failures at, or restricted allocations by, the
Company's suppliers could have a material adverse effect on the Company's own
production, and its business, financial condition and results of operations.
INVENTORY RISKS
Due to the cyclical nature of and rapid technological change in the hard
disk drive industry, the Company's inventory is subject to substantial risk. To
address these risks, the Company monitors its inventories and provides inventory
write-downs intended to cover inventory risks. However, given the Company's
dependence on a few customers and a limited number of product programs for each
customer, the magnitude of the commitments the Company must make to support its
customers' programs and the Company's limited remedies in the event of program
cancellations, if a customer cancels or materially reduces one or more product
programs, or should a customer experience financial difficulties, the Company
may be required to take significant inventory charges which, in turn, could
materially and adversely affect the Company's business, financial condition and
results of operations. While the Company has taken certain charges and provided
inventory reserves to address known issues, there can be no assurance that the
Company will not be required to take additional inventory write-downs
S-10
<PAGE> 11
due to the Company's inability to obtain necessary product qualifications or due
to further order cancellations by customers.
The Company manufactures custom products for a limited number of customers.
Because its products are custom, the Company typically cannot shift raw
materials, work-in-process or finished goods from customer to customer, or from
one product program to another for a particular customer. However, to enable its
customers to get their products to market quickly and to address its customers'
demand requirements, the Company must invest substantial resources and make
significant materials commitments, often before obtaining formal customer
qualifications and generally before the market prospects for its customers'
products are clear. Moreover, given the rapid pace of technological advancement
in the disk drive industry, the disk drive products which do succeed have
unpredictable, and typically very short, life cycles. Finally, in response to
rapidly shifting business conditions, the Company's customers have generally
sought to limit their purchase order commitments to the Company, and certain
customers have on occasion canceled or materially modified outstanding purchase
orders with the Company without significant penalties. For example, the Company
experienced significant cancellations of orders during the third quarter of
fiscal 1996 and during the third quarter of fiscal 1993, and as a result, its
operating results were materially and adversely affected.
COMPETITION
The disk drive industry is intensely competitive, both at the drive level
and component level, and is characterized by substantial price declines over the
useful life of a product. Accordingly, the Company believes that the most
important competitive factors in its industry are timely delivery of new
technologies and price for a given technology. Other significant factors are
customer support, product quality and the ability to reach volume production
rapidly. Failure to execute in any of these factors can have a material adverse
effect on the Company's revenues and gross margins.
Japanese competitors such as TDK/SAE and Yamaha have been aggressively
competing for business in the United States and in Japan, targeting the MR
marketplace in particular; the Company's primary domestic competitors are AMC,
IBM and Seagate. IBM, Seagate, Quantum and other disk drive manufacturers with
"captive" or internal recording head manufacturing capability, such as NEC and
Fujitsu, generally have significantly greater financial, technical and marketing
resources than the Company, and have made or may make their products available
in the merchant market. In recent years, Seagate has been the Company's primary
competitor among captive head manufacturers. However, IBM has made a series of
announcements regarding its plans to make substantial investments to expand its
disk drive and disk drive components business by selling to original equipment
manufacturers ("OEM") starting in 1997. The Company's competitive position could
be materially and adversely affected if one or more of these competitors is
successful in marketing advanced MR products in the merchant market at
competitive pricing.
In its HSA business, the Company must compete against certain of its
customers' internal HSA capacity, as well as against other merchant HSA
manufacturers. The HSA business is less capital intensive than the thin film HGA
business, thus making entry into the HSA manufacturing business easier than
entry into the thin film HGA business. Accordingly, there can be no assurance
that the Company will be able to compete successfully with its customers' own
HSA capacity, or with existing or new HSA manufacturers.
Finally, new technologies, including extensions of existing thin film head
technology such as contact, nearcontact, pico, spin valve, or giant MR heads,
which the Company is currently developing, may compete in the future with the
Company's current head technologies and may support areal density capabilities
significantly greater than those of the Company's thin film inductive and MR
heads now in commercial production. Additionally, other manufacturers may
already have or may develop, more advanced MR technology or MR production
capability than the Company. Also, certain companies are developing alternative
data storage technologies, such as solid-state (flash or ferroelectric) memory,
optical disk drives or extensions of MIG technologies, which do not utilize the
Company's products. The
S-11
<PAGE> 12
Company's competitive position may be materially and adversely affected if a
competitor precedes the Company in the successful introduction of improved or
new technologies or products.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Read-Rite regards elements of its manufacturing processes, product designs
and equipment as proprietary and seeks to protect its proprietary rights through
a combination of employee and third party non-disclosure agreements, internal
procedures and patent protection. The Company has a number of patents and
additional applications pending. In addition, Read-Rite has a variety of
licenses and cross-licenses with other companies within the industry for certain
uses of the companies' respective patents.
Read-Rite believes that its success depends on the innovative skills and
technical competence of its employees and upon proper protection of its
intellectual properties. Despite Read-Rite's protective measures, there can be
no assurance that such measures will be adequate to protect its proprietary
rights or that the Company's competitors will not independently develop or
patent technologies that are equivalent or superior to the Company's technology.
The Company has from time to time been notified of claims that it may be
infringing patents owned by others. For example, in response to a claim by the
Company of infringement of certain Company patent rights, a competitor of the
Company has counterclaimed certain of its own patent rights against the Company.
To date there is no litigation arising out of these claims. The Company is
negotiating with this competitor and believes it is unlikely the outcome of
these claims will have a material adverse effect on the Company's financial
position or results of operations. To the extent the Company receives additional
claims of infringement from others in the future, where necessary or desirable
the Company may seek licenses under patents which it is allegedly infringing.
Although patent holders commonly offer such licenses, no assurance can be given
that licenses will be offered or that the terms of any offered licenses will be
acceptable to the Company. Defending a claim of infringement or the failure to
obtain a key patent license from a third party could cause the Company to incur
substantial liabilities and/or to suspend the manufacture of the products
utilizing the patented invention.
ENVIRONMENTAL REGULATION
The Company is subject to a variety of federal, state, local and foreign
regulations relating to the use, storage, discharge and disposal of hazardous
materials used during its manufacturing process, to the treatment of water used
in manufacturing and to air quality management. In addition to obtaining
necessary permits for expansion, the Company must also comply with expanded
regulations on its existing operations as they are imposed. Although the Company
has not to date suffered any material adverse effects in complying with
applicable environmental regulations, public attention has increasingly been
focused on the environmental impact of manufacturing operations which use
hazardous materials. The Company's failure to comply with present or future
regulations, or to obtain all necessary permits required under such regulations,
could subject it to significant liability and financial penalties (possibly
resulting in production suspension or delay), restrict the Company's ability to
expand or operate at its locations in California or its locations in Thailand,
Malaysia, Japan and the Philippines, restrict the Company's ability to establish
additional operations in other locations, or require the Company to acquire
costly equipment or to incur other significant expenses to comply with
environmental regulations. Moreover, while the Company has invested significant
resources in safety procedures, training, treatment equipment and systems and
other measures designed to minimize the possibility of an accidental hazardous
discharge, any such discharge could result in significant liability and clean-up
expenses which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company uses a significant amount of water in its manufacturing
process. Although the Company is currently under no specific water use
restrictions, future drought conditions could cause the state or local
authorities to mandate higher fees and/or reductions in water usage allocations.
In such
S-12
<PAGE> 13
event, any such reductions could restrict the Company's level of production and
adversely affect the Company's business, financial condition and results of
operations.
SUBORDINATION
The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Debt of the Company, including the Company's
existing revolving credit facility and term loan facility. As a result of such
subordination, in the event of the Company's liquidation or insolvency, a
payment default with respect to Senior Debt, a covenant default with respect to
Designated Senior Debt (as defined) or upon acceleration of the Notes due to an
event of default, the assets of the Company will be available to pay obligations
on the Notes only after all Senior Debt has been paid in full, and there may not
be sufficient assets remaining to pay amounts due on any or all of the Notes
then outstanding.
The Notes are obligations exclusively of the Company. Since the operations
of the Company are conducted through subsidiaries, the cash flow and the
consequent ability to service debt, including the Notes, of the Company, are
dependent upon the earnings of its subsidiaries and the distribution of those
earnings to, or upon loans or other payments of funds by those subsidiaries to,
the Company. The payment of dividends and the making of loans and advances to
the Company by its subsidiaries may be subject to statutory or contractual
restrictions, are dependent upon the earnings of those subsidiaries and are
subject to various business considerations. Any right of the Company to receive
assets of any of its subsidiaries upon their liquidation or reorganization (and
the consequent right of the holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of that subsidiary's creditors
(including trade creditors), except to the extent that the Company is itself
recognized as a creditor of such subsidiary, in which case the claims of the
Company would still be subordinate to any security interests in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company.
As of June 30, 1997, the Company had approximately $178.8 million of
indebtedness and other liabilities that would have constituted Senior Debt
(including $100.0 million of Senior Notes to be prepaid from the proceeds of
this offering). As of June 30, 1997, the Company's subsidiaries had
approximately $142.4 million of indebtedness and other liabilities (including
trade payables and excluding intercompany liabilities) as to which the Notes
would have been effectively subordinated. The Indenture does not prohibit or
limit the incurrence of Senior Debt or the incurrence of other indebtedness and
other liabilities by the Company or its subsidiaries. The incurrence of
additional indebtedness and other liabilities by the Company or its subsidiaries
could adversely affect the Company's ability to pay its obligations on the
Notes. The Company expects from time to time to incur additional indebtedness
and other liabilities, including Senior Debt, and also expects that its
subsidiaries will from time to time incur additional indebtedness and other
liabilities. See "Description of Notes -- Subordination."
LIMITATIONS ON REPURCHASE OF NOTES
The Company's ability to repurchase Notes upon the occurrence of a Change
in Control is subject to limitations. There can be no assurance that the Company
would have the financial resources, or would be able to arrange financing, to
pay the repurchase price for all the Notes that might be delivered by Holders of
Notes seeking to exercise the repurchase right. Moreover, although under the
Indenture the Company may elect, subject to satisfaction of certain conditions,
to pay the repurchase price for the Notes using shares of Common Stock, the
terms of the Company's existing revolving credit facility and term loan facility
prohibit the repurchase of Notes by the Company or its subsidiaries in cash or
any other form of payment including shares of Common Stock, and the Company's
ability to purchase Notes may be limited or prohibited by the terms of any
future borrowing arrangements, including Senior Debt existing at the time of a
Change in Control. The Company's ability to repurchase Notes with cash may also
be limited by the terms of its subsidiaries' then-existing borrowing
arrangements due to dividend restrictions. Any failure by the Company to
repurchase the Notes when required following a Change in Control would result in
an Event of Default under the Indenture whether or not such repurchase is
permitted by the subordination provisions of the Indenture. Any such default
may, in turn, cause a default under Senior
S-13
<PAGE> 14
Debt of the Company. In addition, the Company's repurchase of the Notes as a
result of the occurrence of a Change in Control may be prohibited or limited by,
or create an event of default under, the terms of agreements related to
borrowings which the Company may enter into from time to time, including
agreements relating to Senior Debt. See "Description of Notes -- Repurchase at
Option of Holders Upon a Change in Control."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes will be a new issue of securities with no established trading
market. The Underwriters have advised the Company that they intend to make a
market in the Notes. The Underwriters are not obligated, however, to make a
market in the Notes, and any such market making may be discontinued at any time
at the sole discretion of the Underwriters without notice. There can be no
assurance that an active market for the Notes will develop and continue upon
completion of the offering or that the market price of the Notes will not
decline. Various factors such as changes in prevailing interest rates or changes
in perceptions of the Company's creditworthiness could cause the market price of
the Notes to fluctuate significantly. The trading price of the Notes could also
be significantly affected by the market price of the Common Stock, which could
be subject to wide fluctuations in response to a variety of factors. The Notes
will not be listed on any securities exchange or quoted on the Nasdaq Stock
Market and will only be traded on the over-the-counter market.
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been and is expected to
continue to be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the disk
drive and computer industries, changes in earnings estimates or recommendations
by securities analysts, and other events or factors. In addition, stock markets
have experienced extreme price volatility in recent years. This volatility has
had a substantial effect on the market price of securities issued by many high
technology companies, in many cases for reasons unrelated to the operating
performance of the specific companies, and the Company's Common Stock has
experienced volatility not necessarily related to announcements of Company
performance. Broad market fluctuations may adversely affect the market price of
the Company's Common Stock.
S-14
<PAGE> 15
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes
offered hereby, after deducting the underwriting discount and other expenses of
the offering, are estimated to be $292,150,000 ($336,025,000 if the
Underwriters' over-allotment option is exercised in full). The Company will use
approximately $101,720,000 of the proceeds from this offering to prepay the
Senior Notes in the aggregate principal amount of $100,000,000 plus a prepayment
premium of approximately $1,720,000. The prepayment premium will result in a
charge to the Company's statement of operations for the quarter ended September
30, 1997. The Senior Notes mature on September 15, 2000, and bear interest at
7.53% per annum. The remainder of the proceeds from this offering will be used
for general corporate purposes, including capital expenditures and working
capital requirements. An additional purpose of the offering is to strengthen the
Company's financial position and give the Company flexibility to take advantage
of business opportunities as they arise. Pending such uses, the Company will
invest the proceeds of the offering in short-term, income producing obligations.
S-15
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 and as adjusted to give effect to the issuance and sale by the Company
of $300 million in aggregate principal amount of Notes offered hereby and the
application of the net proceeds therefrom as set forth under "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current portion of long-term debt and capital lease obligations... $ 13,783 $ 13,783
Convertible subordinated notes.................................... -- 300,000
Other long-term debt and capital lease obligations, excluding
current portion................................................. 164,986 64,986
Stockholders' equity:
Preferred Stock, par value $.0001, 4,000,000 shares authorized;
no shares issued and outstanding............................. -- --
Common Stock, par value $.0001, 160,000,000 shares authorized;
47,872,293 shares issued and outstanding(1).................. 5 5
Additional paid-in capital...................................... 349,664 349,664
Retained earnings............................................... 175,507 174,475
Cumulative translation adjustment............................... 558 558
-------- --------
Total stockholders' equity.............................. 525,734 524,702
-------- --------
Total capitalization............................... $704,503 $ 903,471
======== ========
</TABLE>
- ---------------
(1) Outstanding Common Stock does not include (i) the shares of Common Stock
issuable upon conversion of the Notes offered hereby; (ii) 9,048,080 shares
of Common Stock reserved for issuance under the Company's stock option
plans, under which options to purchase 6,598,086 shares were outstanding as
of June 30, 1997, at a weighted average exercise price of $18.44 per share;
(iii) 563,747 shares reserved for issuance under the Company's Employee
Stock Purchase Plan; and (iv) 438,851 shares reserved for issuance under the
Company's 401(k) plan.
S-16
<PAGE> 17
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "RDRT." The following table shows for the periods indicated the high
and low closing prices for the Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1995
First quarter............................................................ $19 1/16 $15 1/2
Second quarter........................................................... 19 7/16 14 7/8
Third quarter............................................................ 29 19
Fourth quarter........................................................... 48 26 1/4
FISCAL YEAR ENDED SEPTEMBER 30, 1996
First quarter............................................................ $39 1/8 $21 3/4
Second quarter........................................................... 25 1/8 16 3/4
Third quarter............................................................ 26 1/8 12 /16
Fourth quarter........................................................... 15 3/4 9 7/8
FISCAL YEAR ENDING SEPTEMBER 30, 1997
First quarter............................................................ $26 3/8 $15 3/8
Second quarter........................................................... 33 1/8 24 7/8
Third quarter............................................................ 32 5/8 19 7/8
Fourth quarter (through August 19, 1997)................................. 28 15/16 19 7/8
</TABLE>
On August 19, 1997, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $27 3/4 per share. As of June 30,
1997, there were approximately 1,800 holders of record of the Company's Common
Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. The Company's
existing revolving credit facility and term loan facility currently restrict the
payment of dividends.
S-17
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated statements of operations data for the years
ended September 30, 1994, 1995 and 1996 and consolidated balance sheet data at
September 30, 1995 and 1996 have been derived from the Consolidated Financial
Statements of the Company incorporated by reference in this Prospectus
Supplement. The consolidated statements of operations data for the years ended
September 30, 1994, 1995 and 1996 and the consolidated balance sheet data at
September 30, 1995 and 1996 have been audited by Ernst & Young, LLP, independent
auditors, as indicated in their report incorporated by reference in this
Prospectus Supplement. The selected consolidated statement of operations data
below for the nine month periods ended June 30, 1996 and 1997 and the selected
consolidated balance sheet data as of June 30, 1996 and 1997 are derived from
unaudited consolidated financial statements of the Company that are incorporated
by reference herein. The consolidated statement of operations data for the years
ended September 30, 1992 and 1993 and the consolidated balance sheet data at
September 30, 1993 and 1994 have been derived from audited financial statements
not included herein. The consolidated balance sheet data at September 30, 1992
has been derived from unaudited financial information not included herein.
Operating results for the nine months ended June 30, 1997 are not necessarily
indicative of results that may be expected for future periods. The data set
forth below is qualified by reference to, and should be read in conjunction
with, the Consolidated Financial Statements and related notes thereto
incorporated by reference in this Prospectus Supplement.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,(1) JUNE 30,(1)
---------------------------------------------------------- ---------------------
1992 1993(2) 1994(3) 1995 1996(4) 1996 1997
-------- -------- -------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................. $482,586 $587,647 $638,589 $1,003,040 $991,118 $795,711 $843,892
Cost of sales.............................. 372,945 499,759 545,396 739,000 887,464 658,231 673,608
-------- -------- -------- -------- -------- -------- --------
Gross margin............................... 109,641 87,888 93,193 264,040 103,654 137,480 170,284
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and development................. 14,359 20,053 25,524 41,788 52,221 39,117 46,623
Selling, general and administrative...... 28,973 34,786 33,449 44,406 43,644 32,853 31,535
Consolidation charge..................... -- 29,472 -- -- -- -- --
Joint venture break-up fee............... -- 421 -- -- -- -- --
Merger costs............................. -- -- 2,384 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses........... 43,332 84,732 61,357 86,194 95,865 71,970 78,158
-------- -------- -------- -------- -------- -------- --------
Operating income........................... 66,309 3,156 31,836 177,846 7,789 65,510 92,126
Interest expense........................... 3,516 2,405 4,759 5,589 12,897 9,113 10,631
Interest income and other, net............. 4,970 3,530 1,690 5,257 9,024 8,383 6,766
-------- -------- -------- -------- -------- -------- --------
Income before income taxes, minority
interest and extraordinary credit........ 67,763 4,281 28,767 177,514 3,916 64,780 88,261
Provision for income taxes................. 12,087 1,369 4,595 41,715 34,582 31,309 21,190
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interest and
extraordinary credit..................... 55,676 2,912 24,172 135,799 (30,666) 33,471 67,071
Minority interest in net income (loss) of
consolidated subsidiary.................. 100 (3,371) 4,478 12,234 12,320 12,523 6,556
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before extraordinary
credit................................... 55,576 6,283 19,694 123,565 (42,986) 20,948 60,515
Extraordinary credit -- gain on retirement
of debt net of $69 of taxes.............. 617 -- -- -- -- -- --
======== ======== ======== ======== ======== ======== ========
Net income (loss).......................... $ 56,193 $ 6,283 $ 19,694 $ 123,565 $(42,986) $ 20,948 $ 60,515
======== ======== ======== ======== ======== ======== ========
Per share:
Net income (loss) before extraordinary
credit................................... $ 1.47 $ 0.14 $ 0.43 $ 2.60 $ (0.92) $ 0.44 $ 1.24
Extraordinary credit....................... 0.01 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......................... $ 1.48 $ 0.14 $ 0.43 $ 2.60 $ (0.92) $ 0.44 $ 1.24
======== ======== ======== ======== ======== ======== ========
Shares used in per share calculations...... 37,913 44,658 46,125 47,616 46,755 47,840 48,626
======== ======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
SEPTEMBER 30,(1) JUNE 30,(1)
-------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................... $ 97,346 $155,239 $130,253 $286,902 $113,959 $ 189,592 $ 117,498
Total assets.............................. 374,889.. 553,010 630,592 939,457 908,672 1,003,837 1,028,092
Long-term debt............................ 35,496.. 52,065 52,414 137,406 172,037 178,031 164,986
Stockholders' equity...................... 206,638.. 366,710 397,288 537,977 453,799 517,634 525,734
</TABLE>
- ---------------
(1) For purposes of presentation throughout this Prospectus Supplement, the
Company has indicated its fiscal year as ending on September 30 and quarters
as ending on the last day of each calendar quarter. The Company operates and
reports on a 52/53 week fiscal year ending on the last Sunday of September
of each year. Each of the above fiscal years consisted of 52 weeks except
for fiscal 1995, which consisted of 53 weeks.
(2) Fiscal 1993 includes a restructuring charge of $29,472.
(3) Fiscal 1994 includes merger costs of $2,384.
(4) Fiscal 1996 includes severance, relocation and other charges of
approximately $11,200, research and development charges for the acquisition
of planar technology of approximately $9,000, approximately $24,100 for the
write-down of capital assets, approximately $7,000 associated with
end-of-life inventory and approximately $700 in other charges, for a total
of $52,000 for the year.
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<PAGE> 20
DESCRIPTION OF NOTES
The Notes will be issued under the Subordinated Indenture, to be dated as
of August 15, 1997, between the Company and State Street Bank and Trust Company
of California, N.A., as Trustee, as supplemented by the Supplemental Indenture,
to be dated as of August 15, 1997, between the Company and the Trustee (the
"Supplemental Indenture" and the "Subordinated Indenture," as supplemented by
the Supplemental Indenture, is hereinafter referred to as the "Indenture"). The
following discussion includes a summary description of material terms of the
Supplemental Indenture and the Notes (which represent a series of, and are
referred to in the accompanying Prospectus as, "Debt Securities"). The following
description of the terms of the Notes offered hereby supplements, and should be
read in conjunction with, the statements under "Description of Debt Securities"
in the accompanying Prospectus. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Subordinated Indenture and the Supplemental
Indenture. Capitalized terms not defined herein have the meanings given to them
in the Subordinated Indenture and the Supplemental Indenture. References in this
section to the "Company" are solely to Read-Rite Corporation, and not to its
subsidiaries.
GENERAL
The Notes will be unsecured subordinated obligations of the Company, will
be limited to $300,000,000 aggregate principal amount (plus up to an additional
$45,000,000 aggregate principal amount to cover over-allotments, if any) and
will mature on September 1, 2004 and be payable at a price of 100% of the
principal amount thereof. The Notes will bear interest at the rate per annum
shown on the front cover of this Prospectus Supplement from August 25, 1997,
payable semiannually on March 1 and September 1 of each year, commencing on
March 1, 1998.
The Notes will be unsecured obligations of the Company and will be
subordinated in right of payment to all present and future Senior Debt (as
defined below) of the Company. Neither the Notes nor the Indenture limit or
restrict the amount or terms of other indebtedness which may be incurred or
issued by the Company or its subsidiaries or contain any financial or similar
covenants of, or restrictions on, the Company or its subsidiaries. The Notes
will be effectively subordinated in right of payment to all indebtedness and
liabilities of the Company's subsidiaries.
The Notes will be convertible into Common Stock initially at the Conversion
Rate (as defined) stated on the cover page hereof, subject to adjustment upon
the occurrence of certain events described under "-- Conversion Rights," at any
time on or after issuance of the Notes and prior to the close of business on the
maturity date, unless previously redeemed or repurchased.
Principal and premium, if any, will be payable, and the Notes may be
presented for conversion, registration of the transfer or exchange, without
service charge, at the office of the Company maintained for the purpose in the
Borough of Manhattan, The City of New York, which shall initially be an office
or agency of the Trustee.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of a Global Security held in
book-entry form. Accordingly, The Depository Trust Company ("DTC") or its
nominee will be the sole registered Holder of the Notes for all purposes under
the Indenture. Owners of beneficial interests in the Notes represented by the
Global Security will hold such interests pursuant to the procedures and
practices of DTC and must exercise any rights in respect of their interests
(including any right to convert or require repurchase of their interests) in
accordance with those procedures and practices. Such beneficial owners will not
be Holders, and will not be entitled to any rights under the Global Security or
the Indenture, with respect to the Global Security, and the Company and the
Trustee, and any of their respective agents, may treat DTC as the sole Holder
and owner of the Global Security.
S-20
<PAGE> 21
CONVERSION RIGHTS
The Holder of any Note will have the right, at the Holder's option, to
convert any portion of the principal amount of any Note that is an integral
multiple of $1,000 into shares of Common Stock at any time on or prior to the
close of business on the maturity date, unless previously redeemed or
repurchased, at a conversion rate of 24.8524 shares of Common Stock per $1,000
principal amount of Notes (the "Conversion Rate") (equivalent to a conversion
price of approximately $40.24 per share of Common Stock), subject to adjustment
as described below. The right to convert a Note called for redemption or
submitted for repurchase will terminate at the close of business on the last
Business Day prior to the Redemption Date or Repurchase Date for such Note, as
the case may be.
Beneficial owners of interests in a Global Security may exercise their
right of conversion by delivering to DTC the appropriate instruction form for
conversion pursuant to DTC's conversion program. Such notice of conversion can
be obtained at the office of any conversion agent. The conversion date will be
the date on which the Note and the duly signed and completed notice of
conversion are so delivered. As promptly as practicable on or after the
conversion date, the Company will issue and deliver to the Trustee a certificate
or certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share; such
certificate will be sent by the Trustee to the conversion agent for delivery to
the Holder. Such shares of Common Stock issuable upon conversion of the Notes,
in accordance with the provisions of the Indenture, will be fully paid and
nonassessable and will rank pari passu with the other shares of Common Stock of
the Company outstanding from time to time. Any Note surrendered for conversion
during the period from the close of business on any Regular Record Date to the
opening of business on the next succeeding Interest Payment Date (except Notes
(or portions thereof) called for redemption on a Redemption Date during the
period beginning at the close of business on a Regular Record Date and ending on
the opening of business on the first Business Day after the next succeeding
Interest Payment Date, or if such Interest Payment Date is not a Business Day,
the second succeeding Business Day) must be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of Notes being surrendered for conversion. No other payment or adjustment
for interest, or for any dividends in respect of Common Stock, will be made upon
conversion. Holders of Common Stock issued upon conversion will not be entitled
to receive any dividends payable to holders of Common Stock as of any record
time or date before the close of business on the conversion date. No fractional
shares will be issued upon conversion but, in lieu thereof, an appropriate
amount will be paid in cash by the Company based on the market bid price of
Common Stock at the close of business on the last trading day prior to
conversion, as provided in the Indenture.
A Holder delivering a Note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless all taxes and
duties, if any, payable by the Holder have been paid.
The Conversion Rate is subject to adjustment in certain events, including,
without duplication: (a) dividends (and other distributions) payable in Common
Stock on shares of Common Stock, (b) the issuance to all holders of Common Stock
of rights, options or warrants entitling them to subscribe for or purchase
Common Stock at less than the then Current Market Price of such Common Stock
(determined as provided in the Indenture) as of the record date for shareholders
entitled to receive such rights, options or warrants (provided that the
Conversion Rate will be readjusted to the extent any such rights, options or
warrants are not exercised prior to the expiration thereof), (c) subdivisions,
combinations and reclassifications of Common Stock, (d) distributions to all
holders of Common Stock of evidences of indebtedness of the Company, shares of
capital stock, cash or assets (including securities (but excluding those
dividends, rights, options, warrants and distributions referred to above)
dividends and distributions paid exclusively in cash), (e) distributions
consisting exclusively of cash (excluding any cash portion of distributions
referred to in (d) above) to all holders of Common Stock in an aggregate amount
that, combined together with (i) other such all-cash distributions made within
the preceding 12
S-21
<PAGE> 22
months in respect of which no adjustment has been made and (ii) any cash and the
fair market value of other consideration payable in respect of any tender offer
by the Company or any of its subsidiaries for Common Stock concluded within the
preceding 12 months in respect of which no adjustment has been made, exceeds
12.5% of the Company's market capitalization (for this purpose being the product
of the Current Market Price per share of the Common Stock on the record date for
such distribution times the number of shares of Common Stock outstanding) on
such date, and (f) the successful completion of a tender offer made by the
Company or any of its subsidiaries for Common Stock which involves an aggregate
consideration that, together with (i) any cash and other consideration payable
in a tender offer by the Company or any of its subsidiaries for Common Stock
expiring within the 12 months preceding the expiration of such tender offer in
respect of which no adjustment has been made and (ii) the aggregate amount of
any such all-cash distributions referred to in (e) above to all holders of
Common Stock within the 12 months preceding the expiration of such tender offer
in respect of which no adjustments have been made, exceeds 12.5% of the
Company's market capitalization on the expiration of such tender offer. The
Company reserves the right to make such reductions in the Conversion Rate in
addition to those required in the foregoing provisions as it considers to be
advisable in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. No adjustment of the Conversion Rate will be required to be made
until the cumulative adjustments amount to 1.0% or more of the Conversion Rate.
The Company will compute any adjustments to the Conversion Rate pursuant to this
paragraph and will give notice by mail to Holders of the Notes of any
adjustments.
Under the provisions of the Preferred Shares Rights Agreement between the
Company and ChaseMellon Shareholders Services, L.L.C. (the "Rights Agreement"),
the Holders will receive, in addition to the Common Stock issuable upon such
conversion, the Rights (whether or not the Rights have separated from the Common
Stock at the time of the conversion). See "Description of Capital
Stock--Preferred Share Rights" in the accompanying Prospectus. In addition, the
Indenture will provide that, if the Company implements a new shareholder rights
plan, such rights plan must provide that upon conversion of the Notes the
Holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale, transfer or lease of
all or substantially all of the assets of the Company, each Note then
outstanding will, without the consent of the Holder of any Note, become
convertible only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale, transfer or lease by a holder
of the number of shares of Common Stock into which such Note was convertible
immediately prior thereto (assuming such holder of Common Stock failed to
exercise any rights of election and that such Note was then convertible).
The Company from time to time may increase the Conversion Rate by any
amount for any period of at least 20 days, in which case the Company shall give
at least 15 days' notice of such increase, if the Board of Directors has made a
determination that such increase would be in the best interests of the Company,
which determination shall be conclusive. No such increase shall be taken into
account for purposes of determining whether the closing price of the Common
Stock exceeds the Conversion Price by 105% in connection with an event which
otherwise would be a Change in Control.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends on
common stock or rights to subscribe for common stock) and, pursuant to the
antidilution provisions of the Supplemental Indenture, the number of shares into
which Notes are convertible is increased, such increase may be deemed for
federal income tax purposes to be the payment of a taxable dividend to Holders
of Notes. See "Certain Federal Income Tax Considerations."
S-22
<PAGE> 23
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the Notes
and any amounts payable upon the redemption or the repurchase of the Notes will
be subordinated in right of payment to the extent set forth in the Indenture to
the prior payment in full of the principal of, premium, if any, interest and
other amounts in respect of all Senior Debt of the Company. See "Description of
Debt Securities -- Subordination of Subordinated Debt Securities" in the
accompanying Prospectus.
The Notes will be structurally subordinated to all indebtedness and other
liabilities (including trade payables) of the Company's subsidiaries, as any
right of the Company to receive any assets of its subsidiaries upon their
liquidation or reorganization (and the consequent right of the Holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of the subsidiary's creditors (including trade creditors), except to the
extent that the Company itself is recognized as a creditor of such subsidiary,
in which case the claims of the Company would still be subordinate to any
security interest in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company.
As of June 30, 1997, the Company had approximately $178.8 million of
indebtedness and other liabilities that would have constituted Senior Debt
(including $100.0 million of Senior Notes to be prepaid from the proceeds of
this offering). As of June 30, 1997, the Company's subsidiaries had
approximately $142.4 million of indebtedness and other liabilities (including
trade payables and excluding intercompany liabilities) as to which the Notes
would have been effectively subordinated. The Indenture does not limit the
Company's or its subsidiaries' ability to incur Senior Debt or any other
indebtedness or liabilities. The Company expects from time to time to incur
additional indebtedness and other liabilities, including Senior Debt, and also
expects that its subsidiaries will from time to time incur additional
indebtedness and other liabilities. See "Risk Factors -- Subordination."
OPTIONAL REDEMPTION
The Notes will not be subject to redemption prior to September 7, 2000 and
will be redeemable on and after such date at the option of the Company, in whole
or in part, upon not less than 20 nor more than 60 days' notice to each Holder,
at the prices set forth below.
The redemption price (expressed as a percentage of principal amount) is as
follows for the 12-month periods beginning on September 1 of the following years
(beginning September 7, 2000, and ending on August 31, 2001, in the case of the
first such period):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
--------------------------------------------------------- ----------
<S> <C>
2000..................................................... 103.714%
2001..................................................... 102.786
2002..................................................... 101.857
2003..................................................... 100.929
</TABLE>
and thereafter is equal to 100% of the principal amount, in each case together
with accrued interest to, but excluding, the date of redemption.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or multiples thereof by lot
or, in its discretion, on a pro rata basis. If any Note is to be redeemed in
part only, a new Note or Notes in principal amount equal to the unredeemed
principal portion thereof will be issued. If a portion of a Holder's Notes is
selected for partial redemption and such Holder converts a portion of such Note,
such converted portion shall be deemed to be taken from the portion selected for
redemption.
No sinking fund is provided for the Notes.
S-23
<PAGE> 24
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control (as defined) occurs, each Holder of Notes shall have
the right, at the Holder's option, to require the Company to repurchase all of
such Holder's Notes not theretofore called for redemption, or any portion of the
principal amount thereof that is $1,000 or an integral multiple of $1,000 in
excess thereof, on the date (the "Repurchase Date") that is 45 days after the
date of the Company Notice (as defined), at a price equal to 100% of the
principal amount of the Notes to be repurchased, together with interest accrued
to, but excluding, the Repurchase Date (the "Repurchase Price").
The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued at 95% of the average of
the closing bid prices of the Common Stock for the five trading days immediately
preceding the second trading day prior to the Repurchase Date; provided that
payment may not be made in Common Stock unless the Company satisfies certain
conditions with respect to such payment prior to the Repurchase Date as provided
in the Indenture.
Within 30 days after the occurrence of a Change in Control, the Company is
obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change in Control
and of the repurchase right arising as a result thereof, or, at the request of
the Company on or before the 15th day after the occurrence, the Trustee shall
give the Company Notice. The Company must also deliver a copy of the Company
Notice to the Trustee. To exercise the repurchase right, a Holder of Notes must
deliver on or before the 30th day after the date of the Company Notice
irrevocable written notice to the Trustee of the Holder's exercise of such
right, together with the Notes with respect to which the right is being
exercised.
A "Change in Control" shall be deemed to have occurred at such time after
the original issuance of the Notes as there shall occur:
(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors, other than any such
acquisition by the Company, any subsidiary of the Company or any employee
benefit plan of the Company; or
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or
any sale or transfer of all or substantially all of the assets (other than
to a wholly-owned subsidiary of the Company) of the Company to any other
Person (other than (a) any such transaction pursuant to which the holders
of 50% or more of the total voting power of all shares of capital stock of
the Company entitled to vote generally in elections of directors
immediately prior to such transaction have, directly or indirectly, at
least 50% or more of the total voting power of all shares of capital stock
of the continuing or surviving corporation entitled to vote generally in
elections of directors of the continuing or surviving corporation
immediately after such transaction and (b) a merger (x) which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock of the Company or (y) which is effected
solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding shares
of Common Stock into solely shares of common stock); provided, however,
that a Change in Control shall not be deemed to have occurred if either (a)
the closing price per share of the Common Stock for any five trading days
within the period of 10 consecutive trading days ending immediately after
the later of a Change in Control or the public announcement of the Change
in Control (in the case of a Change in Control under clause (i) above) or
the period of 10 consecutive trading days ending immediately before the
Change in Control (in the case of a Change in Control under clause (ii)
above) shall equal or exceed 105% of the Conversion Price of the Notes in
effect on each such trading day, or (b) all of the consideration (excluding
cash payments for fractional shares and cash payments made pursuant to
dissenters' appraisal rights) in a merger or consolidation constituting a
Change in
S-24
<PAGE> 25
Control described in clause (i) and/or clause (ii) above consists of shares
of common stock traded on a national securities exchange or quoted on the
Nasdaq National Market (or will be so traded or quoted immediately
following the Change in Control) and as a result of such transaction or
transactions the Notes become convertible solely into such common stock.
The "Conversion Price" is equal to $1,000 divided by the Conversion Rate.
"Beneficial Owner" shall be determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act, as in effect on the
date of execution of the Supplemental Indenture. "Person" includes any
syndicate or group which would be deemed to be a "person" under Section 13
(d)(3) of the Exchange Act.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
The Company may, to the extent permitted by applicable law, at any time
purchase Notes in the open market or by tender at any price or by private
agreement. Any Note so purchased by the Company may, to the extent permitted by
applicable law, be reissued or resold or may, at the Company's option, be
surrendered to the Trustee for cancellation. Any Notes surrendered as aforesaid
may not be reissued or resold and will be canceled promptly.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect Holders.
The Company's ability to repurchase Notes upon the occurrence of a Change
in Control is subject to limitations. There can be no assurance that the Company
would have the financial resources, or would be able to arrange financing, to
pay the Repurchase Price for all the Notes that might be delivered by Holders of
Notes seeking to exercise the repurchase right. Moreover, although under the
Indenture the Company may elect, subject to satisfaction of certain conditions,
to pay the Repurchase Price for the Notes using shares of Common Stock, the
terms of the Company's existing revolving credit facility and term loan facility
prohibit the repurchase of Notes by the Company or its subsidiaries in cash or
any other form of payment including shares of Common Stock, and the Company's
ability to repurchase Notes may be limited or prohibited by the terms of any
future borrowing arrangements, including Senior Debt existing at the time of a
Change in Control. The Company's ability to repurchase Notes may also be limited
by the terms of its subsidiaries' then-existing borrowing arrangements due to
dividend restrictions. Any failure by the Company to repurchase the Notes when
required following a Change in Control would result in an Event of Default under
the Indenture whether or not such repurchase is permitted by the subordination
provisions of the Indenture. Any such default may, in turn, cause a default
under Senior Debt of the Company. In addition, the Company's repurchase of the
Notes as a result of the occurrence of a Change in Control may be prohibited or
limited by, or create an event of default under, the terms of agreements related
to borrowings which the Company may enter into from time to time, including
agreements relating to Senior Debt. See "-- Subordination" and "Risk
Factors -- Subordination."
DEFEASANCE AND COVENANT DEFEASANCE
The provisions described under "Description of Debt
Securities -- Defeasance and Covenant Defeasance" in the accompanying Prospectus
shall apply to the Notes, except that the Company will not be able to defease
the right of the Holders to convert the Notes.
EVENTS OF DEFAULT
In addition to the Events of Default described under "Description of Debt
Securities -- Events of Default" in the accompanying Prospectus, the following
will constitute an Event of Default under the Indenture with respect to the
Notes: any indebtedness under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company in a principal amount then
outstanding in excess of $25,000,000 is not paid at final maturity thereof
(either at its stated maturity or upon
S-25
<PAGE> 26
acceleration thereof), and such indebtedness is not discharged, or such
acceleration is not rescinded or annulled, within a period of 30 days after
notice as provided in the Indenture.
TRANSFER AND EXCHANGE
The Company has initially appointed the Trustee as security registrar,
transfer agent and conversion agent, acting through its Corporate Trust Office.
The Company reserves the right to vary or terminate the appointment of the
security registrar or of any transfer agent or conversion agent or to appoint
additional or other transfer agents or conversion agents or to approve any
change in the office through which any security registrar or any transfer agent
or conversion agent acts.
PURCHASE AND CANCELLATION
The Company or any subsidiary may, to the extent permitted by applicable
law, at any time and from time to time purchase Notes at any price in the open
market or otherwise.
All Notes surrendered for payment, redemption, repurchase, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee. All Notes so delivered to the
Trustee shall be canceled promptly by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
the Indenture.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
the Company at the expense of the Holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Note, indemnity satisfactory to the Trustee and the Company may be
required at the expense of the Holder of such Note before a replacement Note
will be issued.
GOVERNING LAW
The Subordinated Indenture, the Supplemental Indenture and the Notes will
be governed by and construed in accordance with the laws of the State of New
York.
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity.
S-26
<PAGE> 27
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and of Common Stock into which Notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating thereto.
This summary is based on laws, regulations, rulings and decisions now in effect,
all of which are subject to change. This summary deals only with holders that
will hold Notes and Common Stock into which Notes may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code")) and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax-exempt organizations, insurance companies, dealers in securities or
currencies or persons that will hold Notes as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes or persons
deemed to sell Notes or Common Stock under the recently enacted constructive
sale provisions of the Code. This summary discusses the tax considerations
applicable to the initial purchasers of the Notes who purchase the Notes at
their "issue price" as defined in Section 1273 of the Code and does not discuss
the tax considerations applicable to subsequent purchasers of the Notes. The
Company has not sought any ruling from the Internal Revenue Service (the "IRS")
with respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the IRS will agree with such
statements and conclusions. In addition, the IRS is not precluded from
successfully adopting a contrary position. This summary does not consider the
effect of any applicable foreign, state, local or other tax laws.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND
ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR
UNDER ANY APPLICABLE TAX TREATY.
As used herein, the term "United States Holder" means a beneficial owner of
the Notes that is, for United States federal income tax purposes (i) a citizen
or resident (as defined in Section 7701(b) of the Code) of the United States,
(ii) a corporation, partnership or other entity created or organized under the
laws of the United States or political subdivision thereof, (iii) an estate the
income of which is subject to federal income taxation regardless of its source,
or (iv) in general, a trust subject to the primary supervision of a United
States court and the control of one or more United States persons. A "Foreign
Holder" is any holder of Notes that is not a United States Holder.
UNITED STATES HOLDERS
PAYMENT OF INTEREST
Interest on a Note generally will be includable in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such United States Holder's regular method of
accounting for United States federal income tax purposes. The Company intends to
take the position that a repurchase pursuant to a Change in Control, as
described under "Description of Notes -- Repurchase at Option of Holders Upon a
Change in Control", is remote under the Treasury Regulations and does not intend
to treat the possibility of such a repurchase as affecting the yield to maturity
of any Note.
SALE, EXCHANGE OR REDEMPTION OF A NOTE
Upon the sale, exchange or redemption of a Note, a United States Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income not previously included in income
which is taxable as ordinary income) and (ii) such United States Holder's
adjusted tax basis in the Note. A United States Holder's adjusted tax basis in a
Note generally will equal the cost of the Note to such holder. Such capital gain
or loss will be long-term capital gain or loss if the United States Holder's
holding period in the Note is more than one year at the time of sale, exchange
or redemption. On August 5, 1997, legislation (the "Capital
S-27
<PAGE> 28
Gains Legislation") was enacted which, among other changes, will reduce to 20%
the maximum rate of tax on long-term capital gains on property held for more
than 18 months. Gain on property held more than one year and up to 18 months is
generally subject to tax at a maximum rate of tax on capital gains of 28% under
the Capital Gains Legislation. United States Holders are urged to consult their
own tax advisors with respect to the Capital Gains Legislation.
CONVERSION OF THE NOTES
A United States Holder generally will not recognize any income, gain or
loss upon conversion of a Note into Common Stock except to the extent the Common
Stock is considered attributable to accrued interest not previously included in
income (which is taxable as ordinary income) or with respect to cash received in
lieu of a fractional Share of Common Stock. A United States Holder's tax basis
in the Common Stock received on conversion of a Note will be the same as such
United States Holder's adjusted tax basis in the Note at the time of conversion
(reduced by any basis allocable to a fractional share interest), and the holding
period for the Common Stock received on conversion will generally include the
holding period of the Note converted. However, a United States Holder's tax
basis on shares of Common Stock considered attributable to accrued interest as
described above generally will equal the amount of such accrued interest
included in income, and the holding period for such shares shall begin on the
date of conversion.
Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the United States
Holder's adjusted tax basis in the fractional share).
DIVIDENDS; ADJUSTMENT TO CONVERSION RATE
Dividends, if any, paid on the Common Stock generally will be includable in
the income of a United States Holder as ordinary income to the extent of the
Company's current or accumulated earnings and profits.
If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidence of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the antidilution provisions of the Indenture, the
conversion rate of the Notes is increased, or (ii) the conversion rate of the
Notes is increased at the discretion of the Company, such increase in conversion
rate may be deemed to be the payment of a taxable dividend to holders of Notes
(pursuant to Section 305 of the Code). Holders of Notes could therefore have
taxable income as a result of an event pursuant to which they received no cash
or property.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the sale
or exchange and (ii) such United States Holder's adjusted tax basis in the
Common Stock.
Such capital gain or loss will be long-term capital gain or loss if the
United States Holder's holding period in Common Stock is more than one year at
the time of the sale or exchange. Gain on Common Stock held or deemed held for
more than one year may be subject to recently enacted maximum rates of tax. See
"-- Sale, Exchange or Redemption of a Note." A United States Holder's basis and
holding period in Common Stock received upon conversion of a Note are determined
as discussed above under "-- Conversion of the Notes."
S-28
<PAGE> 29
FOREIGN HOLDERS
STATED INTEREST
Payments of principal and interest on a Note to a Foreign Holder will not
be subject to United States federal withholding tax provided that (a) the holder
does not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (b) the holder is
not a controlled foreign corporation that is related through stock ownership and
(c) either (1) the beneficial owner of the Note, under penalties of perjury,
provides the Company or its agent with its name and address and certifies that
it is not a United States person or (2) a securities clearing organization,
bank, or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") certifies
to the Company or its agent, under penalties of perjury, that such a statement
has been received from the beneficial owner by it or another financial
institution and furnishes to the Company or its agent a copy thereof (the
"Portfolio Interest Exemption"). The gross amount of payments to a Foreign
Holder of interest that does not qualify for the Portfolio Interest Exemption
and that is effectively connected to a United States trade or business will be
subject to United States federal income tax at the rate of 30%, unless a United
States income tax treaty applies to reduce or eliminate withholding.
A Foreign Holder will generally be subject to tax in the same manner as a
United States corporation or resident with respect to such income if it is
effectively connected with the conduct of trade or business in the United
States. Such effectively connected income received by a Foreign Holder which is
a corporation may in certain circumstances be subject to an additional "branch
profits tax" at a 30% rate or, if applicable, a lower treaty rate.
To claim the benefit of a tax treaty or to claim exemption from withholding
because the income is effectively connected to a U.S. trade or business, the
Foreign Holder must provide a properly executed Form 1001 or 4224, as
applicable, prior to the payment of interest. These forms must be periodically
updated. Treasury Regulations proposed in April 1996 would, if adopted in final
form, require Foreign Holders or, under certain circumstances, a "qualified
intermediary" to file a "withholding certificate" with the Company's withholding
agent to obtain the benefit of an applicable tax treaty providing for a lower
rate of withholding tax. Such certificate would have to contain, among other
information, the name and address of the Foreign Holder and the basis for any
reduced rate claimed. These withholding certificates would be required for
payments made after December 31, 1997. A Foreign Holder may also be required to
obtain a United States taxpayer identification number under the proposed
Treasury Regulations.
SALE, EXCHANGE OR REDEMPTION OF A NOTE
A Foreign Holder generally will not be subject to United States federal
income tax or withholding tax on gain realized on the sale or exchange of Notes
unless (i) the holder is an individual who was present in the United States for
183 days or more during the taxable year and to whom such gain is U.S. source or
(ii) the gain is effectively connected with the conduct of a trade or business
of the holder in the United States.
CONVERSION OF THE NOTES
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a Note into Common Stock by a Foreign Holder
except (i) to the extent the Common Stock is considered attributable to accrued
interest not previously included in income (which is taxable as ordinary income
unless the Portfolio Interest Exemption, described above, applies) or (ii) with
respect to the receipt of cash in lieu of fractional shares by Foreign Holders
upon conversion of a Note, in each case where either of the conditions described
in (i) or (ii) above under "Foreign Holders -- Sale, Exchange or Redemption of a
Note" is satisfied.
S-29
<PAGE> 30
SALE OR EXCHANGE OF COMMON STOCK
A Foreign Holder will generally not be subject to United States federal
income tax or withholding tax on the sale or exchange of Common Stock unless
either of the conditions described in (i) or (ii) above under "Foreign
Holders -- Sale, Exchange or Redemption of a Note" is satisfied or the Company
is or has been a United States real property holding corporation for United
States federal income tax purposes (which the Company does not believe that it
is or is likely to become) at any time within the shorter of the five year
period preceding such disposition or such Foreign Holder's holding period.
DIVIDENDS
Distributions by the Company with respect to the Common Stock that are
treated as dividends paid (or deemed paid), as described above under "United
States Holders -- Dividends; Adjustment to Common Rate" to a Foreign Holder
(excluding dividends that are effectively connected with the conduct of a trade
or business in the United States by such Holder and are taxable as described
below) will be subject to United States federal withholding tax at a 30% rate
(or lower rate provided under any applicable income tax treaty). Except to the
extent that an applicable tax treaty otherwise provides, a Foreign Holder will
be subject to tax in the same manner as a United States Holder on dividends paid
(or deemed paid) that are effectively connected with the conduct of a trade or
business in the United States by the Foreign Holder. If such Foreign Holder is a
foreign corporation, it may also be subject to a United States "branch profits
tax" on such effectively connected income at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty. Even though such
effectively connected dividends are subject to income tax, and may be subject to
the branch profits tax, they will not be subject to U.S. withholding tax if the
Holder delivers IRS Form 4224 to the payor.
Under current United States Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of United
States Treasury Regulations, for purposes of determining the applicability of a
tax treaty rate. Under the proposed Treasury Regulations, however, a Foreign
Holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification requirements. In
addition, under the proposed Treasury Regulations, in the case of common stock
held by a foreign partnership, the certification requirement would generally be
applied to the partners of the partnership and the partnership would be required
to provide certain information, including a United States taxpayer
identification number. The proposed Treasury Regulations also provide
look-through rules for tiered partnerships. It is not certain whether, or in
what form, the proposed Treasury Regulations will be adopted as final
regulations.
DEATH OF A NON-UNITED STATES HOLDER
A Note held by an individual who is not a citizen or resident of the United
States at the time of death will not be includable in the decedent's gross
estate for United States estate tax purposes, provided that such holder or
beneficial owner did not at the time of death actually or constructively own 10%
or more of the combined voting power of all classes of stock of the Company
entitled to vote, and provided that, at the time of death, payments with respect
to such Note would not have been effectively connected with the conduct by such
Foreign Holder of a trade or business within the United States.
Common Stock actually or beneficially held (other than through a foreign
corporation) by a Foreign Holder at the time of his or her death (or previously
transferred subject to certain retained rights or powers) will be subject to
United States federal estate tax unless otherwise provided by an applicable
estate tax treaty.
S-30
<PAGE> 31
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note and payments of the proceeds
of the sale of a Note to certain noncorporate United States Holders, and a 31%
backup withholding tax may apply to such payment if the United States Holder (i)
fails to furnish or certify his correct taxpayer identification number ("TIN")
to the payor in the manner required, (ii) is notified by the IRS that he has
failed to report payments of interest or dividends properly or (iii) under
certain circumstances, fails to certify that he has not been notified by the IRS
that he is subject to backup withholding for failure to report interest or
dividend payments.
Information reporting requirements will apply to payments of interest or
dividends to Foreign Holders where such interest or dividends are subject to
withholding or are exempt from United States withholding tax pursuant to a tax
treaty, or where such interest is exempt from United States tax under the
Portfolio Interest Exemption. Copies of these information returns may also be
made available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Foreign Holder resides.
Treasury Regulations provide that backup withholding and information
reporting will not apply to payments of principal on the Notes by the Company to
a Foreign Holder if the Foreign Holder certifies as to its status as a Foreign
Holder under penalties of perjury or otherwise establishes an exemption
(provided that neither the Company nor its paying agent has actual knowledge
that the holder is a United States person or that the conditions of any other
exemption are not, in fact, satisfied.)
The payment of the proceeds from the disposition of Notes or Common Stock
to or through the United States office of any broker, United States or foreign,
will be subject to information reporting and possible backup withholding unless
the owner certifies as to its non-United States status under penalty of perjury
or otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a United States person or that the
conditions of any other exemption are not, in fact, satisfied. The payment of
the proceeds from the disposition of a Note or Common Stock to or through a
non-United States office of a non-United States broker that is not a United
States related person will not be subject to information reporting or backup
withholding. For this purpose, a "United States related person" is (i) a
"controlled foreign corporation" for United States federal income tax purposes
or (ii) a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
United States trade or business.
In the case of the payment of proceeds from the disposition of Notes or
Common Stock to or through a non-United States office of a broker that is either
a United States person or a United States related person, Treasury Regulations
require information reporting on the payment unless the broker has documentary
evidence in its files that the owner is a Foreign Holder and the broker has no
knowledge to the contrary.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
S-31
<PAGE> 32
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, and each of the Underwriters has severally agreed to purchase, the
principal amount of the Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
- ----------------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co.......................................................... $240,000,000
Hambrecht & Quist LLC........................................................ 30,000,000
Smith Barney Inc............................................................. 30,000,000
------------
Total.............................................................. $300,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all such Notes, if any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of 1.5% of the principal amount of the Notes. The Underwriters
may allow, and such dealers may reallow, a concession not to exceed .01% of the
principal amount of the Notes to certain brokers and dealers. After the Notes
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Underwriters.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
$45,000,000 additional principal amount of Notes solely to cover overallotments,
if any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same proportion thereof that the principal amount of Notes to
be purchased by each of them, as shown in the foregoing table, bears to the
$300,000,000 aggregate principal amount of Notes offered hereby.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has agreed that it will not offer, sell, contract to sell or
otherwise dispose of any securities of the Company which are substantially
similar to the Notes or the Common Stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Common Stock or any substantially similar securities, without
the prior written consent of Goldman, Sachs & Co., for a period of 90 days after
the date of this Prospectus Supplement (other than pursuant to equity based
employee and director compensation plans existing on the date hereof and upon
conversion of the Notes). In addition, certain officers and directors of the
Company have agreed to enter into lockup agreements with respect to the Notes
and Common Stock for a period of 90 days after the date of this Prospectus
Supplement, provided however that beginning 30 days after the date of this
Prospectus Supplement, each executive officer and director may sell or otherwise
dispose of up to an aggregate of 50,000 shares of Common Stock.
In connection with the offering, the Underwriters may purchase and sell the
Notes and the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Notes and the
Common Stock; and short positions created by the Underwriters involve the sale
by the Underwriters of a greater number of Notes than they are required to
purchase from the Company in the offering. The Underwriters also may impose a
penalty bid, whereby selling
S-32
<PAGE> 33
concessions allowed to broker-dealers in respect of the Notes sold in the
offering may be reclaimed by the Underwriters if such Notes are repurchased by
the Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Notes and the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the Nasdaq National Market, in the
over-the-counter market or otherwise.
Each of the Underwriters has performed investment banking and other
services for the Company and may do so from time to time in the future. The
Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, and
Goldman, Sachs & Co. has agreed to reimburse the Company for certain offering
expenses.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California and for the Underwriters by Shearman & Sterling, San Francisco,
California.
S-33
<PAGE> 34
PROSPECTUS $350,000,000
READ-RITE CORPORATION
DEBT SECURITIES AND COMMON STOCK
------------------------
Read-Rite Corporation ("Read-Rite" or the "Company") may from time to time
offer, together or separately, (1) its debt securities (the "Debt Securities"),
which may be either senior debt securities (the "Senior Debt Securities") or
subordinated debt securities (the "Subordinated Debt Securities") and (2) shares
of its common stock, par value $0.0001 per share (the "Common Stock"). The Debt
Securities and the Common Stock are collectively referred to herein as the
"Securities."
The Securities offered pursuant to this Prospectus may be issued in one or
more series or issuances and will be limited to $350,000,000 aggregate public
offering price (or its equivalent (based on the applicable exchange rate at the
time of the sale) in one or more foreign currencies, currency units or composite
currencies as shall be designated by the Company). Certain specific terms of the
particular Securities in respect of which this Prospectus is being delivered are
set forth in the accompanying Prospectus Supplement (the "Prospectus
Supplement"), including, where applicable, (i) in the case of Debt Securities,
the specific title, aggregate principal amount, the denomination, whether such
Debt Securities are secured or unsecured obligations, whether such Debt
Securities are senior or subordinated, maturity, premium, if any, the interest
rate (which may be fixed, floating or adjustable), the time and method of
calculating payment of interest, if any, the place or places where principal of
(and premium, if any) and interest, if any, on such Debt Securities will be
payable, the currency in which principal of (and premium, if any) and interest,
if any, on such Debt Securities will be payable, any terms of redemption at the
option of the Company or the Holder, any sinking fund provisions, terms for any
conversion into other Securities, the initial public offering price and other
special terms and (ii) in the case of Common Stock, the number of shares offered
for sale by the Company and the initial public offering price or method of
determining the initial public offering price. If so specified in the applicable
Prospectus Supplement, Debt Securities of a series may be issued in whole or in
part in the form of one or more temporary or permanent global securities. The
Company's Common Stock is listed on the Nasdaq National Market under the symbol
"RDRT." Any Common Stock sold pursuant to a Prospectus Supplement will be quoted
on such market.
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities, when issued, will be unsecured and will rank equally with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities, when issued, will be subordinated in right of payment to all Senior
Debt (as defined) of the Company, including any outstanding Senior Debt
Securities. See "Description of Debt Securities -- Subordination of Subordinated
Debt Securities."
The Prospectus Supplement may contain information concerning U.S. federal
income tax considerations, if applicable to the Securities offered.
The Securities may be sold directly, through agents, underwriters or
dealers as designated from time to time, or through a combination of such
methods. See "Plan of Distribution." If agents of the Company or any dealers or
underwriters are involved in the sale of the Securities in respect of which the
Prospectus is being delivered, the names of such agents, dealers or underwriters
and any applicable commissions or discounts, if any, are set forth in or may be
calculated from the Prospectus Supplement with respect to such Securities.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
SEE "RISK FACTORS" ON PAGE 3 OF THIS PROSPECTUS FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST 7, 1997.
<PAGE> 35
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at the Commission's
Regional Offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, NW, Washington, D.C.
20549, at prescribed rates. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the World Wide Web site is http://www.sec.gov. The Common Stock is listed for
quotation on the Nasdaq National Market. Reports and other information
concerning the Company may be inspected at the offices of the Nasdaq Stock
Market at 1735 K Street, NW, Washington, D.C. 20001.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities. This Prospectus which
constitutes part of the Registration Statement does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement and the exhibits and the
financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein, which may be inspected at the public
reference facilities of the Commission at the addresses set forth above or
through the Commission's World Wide Web site.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance are
qualified in all respects by reference to the copy of such contract or document
filed as an exhibit to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996;
(b) The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended December 31, 1996 and March 31, 1997, respectively;
(c) The Company's Registration Statement on Form 8-A filed with the
Commission on September 16, 1991; and
(d) The Company's Registration Statement on Form 8-A filed with the
Commission on March 6, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Registration Statement of which
this Prospectus forms a part and prior to the termination of the offering of the
Securities offered hereby shall be deemed to be incorporated by reference into
this Prospectus and be a part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement or this Prospectus to the extent that
a statement contained herein, in a Prospectus Supplement or in any other
2
<PAGE> 36
document subsequently filed with the Commission which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Registration Statement or this
Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Corporate Secretary, Read-Rite Corporation, 345 Los Coches Street,
Milpitas, California 95035, telephone (408) 262-6700.
THE COMPANY
Read-Rite Corporation, a Delaware corporation ("Read-Rite" or the
"Company"), is the world's largest independent supplier of magnetic recording
heads for rigid disk drives. The Company supplies magnetic recording heads as
head gimbal assemblies ("HGAs"), and for certain of its customers incorporates
multiple HGAs into headstack assemblies ("HSAs"). The Company's products are
sold primarily for use in 3.5" form factor rigid disk drives. Read-Rite believes
it supplies HGAs and HSAs for a broader range of disk drive products than any
other independent supplier.
Read-Rite was incorporated in California in 1981 and reincorporated in
Delaware in 1985. The Company's principal executive offices are located at 345
Los Coches Street, Milpitas, California 95035, and its telephone number is (408)
262-6700.
RISK FACTORS
Prior to making an investment decision with respect to the Securities
offered hereby, prospective investors should carefully consider the specific
factors set forth under the caption "Risk Factors" in the applicable Prospectus
Supplement pertaining thereto, together with all of the other information
appearing herein or therein or incorporated by reference herein, in light of
their particular investment objectives and financial circumstances.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying Prospectus Supplement, the
net proceeds to be received by the Company from the sale of the Securities will
be used for general corporate purposes, including capital expenditures and to
meet working capital needs. Pending such uses, the Company will invest the net
proceeds in interest-bearing securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company and its consolidated subsidiaries for the periods indicated. The
ratio of earnings to fixed charges represents the number of times that fixed
charges were covered by earnings. In computing the ratio, earnings represent
pretax income before minority interest and extraordinary credits plus fixed
charges. Fixed charges consist of interest expense and a portion of rental
expense which is considered representative of the interest factor. This table
will be updated in any Prospectus Supplements to the extent required.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED
---------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
----- ---- ---- ----- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges................ 16.2x 2.2x 5.0x 22.7x 1.3x 6.5x
</TABLE>
3
<PAGE> 37
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture (the "Senior
Indenture"), between the Company, as issuer, and State Street Bank and Trust
Company of California, N.A., as Trustee (the "Trustee"). The Subordinated Debt
Securities are to be issued under a separate Indenture (the "Subordinated
Indenture"), also between the Company, as issuer, and State Street Bank and
Trust Company of California, N.A., as Trustee. The Senior Indenture and
Subordinated Indenture are sometimes referred to collectively as the
"Indentures". A copy of the form of each Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Debt Securities
may be issued from time to time in one or more series. The particular terms of
each series, or of Debt Securities forming a part of a series, which are offered
by a Prospectus Supplement will be described in such Prospectus Supplement.
The following summaries of certain provisions of the Indentures do not
purport to be complete and are subject, and are qualified in their entirety by
reference, to all the provisions of the Indentures, including the definitions
therein of certain terms, and, with respect to any particular Debt Securities,
to the description of the terms thereof included in the Prospectus Supplement
relating thereto. Wherever particular Sections or defined terms of the
Indentures are referred to herein or in a Prospectus Supplement, such Sections
or defined terms are incorporated by reference herein or therein, as the case
may be.
GENERAL
The Indentures will provide that Debt Securities in separate series may be
issued thereunder from time to time without limitation as to aggregate principal
amount. The Company may specify a maximum aggregate principal amount for the
Debt Securities of any series. (Section 301) The Debt Securities are to have
such terms and provisions which are not inconsistent with the Indentures,
including as to maturity, principal and interest, as the Company may determine.
Unless otherwise specified in the applicable Prospectus Supplement, the Senior
Debt Securities when issued will be unsecured and unsubordinated obligations of
the Company and will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Company. The Subordinated Debt Securities
when issued will be subordinated in right of payment to the prior payment in
full of all Senior Debt of the Company, including any outstanding Senior Debt
Securities, as described under "Subordination of Subordinated Debt Securities"
and in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will set forth whether the Debt
Securities offered shall be Senior Debt Securities or Subordinated Debt
Securities, the price or prices at which the Debt Securities to be offered will
be issued and will describe the following terms of such Debt Securities: (1) the
title of such Debt Securities; (2) any limit on the aggregate principal amount
of such Debt Securities or the series of which they are a part; (3) the Person
to whom any interest on a Debt Security of the series shall be payable, if other
than the Person in whose name that Debt Security (or one or more predecessor
Debt Securities) is registered at the close of business on the Regular Record
Date for such interest; (4) the date or dates on which the principal of any of
such Debt Securities will be payable; (5) the rate or rates at which any of such
Debt Securities will bear interest, if any, the date or dates from which any
such interest will accrue, the Interest Payment Dates on which any such interest
will be payable and the Regular Record Date for any such interest payable on any
Interest Payment Date; (6) the place or places where the principal of and any
premium and interest on any of such Debt Securities will be payable; (7) the
period or periods within which, the price or prices at which and the terms and
conditions on which any of such Debt Securities may be redeemed, in whole or in
part, at the option of the Company; (8) the obligation, if any, of the Company
to redeem or purchase any of such Debt Securities pursuant to any sinking fund
or analogous provision or at the option of the Holder thereof, and the period or
periods within which, the price or prices at which and the terms and conditions
on which any of such Debt Securities will be redeemed or purchased, in whole or
in part, pursuant to any such obligation; (9) the denominations in which any of
such Debt Securities will be issuable, if other than denominations of $1,000 and
any integral multiple thereof; (10) if the amount of principal of or any premium
or interest on
4
<PAGE> 38
any of such Debt Securities may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts will be determined; (11)
if other than the currency of the United States of America, the currency,
currencies or currency units in which the principal of or any premium or
interest on any of such Debt Securities will be payable (and the manner in which
the equivalent of the principal amount thereof in the currency of the United
States of America is to be determined for any purpose, including for the purpose
of determining the principal amount deemed to be Outstanding at any time); (12)
if the principal of or any premium or interest on any of such Debt Securities is
to be payable, at the election of the Company or the Holder thereof, in one or
more currencies or currency units other than those in which such Debt Securities
are stated to be payable, the currency, currencies or currency units in which
payment of any such amount as to which such election is made will be payable,
the periods within which and the terms and conditions upon which such election
is to be made and the amount so payable (or the manner in which such amount is
to be determined); (13) if other than the entire principal amount thereof, the
portion of the principal amount of any of such Debt Securities which will be
payable upon declaration of acceleration of the Maturity thereof; (14) if the
principal amount payable at the Stated Maturity of any of such Debt Securities
will not be determinable as of any one or more dates prior to the Stated
Maturity, the amount which will be deemed to be such principal amount as of any
such date for any purpose, including the principal amount thereof which will be
due and payable upon any Maturity other than the Stated Maturity or which will
be deemed to be Outstanding as of any such date (or, in any such case, the
manner in which such deemed principal amount is to be determined); (15) if
applicable, that such Debt Securities, in whole or any specified part, are
defeasible pursuant to the provisions of the Indentures described under
"Defeasance and Covenant Defeasance-Defeasance and Discharge" or "Defeasance and
Covenant Defeasance-Defeasance of Certain Covenants," or under both such
captions; (16) if applicable, the terms of any right to convert Debt Securities
into shares of Common Stock of the Company or other securities or property; (17)
whether any of such Debt Securities will be issuable in whole or in part in the
form of one or more Global Securities and, if so, the respective Depositaries
for such Global Securities, the form of any legend or legends to be borne by any
such Global Security in addition to or in lieu of the legends referred to under
"Form, Exchange and Transfer" or "Global Securities" and, if different from
those described under such captions, any circumstances under which any such
Global Security may be exchanged in whole or in part for Securities registered,
and any transfer of such Global Security in whole or in part may be registered,
in the names of Persons other than the Depositary for such Global Security or
its nominee; (18) any addition to or change in the Events of Default applicable
to any of such Debt Securities and any change in the right of the Trustee or the
Holders to declare the principal amount of any of such Debt Securities due and
payable; (19) any addition to or change in the covenants in the Indentures
described under "Restrictive Covenants" applicable to any of such Debt
Securities; and (20) any other terms of such Debt Securities not inconsistent
with the provisions of the relevant Indenture. (Section 301)
Debt Securities, including Original Issue Discount Securities, may be sold
at a substantial discount below their principal amount. Certain special United
States federal income tax considerations (if any) applicable to Debt Securities
sold at an original issue discount will be described in the applicable
Prospectus Supplement under "United States Taxation". In addition, certain
special United States federal income tax or other considerations (if any)
applicable to any Debt Securities which are denominated in a currency or
currency unit other than United States dollars will be described in the
applicable Prospectus Supplement.
CONVERSION RIGHTS
The terms on which Debt Securities of any series are convertible into
Common Stock or other securities or property will be set forth in the Prospectus
Supplement relating thereto. Such terms shall include provisions as to whether
conversion is mandatory or at the option of the Holder and may include
provisions pursuant to which the number of shares of Common Stock or other
securities or property to be received by the Holders of Debt Securities upon
conversion would be calculated according to the market price of Common Stock or
other securities or property as of a time stated in the applicable Prospectus
Supplement. (Article Fourteen)
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SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt, including the Senior Debt Securities. In the event
of any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization, debt restructuring or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or any liquidation, dissolution or other winding up
of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or any assignment for the benefit of creditors or any
other marshaling of assets and liabilities of the Company, the holders of Senior
Debt will be entitled to receive payment in full of all amounts due or to become
due on or in respect of all Senior Debt in cash or other payment satisfactory to
the holders of Senior Debt before the Holders of the Subordinated Debt
Securities are entitled to receive any payment on account of principal of or any
premium or interest on the Subordinated Debt Securities or on account of the
purchase, redemption or other acquisition of Subordinated Debt Securities or
before the Company may make any sinking fund or defeasance payment to the
Trustee or any Paying Agent in accordance with the Subordinated Indenture.
Notwithstanding the foregoing, any amounts previously deposited by the Company
with the Trustee or Paying Agent in accordance with the subordination provisions
of Article Fifteen of the Subordinated Indenture at the time of such deposit may
be paid to the Holders of Subordinated Debt Securities ("Defeased Payments").
(Section 1502)
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are not holders of Senior Debt may recover less,
ratably, than holders of Senior Debt and may recover more, ratably, than the
Holders of the Subordinated Debt Securities.
In the event that any Subordinated Debt Securities are declared due and
payable before their Stated Maturity as a result of an Event of Default, the
holders of the Senior Debt outstanding at the time such Subordinated Debt
Securities so become due and payable will be entitled to receive payment in full
of all amounts due or to become due on or in respect of all Senior Debt in cash
or other payment satisfactory to the holders of Senior Debt before the Holders
of the Subordinated Debt Securities are entitled to receive any payment by the
Company on account of the principal of or any premium or interest on the
Subordinated Debt Securities or on account of the purchase, redemption or other
acquisition of Subordinated Debt Securities or before the Company may make any
sinking fund or defeasance payment to the Trustee or any Paying Agent in
accordance with the Subordinated Indenture (other than Defeased Payments). If
the payment of Subordinated Debt Securities is accelerated because of an Event
of Default, the Company is required under the Subordinated Indenture to promptly
notify holders of Senior Debt of the acceleration. (Section 1503)
The Company may not make any payment of principal (or premium, if any) or
interest, if any, in respect of the Subordinated Debt Securities or on account
of the purchase, redemption or other acquisition of Subordinated Debt Securities
or any payment constituting a sinking fund or defeasance payment to the Trustee
or Paying Agent in accordance with the Subordinated Indenture (other than
Defeased Payments) if (i) a default in the payment of principal, premium, if
any, or interest (including a default under any repurchase or redemption
obligation) or other amounts with respect to any Senior Debt occurs and is
continuing beyond the applicable grace period or (ii) any other event of default
occurs and is continuing with respect to Designated Senior Debt (as defined)
that permits the holders thereof or their representatives to accelerate the
maturity thereof, and the Trustee under the Subordinated Indenture receives a
notice of such default (a "Payment Blockage Notice") from the Company, a holder
of such Designated Senior Debt or other person permitted to give such notice
under the Subordinated Indenture. The Company may and shall resume payments on
the Subordinated Debt Securities and may purchase, redeem or otherwise acquire
the Subordinated Debt Securities and may make a sinking fund or defeasance
payment to the Trustee or Paying Agent in accordance with the Subordinated
Indenture (a) in the case of a payment default, upon the date on which such
default is cured or waived or ceases to
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exist and (b) in the case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or ceases to exist or 179 days
after the date on which the applicable Payment Blockage Notice is received
(unless the subordination provisions of Article Fifteen of the Indenture
prohibit the payment, distribution, purchase, redemption, acquisition, sinking
fund payment or defeasance payment at the time of such payment, distribution,
purchase, redemption, acquisition, sinking fund payment or defeasance payment
(including, without limitation, in the case of a nonpayment default referred to
in clause (ii) above, as a result of a payment default with respect to the
applicable Senior Debt as a consequence of the acceleration of the maturity
thereof or otherwise)). No new period of payment blockage may be commenced
unless and until 365 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee (unless such default was waived, cured or otherwise ceased to exist and
thereafter subsequently reoccurred) under the Subordinated Indenture shall be,
or be made, the basis for a subsequent Payment Blockage Notice. (Section 1504)
In the case of Subordinated Debt Securities that are convertible at the option
of the Holder, the payment, issuance and delivery of cash, property or
securities (other than stock and certain subordinated securities of the Company)
upon conversion of a Subordinated Debt Security will be deemed to constitute
payment on account of the principal of such Subordinated Debt Security. (Section
1515)
"Senior Debt" is defined in the Subordinated Indenture to mean: the
principal of (and premium, if any) and interest, if any (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company to the extent that such claim for
post-petition interest is allowed in such proceeding), on, rent with respect to,
and all fees and other amounts payable in connection with, the following,
whether absolute or contingent, secured or unsecured, due or to become due,
outstanding on the date of the Subordinated Indenture or thereafter created,
incurred or assumed: (a) indebtedness of the Company evidenced by a credit or
loan agreement, note, bond, debenture or other written obligation, (b) all
obligations of the Company for money borrowed, (c) all obligations of the
Company evidenced by a note or similar instrument given in connection with the
acquisition of any businesses, properties or assets of any kind, (d) obligations
of the Company (i) as lessee under leases required to be capitalized on the
balance sheet of the lessee under generally accepted accounting principles, (ii)
as lessee under other leases for facilities, equipment or related assets,
whether or not capitalized, entered into or leased after the date of the
Subordinated Indenture for financing purposes (as determined by the Company) or
(iii) under any lease or related document (including a purchase agreement) that
provides that the Company is contractually obligated to purchase or cause a
third party to purchase the leased property and the obligations of the Company
under such lease or related document to purchase or to cause a third party to
purchase such leased property, (e) all obligations of the Company under interest
rate and currency swaps, caps, floors, collars, hedge agreements, forward
contracts, or similar agreements or arrangements, (f) all obligations of the
Company with respect to letters of credit, bankers' acceptances or similar
facilities (including reimbursement obligations with respect to any of the
foregoing), (g) all obligations of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable
arising in the ordinary course of business), (h) all obligations of the type
referred to in clauses (a) through (g) above of another Person and all dividends
of another Person, the payment of which, in either case, the Company has assumed
or guaranteed (or in effect guaranteed through an agreement to purchase or
otherwise (including, without limitation, "take or pay" and similar
arrangements)), or for which the Company is responsible or liable, directly or
indirectly, jointly or severally, as obligor, guarantor or otherwise, or which
is secured by a lien on property of the Company, and all obligations of the
Company with respect thereto, and (i) renewals, extensions, modifications,
replacements, restatements and refundings of, or any indebtedness or obligation
issued in exchange for, any such indebtedness or obligation described in clauses
(a) through (h) of this paragraph; provided, however, that Senior Debt shall not
include the Subordinated Debt Securities or any such indebtedness or obligation
if the terms of such indebtedness or obligation (or the terms of the instrument
under which, or pursuant to which it is issued) expressly provide that such
indebtedness or obligation is not superior in right of payment to the
Subordinated Debt Securities.
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"Designated Senior Debt" means the Company's obligations under certain
existing Senior Debt (including its existing bank revolving credit agreement and
bank term loan agreement and the 7.15% Senior Notes due September 15, 2000) and
the Company's obligations under any other particular Senior Debt in which the
instrument creating or evidencing the same or the assumption or guarantee
thereof (or related agreements or documents to which the Company is a party)
expressly provides that such Senior Debt shall be "Designated Senior Debt" for
purposes of the Subordinated Indenture (provided that such instrument, agreement
or other document may place limitations and conditions on the right of such
Senior Debt to exercise the rights of Designated Senior Debt).
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt, which may include indebtedness that is senior to the
Subordinated Debt Securities, but subordinate to other obligations of the
Company. The Senior Debt Securities, when issued, will constitute Senior Debt.
The Prospectus Supplement may further describe the provisions, if any,
applicable to the subordination of the Subordinated Debt Securities of a
particular series.
FORM, EXCHANGE AND TRANSFER
The Debt Securities of each series will be issuable only in fully
registered form, without coupons, and, unless otherwise specified in the
applicable Prospectus Supplement, only in denominations of $1,000 and integral
multiples thereof. (Section 302)
At the option of the Holder, subject to the terms of the Indentures and the
limitations applicable to Global Securities, Debt Securities of each series will
be exchangeable for other Debt Securities of the same series of any authorized
denomination and of a like tenor and aggregate principal amount. (Section 305)
Subject to the terms of the Indentures and the limitations applicable to
Global Securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or with the form of
transfer endorsed thereon duly executed) at the office of the Security Registrar
or at the office of any transfer agent designated by the Company for such
purpose. No service charge will be made for any registration of transfer or
exchange of Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. The Company
has appointed the Trustee as Security Registrar. Any transfer agent (in addition
to the Security Registrar) initially designated by the Company for any Debt
Securities will be named in the applicable Prospectus Supplement. (Section 305)
The Company may at any time designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through
which any transfer agent acts, except that the Company will be required to
maintain a transfer agent in each Place of Payment for the Debt Securities of
each series. (Section 1002)
If the Debt Securities of any series (or of any series and specified tenor)
are to be redeemed in part, the Company will not be required to (i) issue,
register the transfer of or exchange any Debt Security of that series (or of
that series and specified tenor, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any Debt Security so selected for redemption, in whole
or in part, except the unredeemed portion of any such Debt Security being
redeemed in part. (Section 305)
GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more global securities which will have an aggregate
principal amount equal to that of the Debt Securities represented thereby (a
"Global Security"). Each Global Security will be registered in the name of a
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depositary (the "Depositary") or a nominee thereof identified in the applicable
Prospectus Supplement, will be deposited with such Depositary or nominee or a
custodian therefor and will bear a legend regarding the restrictions on
exchanges and registration of transfer thereof referred to below and any such
other matters as may be provided for pursuant to the Indentures.
Notwithstanding any provision of the Indentures or any Debt Security
described herein, no Global Security may be exchanged in whole or in part for
Debt Securities registered, and no transfer of a Global Security in whole or in
part may be registered, in the name of any Person other than the Depositary for
such Global Security or any nominee of such Depositary unless (i) the Depositary
has notified the Company that it is unwilling or unable to continue as
Depositary for such Global Security or has ceased to be qualified to act as such
as required by the Indentures, (ii) there shall have occurred and be continuing
an Event of Default with respect to the Debt Securities represented by such
Global Security or (iii) there shall exist such circumstances, if any, in
addition to or in lieu of those described above as may be described in the
applicable Prospectus Supplement. All securities issued in exchange for a Global
Security or any portion thereof will be registered in such names as the
Depositary may direct. (Sections 204 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities represented thereby for all purposes under the Debt Securities and
the Indentures. Except in the limited circumstances referred to above, owners of
beneficial interests in a Global Security will not be entitled to have such
Global Security or any Debt Securities represented thereby registered in their
names, will not receive or be entitled to receive physical delivery of
certificated Debt Securities in exchange therefor and will not be considered to
be the owners or Holders of such Global Security or any Debt Securities
represented thereby for any purpose under the Debt Securities or the Indentures.
All payments of principal of and any premium and interest on a Global Security
will be made to the Depositary or its nominee, as the case may be, as the Holder
thereof. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. These
laws may impair the ability to transfer beneficial interests in a Global
Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial interests
in a Global Security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interests) or any such participant (with respect
to interests of persons held by such participants on their behalf). Payments,
transfers, exchanges and others matters relating to beneficial interests in a
Global Security may be subject to various policies and procedures adopted by the
Depositary from time to time. None of the Company, the Trustee or any agent of
the Company or the Trustee will have any responsibility or liability for any
aspect of the Depositary's or any participant's records relating to, or for
payments made on account of, beneficial interests in a Global Security, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Company may designate for such purpose from time to time, except that at the
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option of the Company payment of any interest may be made by check mailed to the
address of the Person entitled thereto as such address appears in the Security
Register. Unless otherwise indicated in the applicable Prospectus Supplement,
the Corporate Trust Office of the Trustee will be designated as the Company's
sole Paying Agent for payments with respect to Debt Securities of each series.
Any other Paying Agents initially designated by the Company for the Debt
Securities of a particular series will be named in the applicable Prospectus
Supplement. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, except that the Company will be required to
maintain a Paying Agent in each Place of Payment for the Debt Securities of a
particular series. (Section 1002)
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed for a period ending the earlier of 10 business days prior to the date
such money would escheat to the State or at the end of two years after such
principal, premium or interest has become due and payable will be repaid to the
Company, and the Holder of such Debt Security thereafter may look only to the
Company for payment thereof. (Section 1003)
RESTRICTIVE COVENANTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
following provisions will apply to the Senior Debt Securities.
Limitations on Liens
The Senior Indenture will provide that the Company will not issue, incur,
create, assume or guarantee, and will not permit any Restricted Subsidiary (as
defined below) to issue, incur, create, assume or guarantee, any debt for
borrowed money secured by a mortgage, security interest, pledge, lien, charge or
other encumbrance ("mortgages") upon any Principal Property (as defined below)
of the Company or any Restricted Subsidiary or upon any shares of stock or
indebtedness of any Restricted Subsidiary (whether such Principal Property,
shares or indebtedness are now existing or owned or hereafter created or
acquired) without in any such case effectively providing concurrently with the
issuance, incurrence, creation, assumption or guarantee of any such secured
debt, or the grant of a mortgage with respect to any such indebtedness, that the
Senior Debt Securities (together with, if the Company shall so determine, any
other indebtedness of or guarantee by the Company or such Restricted Subsidiary
ranking equally with the Senior Debt Securities) shall be secured equally and
ratably with (or, at the option of the Company, prior to) such secured debt. The
foregoing restriction, however, will not apply to: (a) mortgages on property
existing at the time of acquisition thereof by the Company or any Subsidiary,
provided that such mortgages were in existence prior to the contemplation of
such acquisition; (b) mortgages on property, shares of stock or indebtedness or
other assets of any corporation existing at the time such corporation becomes a
Restricted Subsidiary, provided that such mortgages are not incurred in
anticipation of such corporation becoming a Restricted Subsidiary; (c) mortgages
on property, shares of stock or indebtedness existing at the time of acquisition
thereof by the Company or a Restricted Subsidiary or mortgages thereon to secure
the payment of all or any part of the purchase price thereof, or mortgages on
property, shares of stock or indebtedness to secure any indebtedness for
borrowed money incurred prior to, at the time of, or within 270 days after, the
latest of the acquisition thereof, or, in the case of property, the completion
of construction, the completion of improvements, or the commencement of
substantial commercial operation of such property for the purpose of financing
all or any part of the purchase price thereof, such construction, or the making
of such improvements; (d) mortgages to secure indebtedness owing to the Company
or to a Restricted Subsidiary; (e) mortgages existing at the date of the Senior
Indenture; (f) mortgages on property of a corporation existing at the time such
corporation is merged into or consolidated with the Company or a Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of a corporation as an entirety or substantially as an entirety to
the Company or a Restricted Subsidiary, provided that such mortgage was not
incurred in anticipation of such merger or consolidation or sale, lease or other
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disposition; (g) mortgages in favor of the United States or any State, territory
or possession thereof (or the District of Columbia), or any department, agency,
instrumentality or political subdivision of the United States or any State,
territory or possession thereof (or the District of Columbia), to secure
partial, progress, advance or other payments pursuant to any contract or statute
or to secure any indebtedness incurred for the purpose of financing all or any
part of the purchase price or the cost of constructing or improving the property
subject to such mortgages; (h) mortgages created in connection with the
acquisition of assets or a project financed with, and created to secure, a
Nonrecourse Obligation (as defined below); and (i) extensions, renewals,
refinancings or replacements of any mortgage referred to in the foregoing
clauses (a), (b), (c), (d), (e), (f), (g), and (h) provided, however, that any
mortgages permitted by any of the foregoing clauses (a), (b), (c), (d), (e),
(f), (g), and (h) shall not extend to or cover any property of the Company or
such Restricted Subsidiary, as the case may be, other than the property, if any,
specified in such clauses and improvements thereto, and provided further that
any refinancing or replacement of any mortgages permitted by the foregoing
clauses (g) and (h) shall be of the type referred to in such clauses (g) or (h),
as the case may be.
Notwithstanding the restrictions described in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee debt secured by a mortgage which would otherwise be subject
to such restrictions, without equally and ratably securing the Senior Debt
Securities, provided that after giving effect thereto, the aggregate amount of
all debt so secured by mortgages (not including mortgages permitted under
clauses (a) through (i) above) does not exceed 15% of the Consolidated Net
Tangible Assets (as defined below) of the Company as most recently determined on
or prior to such date.
Limitations on Sale and Lease-Back Transactions
The Senior Indenture will provide that the Company will not, nor will it
permit any Restricted Subsidiary to, enter into any Sale and Lease-Back
Transaction (as defined below) with respect to any Principal Property, other
than any such transaction involving a lease for a term of not more than three
years or any such transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries, unless (a) the Company or such Restricted
Subsidiary would be entitled to incur indebtedness secured by a mortgage on the
Principal Property involved in such transaction at least equal in amount to the
Attributable Debt (as defined below) with respect to such Sale and Lease-Back
Transaction, without equally and ratably securing the Senior Debt Securities,
pursuant to the limitation on liens in the Senior Indenture; or (b) the Company
shall apply an amount equal to the greater of the net proceeds of such sale or
the Attributable Debt with respect to such Sale and Lease-Back Transaction
within 180 days of such sale to either (or a combination of) the retirement
(other than any mandatory retirement, mandatory prepayment or sinking fund
payment or by payment at maturity) of debt for borrowed money of the Company or
a Restricted Subsidiary that matures more than 12 months after the creation of
such indebtedness or the purchase, construction or development of other
comparable property.
Certain Definitions Applicable to Covenants
The term "Attributable Debt" when used in connection with a Sale and
Lease-Back Transaction involving a Principal Property shall mean, at the time of
determination, the lesser of: (a) the fair value of such property (as determined
in good faith by the Board of Directors of the Company); or (b) the present
value of the total net amount of rent required to be paid under such lease
during the remaining term thereof (including any renewal term or period for
which such lease has been extended), discounted at the rate of interest set
forth or implicit in the terms of such lease or if not practicable to determine
such rate, the weighted average interest rate per annum (in the case of Original
Issue Discount Securities, the imputed interest rate) borne by the Senior Debt
Securities of each series outstanding pursuant to the Indenture compounded
semi-annually. For purposes of the foregoing definition, rent shall not include
amounts required to be paid by the lessee, whether or not designated as rent or
additional rent, on account of or contingent upon maintenance and repairs,
insurance, taxes, assessments, water rates and
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similar charges. In the case of any lease which is terminable by the lessee upon
the payment of a penalty, such net amount shall be the lesser of the net amount
determined assuming termination upon the first date such lease may be terminated
(in which case the net amount shall also include the amount of the penalty, but
no rent shall be considered as required to be paid under such lease subsequent
to the first date upon which it may be so terminated) and the net amount
determined assuming no such termination.
The term "Consolidated Net Tangible Assets" shall mean, as of any
particular time, total assets (excluding applicable reserves and other properly
deductible items) less: (a) total current liabilities, except for (1) notes and
loans payable; (2) current maturities of long-term debt and (3) current
maturities of obligations under capital leases; and (b) goodwill, patents and
trademarks, to the extent included in total assets; all as set forth on the most
recent consolidated balance sheet of the Company and its Restricted Subsidiaries
and computed in accordance with generally accepted accounting principles.
The term "Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any Restricted Subsidiary or (ii) the financing of a project
involving the development or expansion of properties of the Company or any
Restricted Subsidiary, as to which the obligee with respect to such indebtedness
or obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Restricted Subsidiary other than the assets which
were acquired with the proceeds of such transaction or the project financed with
the proceeds of such transaction (and the proceeds thereof).
The term "Principal Property" shall mean the land, land improvements,
buildings and fixtures (to the extent they constitute real property interests,
including any leasehold interest therein) constituting the principal corporate
office, any manufacturing facility or any distribution center (whether now owned
or hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b)
is located within any of the present 50 states of the United States (or the
District of Columbia); (c) has not been determined in good faith by the Board of
Directors of the Company not to be materially important to the total business
conducted by the Company and its Subsidiaries taken as a whole; and (d) has a
market value on the date as of which the determination is being made in excess
of 2.0% of Consolidated Net Tangible Assets of the Company as most recently
determined on or prior to such date.
The term "Restricted Subsidiary" shall mean any Subsidiary that owns any
Principal Property; provided, however, that the term "Restricted Subsidiary"
shall not include (a) any Subsidiary which is principally engaged in financing
receivables, or which is principally engaged in financing the Company's
operations outside the United States of America or (b) any Subsidiary less than
80% of the voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries if the common stock of such Subsidiary is traded on any
national securities exchange or quoted on the Nasdaq National Market or in the
over-the-counter market.
The term "Sale and Lease-Back Transaction" shall mean any arrangement with
any person providing for the leasing by the Company or any Restricted Subsidiary
of any Principal Property which property has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such person.
The term "Subsidiary" shall mean any corporation of which at least a
majority of the outstanding voting stock having the power to elect a majority of
the board of directors of such corporation is at the time owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries, and the accounts of which are
consolidated with those of the Company in the most recent consolidated financial
statements in accordance with generally accepted accounting principles. For the
purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indentures will provide that the Company may not consolidate with or
merge into any other Person (in a transaction in which the Company is not the
surviving corporation), or convey, transfer or lease its properties and assets
substantially as an entirety to, any Person (a "Successor Person"), unless (i)
the Successor Person (if any) is a corporation, limited liability company,
partnership, trust or other entity organized and existing under the laws of any
domestic jurisdiction and assumes the Company's obligations on the Debt
Securities and under the Indentures, (ii) immediately after giving effect to the
transaction, and treating any indebtedness which becomes an obligation of the
Company or any Subsidiary as a result of the transaction as having been incurred
by it at the time of the transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, shall
have occurred and be continuing, and (iii) certain other conditions are met.
(Section 801)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indentures with respect to Debt Securities of any series: (a) failure to pay
principal of or any premium on any Debt Security of that series when due,
whether or not such payment is prohibited by the subordination provisions of the
Subordinated Indenture; (b) failure to pay any interest on any Debt Securities
of that series when due, continued for 30 days, whether or not such payment is
prohibited by the subordination provisions of the Subordinated Indenture; (c)
failure to deposit any sinking fund payment, when due, in respect of any Debt
Security of that series, whether or not such deposit is prohibited by the
subordination provisions of the Subordinated Indenture; (d) failure to perform
any other covenant of the Company in the Indentures (other than a covenant
included in the Indentures solely for the benefit of a series other than that
series), continued for 60 days after written notice has been given by the
Trustee, or the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series, as provided in the Indentures; (e)
certain events in bankruptcy, insolvency or reorganization with respect to the
Company; and (f) any other Event of Default specified in the applicable
Prospectus Supplement. (Section 501)
The Indentures will provide that, if an Event of Default (other than an
Event of Default described in clause (e) above) with respect to the Debt
Securities of any series at the time Outstanding shall occur and be continuing,
either the Trustee or the Holders of at least 25% in aggregate principal amount
of the Outstanding Securities of that series by notice as provided in the
Indentures may declare the principal amount of the Debt Securities of that
series (or, in the case of any Debt Security that is an Original Issue Discount
Security or the principal amount of which is not then determinable, such portion
of the principal amount of such Debt Security, or such other amount in lieu of
such principal amount, as may be specified in the terms of such Debt Security)
to be due and payable immediately. If an Event of Default described in clause
(e) above with respect to the Debt Securities of any series at the time
Outstanding shall occur, the principal amount of all the Debt Securities of that
series (or, in the case of any such Original Issue Discount Security or other
Debt Security, such specified amount) will automatically, and without any action
by the Trustee or any Holder, become immediately due and payable. Any payment by
the Company on the Subordinated Debt Securities following any such acceleration
will be subject to the subordination provisions of Article Fifteen of the
Subordinated Indenture. After any such acceleration, but before a judgment or
decree based on acceleration, the Holders of a majority in aggregate principal
amount of the Outstanding Securities of that series may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the non-payment of accelerated principal (or other specified amount),
have been cured or waived as provided in the Indentures. (Section 502) For
information as to waiver of defaults, see "Modification and Waiver".
Subject to the provisions of the Indentures relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indentures at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the Outstanding Securities of any
series will have the right to direct the time, method and place of conducting
any
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proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Debt Securities of that
series. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indentures, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of that series, (ii) the Holders
of at least 25% in aggregate principal amount of the Outstanding Securities of
that series have made a written request, and such Holder or Holders have offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee and
(iii) the Trustee has failed to institute such proceeding, and has not received
from the Holders of a majority in aggregate principal amount of the Outstanding
Securities of that series a direction inconsistent with such request, within 60
days after such notice, request and offer. (Section 507) However, such
limitations do not apply to a suit instituted by a Holder of a Debt Security for
the enforcement of payment of the principal of or any premium or interest on
such Debt Security on or after the applicable due date specified in such Debt
Security. (Section 508)
The Indentures will include a covenant requiring the Company to furnish to
the Trustee annually a statement by certain of its officers as to whether or not
the Company, to their knowledge, is in default in the performance or observance
of any of the terms, provisions and conditions of the Indentures and, if so,
specifying all such known defaults. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Debt Security, (b) reduce the
principal amount of, or any premium or interest on, any Debt Security, (c)
reduce the amount of principal of an Original Issue Discount Security or any
other Debt Security payable upon acceleration of the Maturity thereof, (d)
change the place or currency of payment of principal of, or any premium or
interest on, any Debt Security, (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security, (f) in the
case of Subordinated Debt Securities, modify the subordination provisions in a
manner adverse to the Holders of the Subordinated Debt Securities, (g) reduce
the percentage in principal amount of Outstanding Securities of any series, the
consent of whose Holders is required for modification or amendment of the
Indentures, (h) reduce the percentage in principal amount of Outstanding
Securities of any series necessary for waiver of compliance with certain
provisions of the Indentures or for waiver of certain defaults or (i) modify
such provisions with respect to modification and waiver. (Section 902)
The Indentures will provide that the Holders of a majority in aggregate
principal amount of the Outstanding Securities of any series may waive, on
behalf of the Holders of all Debt Securities of such series, compliance by the
Company with certain restrictive provisions of the Indentures. (Sections 1010
and 1008 of the Senior Indenture and the Subordinated Indenture, respectively)
The Holders of a majority in principal amount of the Outstanding Securities of
any series may waive any past default under the Indentures, except a default in
the payment of principal, premium or interest and certain covenants and
provisions of the Indentures which cannot be amended without the consent of the
Holder of each Outstanding Security of such series affected. (Section 513)
The Indentures will provide that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given or taken any
direction, notice, consent, waiver or other action under the Indentures as of
any date, (i) the principal amount of an Original Issue Discount Security that
will be deemed to be Outstanding will be the amount of the principal thereof
that would be due and payable as of such date upon acceleration of the Maturity
thereof to such date, (ii) if, as of such date, the principal amount payable at
the Stated Maturity of a Debt Security is not determinable (for example,
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because it is based on an index), the principal amount of such Debt Security
deemed to be Outstanding as of such date will be an amount determined in the
manner prescribed for such Debt Security and (iii) the principal amount of a
Debt Security denominated in one or more foreign currencies or currency units
that will be deemed to be Outstanding will be the U.S. dollar equivalent,
determined as of such date in the manner prescribed for such Debt Security, of
the principal amount of such Debt Security (or, in the case of a Debt Security
described in clause (i) or (ii) above, of the amount described in such clause).
Certain Debt Securities, including those for whose payment or redemption money
has been deposited or set aside in trust for the Holders and those that have
been fully defeased pursuant to Section 1302, will not be deemed to be
Outstanding. (Section 101)
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Securities of any series entitled to give or take any direction,
notice, consent, waiver or other action under the Indentures, in the manner and
subject to the limitations provided in the Indentures. In certain limited
circumstances, the Trustee will be entitled to set a record date for action by
Holders. If a record date is set for any action to be taken by Holders of a
particular series, such action may be taken only by persons who are Holders of
Outstanding Securities of that series on the record date. To be effective, such
action must be taken by Holders of the requisite principal amount of such Debt
Securities within a specified period following the record date. For any
particular record date, this period will be 180 days or such other shorter
period as may be specified by the Company (or the Trustee, if it set the record
date), and may be shortened or lengthened (but not beyond 180 days) from time to
time. (Section 104)
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement, the
Company may elect, at its option at any time, to have the provisions of Section
1302, relating to defeasance and discharge of indebtedness, or Section 1303,
relating to defeasance of certain restrictive covenants in the Indentures,
applied to the Debt Securities of any series, or to any specified part of a
series. (Section 1301)
Defeasance and Discharge. The Indentures will provide that, upon the
Company's exercise of its option (if any) to have Section 1302 applied to any
Subordinated Debt Securities, the provisions of Article Fifteen of the
Subordinated Indenture relating to subordination will cease to be effective and,
with respect to any Debt Securities, the Company will be discharged from all its
obligations with respect thereto (except for certain obligations to exchange or
register the transfer of Debt Securities, to replace stolen, lost or mutilated
Debt Securities, to maintain paying agencies, to hold moneys for payment in
trust and, if applicable, to effect conversion of Debt Securities) upon the
deposit in trust for the benefit of the Holders of such Debt Securities of money
or U.S. Government Obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the principal of and any premium and
interest on such Debt Securities on the respective Stated Maturities in
accordance with the terms of the Indentures and such Debt Securities. Such
defeasance or discharge may occur only if, among other things, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that the Company
has received from, or there has been published by, the United States Internal
Revenue Service a ruling, or there has been a change in tax law, in either case
to the effect that Holders of such Debt Securities will not recognize gain or
loss for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit,
defeasance and discharge were not to occur. (Sections 1302 and 1304)
Defeasance of Certain Covenants. The Indentures will provide that, upon the
Company's exercise of its option (if any) to have Section 1303 applied to any
Debt Securities, the Company may omit to comply with certain restrictive
covenants, including those described under "Restrictive Covenants" and any that
may be described in the applicable Prospectus Supplement, and the occurrence of
certain Events of Default, which are described above in clause (d) (with respect
to such restrictive covenants) under "Events of Default" and any that may be
described in the applicable Prospectus Supplement, will be deemed not to be or
result in an Event of Default, in each case with respect to such Debt
Securities, and,
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in the case of the Subordinated Indenture, the provisions of Article Fifteen
relating to subordination will cease to be effective with respect to any
Subordinated Debt Securities. The Company, in order to exercise such option,
will be required to deposit, in trust for the benefit of the Holders of such
Debt Securities, money or U.S. Government Obligations, or both, which, through
the payment of principal and interest in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal of
and any premium and interest on such Debt Securities on the respective Stated
Maturities in accordance with the terms of the Indentures and such Debt
Securities. The Company will also be required, among other things, to deliver to
the Trustee an Opinion of Counsel to the effect that Holders of such Debt
Securities will not recognize gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will be subject
to federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit and defeasance were not to
occur. In the event the Company exercised this option with respect to any Debt
Securities and such Debt Securities were declared due and payable because of the
occurrence of any Event of Default, the amount of money and U.S. Government
Obligations so deposited in trust would be sufficient to pay amounts due on such
Debt Securities at the time of their respective Stated Maturities but may not be
sufficient to pay amounts due on such Debt Securities upon any acceleration
resulting from such Event of Default. In such case, the Company would remain
liable for such payments. (Sections 1303 and 1304)
The Company may, at its option, satisfy and discharge each of the
Indentures (except for certain obligations of the Company and the Trustee,
including, among others the obligations to apply money held in trust) when (i)
either (a) all Debt Securities under such Indenture previously authenticated and
delivered (other than (1) Debt Securities that were destroyed, lost or stolen
and that have been replaced or paid and (2) Debt Securities for the payment of
which money has been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust) have
been delivered to the Trustee for cancellation or discharge from such trust)
have been delivered to the Trustee for cancellation or (b) all such Debt
Securities under such Indenture not theretofore delivered to the Trustee for
cancellation (1) have become due and payable, (2) will become due and payable at
their Stated Maturity within one year, or (3) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name and at the expense of the
Company, and the Company has deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Debt Securities under such Indenture
not previously delivered to the Trustee for cancellation, for principal and any
premium and interest to the date of such deposit (in the case of Debt Securities
under such Indenture which have become due and payable) or to the Stated
Maturity or redemption date as the case may be, (ii) the Company has paid or
caused to be paid all other sums payable under such Indenture by the Company,
and (iii) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each to the effect that all conditions precedent relating
to the satisfaction and discharge of such Indenture have been satisfied.
NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. (Sections
101 and 106)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered as the absolute
owner thereof (whether or not such Debt Security may be overdue) for the purpose
of making payment and for all other purposes. (Section 308)
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the law of the State of New York. (Section 112)
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REGARDING THE TRUSTEE
The Indentures contain certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize for its own account on certain property received in
respect of any such claim as security or otherwise. (Section 613) The Trustee is
permitted to engage in certain other transactions; however, if it acquires any
conflicting interest and there is a default under the Securities of any series
for which the Trustee serves as trustee, the Trustee must eliminate such
conflict or resign. (Section 608)
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 160,000,000 shares
of common stock, $0.0001 par value per share ("Common Stock"), and 4,000,000
shares of preferred stock, $0.0001 par value per share (the "Preferred Stock").
Of such shares of Preferred Stock, 116,000 shares are designated as Series A
Participating Preferred Stock (the "Series A Preferred"). As of March 27, 1997,
there were 47,334,858 shares of Common Stock issued and outstanding and no
shares of Preferred Stock issued and outstanding. The following summary is
qualified in its entirety by reference to the Company's Charter and Bylaws.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior liquidation rights of the
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has designated 116,000 shares of the Preferred Stock
as Series A Preferred. See "Preferred Share Rights." The Board of Directors has
the authority to issue any undesignated shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without any
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying or preventing a change in control of the Company
without further action by the stockholders. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. The
Company has no present plans to issue any of the Preferred Stock except pursuant
to the Rights described below.
PREFERRED SHARE RIGHTS
On March 3, 1997, pursuant to a Preferred Shares Rights Agreement, (the
"Rights Agreement") between the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (the "Rights Agent"), the Company's Board of Directors
declared a dividend of one right (a "Right") to purchase one one-thousandth
share of the Company's Series A Preferred for each outstanding share of Common
Stock. The dividend is payable on March 17, 1997 (the "Record Date") to
stockholders of record as of the close of business on that day. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series A Preferred at an exercise price of $150.00 (the "Purchase
Price"), subject to adjustment.
The following summary of the principal terms of the Rights Agreement is a
general description only and is subject to the detailed terms and conditions of
the Rights Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Rights Evidenced by Common Share Certificates. The Rights will not be
exercisable until the Distribution Date (defined below). Certificates for the
Rights ("Rights Certificates") will not be sent to stockholders and the Rights
will attach to and trade only together with the Common Shares. Accordingly,
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Common Share certificates outstanding on the Record Date will evidence the
Rights related thereto, and Common Share certificates issued after the Record
Date will contain a notation incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the surrender or transfer of any certificates for Common Shares outstanding as
of the Record Date will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificate.
Distribution Date. The Rights will separate from the Common Shares, Rights
Certificates will be issued and the Rights will become exercisable upon the
earlier of: (i) ten (10) days (or such later date as may be determined by the
Board of Directors) following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding Common Shares, or (ii) ten (10) business days (or such later date as
may be determined by the Board of Directors) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding Common Shares. The earlier of such dates
is referred to as the "Distribution Date."
Issuance of Rights Certificates; Expiration of Rights. As soon as
practicable following the Distribution Date, separate Rights Certificates will
be mailed to holders of record of the Common Shares as of the close of business
on the Distribution Date and such separate Rights Certificates alone will
evidence the Rights from and after the Distribution Date. The Rights will expire
on the earliest of (i) March 17, 2007 (the "Final Expiration Date") or (ii)
redemption or exchange of the Rights as described below.
Initial Exercise of the Rights. Following the Distribution Date, and until
one of the further events described below, holders of the Rights will be
entitled to receive, upon exercise and the payment of the Purchase Price, one
one-thousandth of a share of Series A Preferred.
Right to Buy Company Common Shares. Unless the Rights are earlier redeemed,
in the event that an Acquiring Person becomes the beneficial owner of 20% or
more of the Company's Common Shares then outstanding, then proper provision will
be made so that each holder of a Right which has not theretofore been exercised
(other than Rights beneficially owned by the Acquiring Person or any affiliate
of the Acquiring Person, which will thereafter be void) will thereafter have the
right to receive, upon exercise, Common Shares having a value equal to two times
the Purchase Price. In the event that the Company does not have sufficient
Common Shares available for all Rights to be exercised, or the Board decides
that such action is necessary and not contrary to the interests of Rights
holders, the Company may instead substitute cash, assets or other securities for
the Common Shares for which the Rights would have been exercisable.
Right to Buy Acquiring Company Stock. Similarly, unless the Rights are
earlier redeemed, in the event that, after an Acquiring Person becomes the
beneficial owner of 20% or more of the Company's Common Shares then outstanding,
(i) the Company is acquired in a merger or other business combination
transaction, or (ii) 50% or more of the Company's consolidated assets or earning
power are sold (other than in transactions in the ordinary course of business),
each holder of a Right which has not previously been exercised (other than
Rights beneficially owned by the Acquiring Person or any affiliate of the
Acquiring Person, which will thereafter be void) will thereafter have the right
to receive, upon exercise, shares of common stock of the acquiring company
having a value equal to two times the Purchase Price.
Exchange Provision. At any time after the acquisition by an Acquiring
Person of beneficial ownership of 20% or more of the Company's outstanding
Common Shares and prior to the acquisition by any person or entity of beneficial
ownership of 50% or more of the Company's outstanding Common Shares, the Board
of Directors of the Company may exchange the Rights (other than Rights owned by
the Acquiring Person), in whole or in part, at an exchange ratio of one Common
Share per Right.
Redemption. At any time on or prior to the close of business on the earlier
of (i) the tenth day following the acquisition by an Acquiring Person of
beneficial ownership of 20% or more of the Company's
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Common Shares or such later date as may be determined by the Board of Directors
and publicly announced by the Company, or (ii) the Final Expiration Date of the
Rights, the Company may redeem the Rights in whole, but not in part, at a price
of $0.001 per Right.
Adjustments to Prevent Dilution. The Purchase Price payable, the number of
Rights, and the number of shares of Series A Preferred or Common Shares or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time in connection with certain dilutive issuances by
the Company as set forth in the Rights Agreement. With certain exceptions, no
adjustment in the Purchase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such Purchase Price.
Cash Paid Instead of Issuing Fractional Shares. No fractional portion less
than integral multiples of one Common Share or one one-thousandth of a share of
Series A Preferred will be issued upon exercise of a Right and in lieu thereof,
an adjustment in cash will be made based on the market price of the security to
be so issued on the last trading date prior to the date of exercise.
No Stockholders' Rights Prior to Exercise. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of the Company
(other than any rights resulting from such holder's ownership of Common Shares),
including, without limitation, the right to vote or to receive dividends.
Amendment of Rights Agreement. The provisions of the Rights Agreement may
be supplemented or amended by the Board of Directors in any manner prior to the
close of business on the date the Rights separate from the Common Shares and
become exercisable. After such date, the provisions of the Rights Agreement may
be amended by the Board in order to cure any ambiguity, defect or inconsistency,
to make changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or to shorten or lengthen any
time period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable.
Rights and Preferences of the Series A Preferred. Series A Preferred
purchasable upon exercise of the Rights will not be redeemable. Each share of
Series A Preferred will be entitled to an aggregate dividend of 1,000 times the
dividend declared per Common Share. In the event of liquidation, the holders of
the Series A Preferred will be entitled to 1,000 times the amount paid per
Common Share plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment.
Each share of Series A Preferred will have 1,000 votes, voting together with the
Common Shares. These rights are protected by customary anti-dilution provisions.
Because of the nature of the dividend, liquidation and voting rights of the
shares of Series A Preferred, the value of the one one-thousandth interest in a
share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one Common Share.
Certain Anti-takeover Effects. The Rights may have the effect of rendering
more difficult or discouraging an acquisition of the Company deemed undesirable
by the Board of Directors. The Rights may cause substantial dilution to a person
or group that attempts to acquire the Company on terms or in a manner not
approved by the Company's Board of Directors, except pursuant to an offer
conditioned upon the negation, purchase or redemption of the Rights.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three (3) years following the time
that such stockholder became an interested stockholder, unless: (i) prior to
such time, the Board of Directors of the corporation approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced,
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excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and also officers and (b) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) at or subsequent to such time,
the business combination is approved by the Board of Directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
Section 203 defines "business combination" to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholders Services, L.L.C.
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PLAN OF DISTRIBUTION
The Company may sell the Securities separately or together, (i) to one or
more underwriters or dealers for public offering and sale by them and (ii) to
investors directly or through agents. The distribution of the Securities may be
effected from time to time in one or more transactions at a fixed price or
prices (which may be changed from time to time), at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Each Prospectus Supplement will describe the method of
distribution of the Securities offered thereby.
In connection with the sale of the Securities, underwriters, dealers or
agents may receive compensation from the Company or from purchasers of the
Securities for whom they may act as agents, in the form of discounts,
concessions or commissions. The underwriters, dealers or agents which
participate in the distribution of the Securities may be deemed to be
underwriters under the Securities Act and any discounts or commissions received
by them and any profit on the resale of the Securities received by them may be
deemed to be underwriting discounts and commissions thereunder. Any such
underwriter, dealer or agent will be identified and any such compensation
received from the Company will be described in the Prospectus Supplement. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
Under agreements that may be entered into with the Company, underwriters,
dealers and agents may be entitled to indemnification by the Company against
certain civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters, dealers or agents
may be required to make in respect thereof.
The Company may grant underwriters who participate in the distribution of
Securities an option to purchase additional Securities to cover over-allotments,
if any.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with or perform services for the Company in the
ordinary course of business.
LEGAL OPINIONS
The validity of the Securities is being passed upon for the Company by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California.
EXPERTS
The consolidated financial statements of Read-Rite Corporation appearing in
Read-Rite Corporation's Annual Report (Form 10-K) for the year ended September
30, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
22
<PAGE> 56
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... S-3
Risk Factors.......................... S-7
Use of Proceeds....................... S-15
Capitalization........................ S-16
Price Range of Common Stock........... S-17
Dividend Policy....................... S-17
Selected Consolidated Financial
Data................................ S-18
Description of Notes.................. S-20
Certain Federal Income Tax
Considerations...................... S-27
Underwriting.......................... S-32
Legal Matters......................... S-33
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Risk Factors.......................... 3
Use of Proceeds....................... 3
Ratio of Earnings to Fixed Charges.... 3
Description of Debt Securities........ 4
Description of Capital Stock.......... 18
Plan of Distribution.................. 22
Legal Opinions........................ 22
Experts............................... 22
</TABLE>
======================================================
======================================================
$300,000,000
[READ-RITE CORPORATION LOGO]
6 1/2% CONVERTIBLE
SUBORDINATED NOTES
DUE SEPTEMBER 1, 2004
------------------
PROSPECTUS SUPPLEMENT
------------------
GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST
SMITH BARNEY INC.
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