READ RITE CORP /DE/, SC TO-I/A, 2000-03-21

READ RITE CORP /DE/
SC TO-I/A, 2000-03-21
ELECTRONIC COMPONENTS, NEC

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

-------------------

AMENDMENT NO. 7
TO
SCHEDULE TO

Tender Offer Statement
Under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act Of 1934

READ-RITE CORPORATION
(Name of Subject Company (issuer))

READ-RITE CORPORATION, as issuer
(Names of Filing Persons (identifying status as offeror, issuer or other
person))

6 1/2% CONVERTIBLE SUBORDINATED NOTES DUE SEPTEMBER 1, 2004
(Title of Class of Securities)

755246AA3
(CUSIP Number of Class Securities)

-------------------

Cyril J. Yansouni
Chief Executive Officer
READ-RITE CORPORATION
345 Los Coches Street
Milpitas, California 95035
(408) 262-6700
(Name, Address and Telephone Numbers of Person Authorized to Receive Notices
and Communications on Behalf of Filing Persons)

-------------------

Copies to:

John A. Fore, Esq. Abigail Arms, Esq
WILSON SONSINI GOODRICH & ROSATI Shearman & Sterling
650 Page Mill Road 801 Pennsylvania Avenue, N.W.
Palo Alto, CA 94304 Washington, D.C. 20004
(650) 493-9300 (202) 508-8000

-------------------

<PAGE>

CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
Transaction Valuation Amount of filing fee
- --------------------------------------------------------------------------------
$70,725,000(1) $18,672
- --------------------------------------------------------------------------------
(1) Pursuant to Rule 457(f)(1) under the Securities Act of 1933, this amount is
the market value as of January 25, 2000 of the maximum amount of 6 1/2%
Convertible Subordinated Notes due September 1, 2004 that may be received by the
Registrant from tendering holders in the exchange offer.

Registration fee previously paid in connection with the Registrant's
Registration Statement on Form S-4 filed January 27, 2000.

[X] Check the box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.

Amount Previously Paid: $77,147
Form or Registration No.: S-4
(File No. 333-95527)
Filing Party: Read-Rite Corporation
Date Filed: January 27, 2000

[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.

Check the appropriate boxes below to designate any transactions to which the
statement relates:

[_] third-party tender offer subject to Rule 14d-1.

[X] issuer tender offer subject to Rule 13e-4.

[_] going-private transaction subject to Rule 13e-3.

[_] amendment to Schedule 13D under Rule 13d-2.

Check the following box if the filing is a final amendment reporting the results
of the tender offer: [_]

-2-
<PAGE>

INTRODUCTION

This Amendment No. 7 to a Tender Offer Statement on Schedule TO (the
"Statement") amends and supplements the Statement originally filed by Read-Rite
Corporation on February 7, 2000 and amended on February 10, 2000, February 28,
2000, March 1, 2000, March 6, 2000, March 8, 2000, and March 10, 2000 in
connection with its offer to exchange up to $345,000,000 of its 6 1/2%
Convertible Subordinated Notes due September 1, 2004 (or such lesser number as
are properly tendered) into its 10% Convertible Subordinated Notes due September
1, 2004, upon the terms and subject to the conditions set forth in Read-Rite
Corporation's Registration Statement on Form S-4 (File No. 333-95527) filed with
the Securities and Exchange Commission on January 27, 2000, and as amended on
February 7, 2000 and March 1, 2000 (collectively, the "Registration Statement").
The Registration Statement and the exhibits thereto are incorporated by
reference in this Schedule TO in answer to some of the items required in this
Schedule TO.

The Registrant hereby amends and supplements the Schedule TO as follows:

-3-
<PAGE>

Item 12. Exhibits.
--------

Item 12 is hereby amended and supplemented as follows:

(a)(17) Press release issued March 16, 2000.

(a)(18) Final Prospectus, dated March 15, 2000.

-4-
<PAGE>

SIGNATURE

After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.

Dated: March 20, 2000 READ-RITE CORPORATION

By: /s/ Andrew C. Holcomb
--------------------------------
Name: Andrew C. Holcomb
Title: Vice President and General
Counsel

-5-

<PAGE>

Exhibit (a)(17)

Investors are urged to read all documents filed with the Commission related to
this offer, including the Schedule TO to which this press release is being filed
as an exhibit and the S-4 (file number 333-95527) relating to the exchange
offer, as they contain important information. Investors can receive copies of
any of the documents related to this offer for free at the Commission's web site
and they are available for free from the registrant by writing or telephoning it
at the following address:

Investor Relation's Department
Read-Rite Corporation
345 Los Coches Street
Milpitas, California 95035
(510) 683-7676

Investors can also receive information concerning the exchange offer by calling
the information agent, Georgeson Shareholder Communications Inc., at (800) 223-
2064 or the dealer manger, Robertson Stephens, at (800) 234-2663.

FOR IMMEDIATE RELEASE
March 16, 2000

PRESS RELEASE ISSUED MARCH 16, 2000

Read-Rite Announces Successful Exchange Offer With
$325 Million, or 94%, Of Notes Tendered and the Placement of Over $50
Million in New Notes; Bank Group to Lift Blocking Notice

MILPITAS, Calif., March 16 /PRNewswire/ -- Read-Rite Corporation (Nasdaq: RDRT -
news) today announced that approximately $325 million in aggregate principal
value of the company's 6 1/2% convertible subordinated notes due 2004, or
approximately 94% of the total, were tendered in its exchange offer which
expired on March 15, 2000. The company also announced the placement of over $50
million in new 10% convertible subordinated notes to bondholders who
participated in the exchange. In addition, based on an agreement the company
previously reached with the bank group regarding the lifting of the blocking
notice based on the outcome of the company's exchange offer, an agent for the
bank group has confirmed that the banks will lift the blocking notice and permit
the company to make the March 1 interest payment on the approximately $20
million aggregate principal value of 6 1/2% convertible subordinated notes which
will remain outstanding after the closing of the exchange offer.

Read-Rite Corporation is one of the world's leading independent manufacturers of
magnetic recording heads, head gimbal assemblies (HGAs) and head stack
assemblies (HSAs) for disk drives and tape drives. The company is headquartered
in Milpitas, California and has operations in Japan, Thailand, the Philippines
and Singapore. The company's home page on the world wide web can be reached at
http://www.readrite.com.

<PAGE>

EXHIBIT (a)(18)
Filed Pursuant to Rule 424(b)(5)
(S-4) Registration No. 333-95527

PROSPECTUS

[LOGO OF READ-RITE CORPORATION]

---------------------

Exchange Offer for

10% Convertible Subordinated Notes due September 1, 2004 for its
6 1/2% Convertible Subordinated Notes due September 1, 2004

---------------------

If you elect to participate in the exchange offer, you will receive from us
$1,000 principal amount of the 10% Convertible Subordinated Notes due September
1, 2004 for each $2,000 principal amount of the 6 1/2% Convertible Subordinated
Notes due September 1, 2004. In addition, if we do not make the interest
payment due March 1, 2000 on the 6 1/2% Convertible Subordinated Notes due
September 1, 2004 that you tender in the exchange offer, you will receive a
payment, in cash or in common stock at our election, of $50 for each $1,000
principal amount of the 10% Convertible Subordinated Notes due September 1,
2004 issued to you in the exchange offer. If you participate in the exchange
offer, you will have the right to participate in the cash offer under which we
are offering of additional 10% Convertible Subordinated Notes due September 1,
2004. We will issue approximately $54.1 million of additional 10% Convertible
Subordinated Notes due September 1, 2004 in connection with the cash offer.

This exchange offer will expire at 12:00 midnight, Eastern Standard Time,
on March 15, 2000, unless we extend the offer.

Our common stock is traded on The Nasdaq National Market under the symbol
"RDRT." On March 15, 2000, the last reported sale price from our common stock
on The Nasdaq National Market was $4 17/32 per share.

We mailed this prospectus and the letter of transmittal on February 8,
2000.

---------------------

Please see "Risk Factors" beginning on page 11 for a discussion of factors
that you should consider before you decide to participate in this exchange
offer or purchase additional exchange notes.

---------------------

We have retained Georgeson Shareholder Communications Inc. as our
information agent to assist you in connection with the exchange offer. You may
call Georgeson Shareholder Communications Inc., at (800) 223-2064, toll free,
to receive additional documents and to ask questions.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

---------------------

The Dealer Manager for the Exchange Offer:

Robertson Stephens

This prospectus is dated March 15, 2000
<PAGE>

Filed Pursuant to Rule 424(b)(5)
(S-3) Registration No. 333-96305

PROSPECTUS

[LOGO OF READ-RITE CORPORATION]

---------------------

Exchange Offer for

10% Convertible Subordinated Notes due September 1, 2004 for its
6 1/2% Convertible Subordinated Notes due September 1, 2004

---------------------

This exchange offer will expire at 12:00 midnight, Eastern Standard Time,
on March 15, 2000, unless we extend the offer.

We mailed this prospectus and the letter of transmittal on February 8,
2000.

---------------------

Please see "Risk Factors" beginning on page 11 for a discussion of factors
that you should consider before you decide to participate in this exchange
offer or purchase additional exchange notes.

---------------------

The Dealer Manager for the Exchange Offer:

Robertson Stephens

This prospectus is dated March 15, 2000
<PAGE>

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date of this prospectus.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary ................................................................... 4
Risk Factors .............................................................. 11
Special Note Regarding Forward Looking Statements ......................... 23
Use of Proceeds ........................................................... 24
Price Range of Common Stock ............................................... 24
Dividend Policy ........................................................... 24
Capitalization ............................................................ 25
Selected Consolidated Financial Data ...................................... 26
Bank Facility Refinancing.................................................. 28
The Exchange Offer ........................................................ 31
Cash Offer for Additional Exchange Notes................................... 39
Description of Exchange Notes ............................................. 40
Description of Existing Notes ............................................. 51
Description of Capital Stock .............................................. 61
Book-Entry System--The Depository Trust Company ........................... 64
Federal Income Tax Considerations ......................................... 66
Plan of Distribution ...................................................... 71
Legal Matters ............................................................. 73
Experts ................................................................... 73
Where You Can Find Additional Information ................................. 73
</TABLE>

3
<PAGE>

SUMMARY

This summary does not contain all the information you should consider
before exchanging your existing notes for the exchange notes or investing in
additional exchange notes. You should read this entire prospectus carefully.
Unless otherwise indicated, "we," "us," "our" and similar terms refer to Read-
Rite Corporation.

Our company

Read-Rite Corporation is one of the world's largest independent suppliers
of magnetic recording heads for the hard disk drive market. Recording heads are
miniature components that read and write information to and from a hard-disk
drive or other storage medium. We design, manufacture and market magnetic
recording heads as head gimbal assemblies and incorporate multiple head gimbal
assemblies into headstack assemblies. A head gimbal assembly (generally
referred to as an "HGA") is a recording head bonded to a small metal suspension
that holds the head in position above or beneath a rotating disk in a computer
hard drive. Head stack assemblies (or "HSA") are sets of head gimbal assemblies
stacked together for installation in a computer hard drive. Our products are
sold primarily for use in 3.5" form factor hard disk drives. We also supply
magnetic recording heads for the tape drive market.

Our principal wafer manufacturing facility is located in Fremont,
California. We also have a secondary wafer fabrication facility at Read-Rite
SMI Corporation, our joint venture in Japan with Sumitomo Metal Industries,
Ltd. near Osaka, Japan. Our primary HGA fabrication and assembly facility is in
Bangkok, Thailand. Our primary HSA facilities are in Manila, Philippines and
Bangkok, Thailand. We manufacture wafers for tape heads at our Milpitas
facility, and perform device fabrication, assembly and test operations in the
Philippines.

We were incorporated in California in 1981 and reincorporated in Delaware
in 1985. Our principal office is located at 345 Los Coches Street, Milpitas,
California 95035, and our telephone number is (408) 262-6700. Our world wide
web address is http://www.readrite.com. Information on our web site does not
constitute part of this prospectus.

Company business strategy

Technology leadership, expansion of our customer and product base and
improved manufacturing efficiencies are extremely important to our future
success. 1999 was a year of transition, as our industry moved from one
recording head technology, called magnetoresistive or "MR technology," to a
more advanced technology, called giant magnetoresistive or "GMR technology." We
completed our GMR transition in the December 1999 quarter, producing over 10
million GMR heads. 1999 was also the year we firmly established Read-Rite as a
technology leader, announcing several world record setting areal density
demonstrations. Areal density refers to the amount of data which can be stored
on disks in computer hard disk drives. In the latest demonstration, in November
1999, we achieved a recording density equivalent to 50 GB per platter, which is
approximately five times the recording density of today's products. This
technology leadership has allowed us, in the quarter ending December 1999, to
ship GMR products to 5 major customers on 8 different mainstream desktop
programs. As we enter the March 2000 quarter, the strong demand for our current
products and the qualification status on new programs with our customers
positions us well for expected unit and revenue growth throughout fiscal year
2000. We remained focused on the cost structure at our factories and will
continue to take appropriate actions to improve the efficiency and productivity
of our operations.

4
<PAGE>

Company's financing strategy

Effective February 1, 2000, we obtained from our bank group a new waiver,
forebearance and amendment to our bank agreement to permit us to issue the
exchange notes in the exchange offer and to sell up to $50 million of
additional exchange notes. This waiver expires on May 25, 2000, and will be
extended to August 25, 2000 if, in connection with the sale of the additional
notes, we and a majority of the banks have reached agreement as to:

(1) the lifting of the blockage notice, if any, on the existing notes;

(2) the payment by us of the interest to the holders of existing notes that
do not tender their existing notes in the exchange offer;

(3) the percentage of the proceeds of the cash raised, if any, from the
sale of the additional exchange notes, to be paid to the banks under
the bank facility; and

(4) other terms and conditions with respect to interest rates, fees and
covenants under the bank agreement.

The banks blocked the regularly scheduled interest payment on the existing
notes due on March 1, 2000. Our current plan is to complete the exchange offer,
raise additional cash proceeds from the sale of additional exchange notes and
refinance the existing bank facility as soon as possible.

On February 24, 2000, the banks under our bank facility issued a notice to
State Street Bank and Trust Company of California, N.A., as trustee under the
indenture for our outstanding 6 1/2% Convertible Subordinated Notes due
September 1, 2004, exercising their rights as holders of senior indebtedness
under our bank facility to block the scheduled payment of interest on March 1,
2000. On February 25, we reached an agreement with the banks on the terms under
which the banks will remove their blockage of the interest payment due on March
1, 2000 with respect to our outstanding existing notes. Under the terms of the
agreement, the banks will agree to lift the blockage notice on the existing
notes and permit the payment of interest due on the existing notes not
submitted in the exchange offer if the following conditions are met:

(1) 66 2/3% of the existing notes are exchanged for the 10% Convertible
Subordinated Notes due September 1, 2004 in the exchange offer;

(2) we receive at least $13.7 million in proceeds from the sale of the
additional exchange notes;

(3) the proceeds from the sale of the additional exchange notes is first
used to pay any interest due on the existing notes not tendered in the
exchange offer and to make a $10 million reduction in permanent
commitment on the revolver portion of our bank facility from $35
million to $25 million;

(4) after the payments made in (3) above, we shall pay 40% of all proceeds
from the sale of any additional exchange notes in excess of the $13.7
million, such payment not to exceed $10 million, to the banks under our
bank facility to permanently reduce the commitment under the revolver
portion of the bank facility from $25 million to $15 million;

(5) we restructure the payment of interest on all loans under the bank
facility from quarterly to monthly; and

(6) we agree to use our best efforts to repay or refinance the debt under
our bank facility.

In addition, based on the above agreement, an agent for the bank group
confirmed that the banks will lift the blocking notice and permit us to make
the interest payment on the approximately $20 million aggregate principal
amount of existing notes not tendered in the exchange offer.

Please read "Bank Facility Refinancing" for a detailed discussion of the
bank facility and our proposal to refinance our bank facility.

In addition, you should also carefully review the matters described under
"Risk Factors" to understand the risks affecting our ability to successfully
complete the exchange offer, raise additional money and refinance the bank
facility.

5
<PAGE>

The Exchange Offer

Terms Of The Exchange Offer

We have summarized the terms of the exchange offer in this section. Before
you decide whether to tender your existing notes in this offer, you should read
the detailed description of the offer under "The Exchange Offer" and of the
exchange notes under "Description of Exchange Notes" for further information.

Terms of the exchange We are offering up to $172,500,000 aggregate
offer....................... principal amount of new 10% Convertible
Subordinated Notes due September 1, 2004 for up
to $345,000,000 aggregate principal amount of 6
1/2% Convertible Subordinated Notes due September
1, 2004. We are offering to exchange $1,000
principal amount of exchange notes for each
$2,000 principal amount of existing notes. In
addition, if we do not make the interest payment
due March 1, 2000 on the existing notes that you
tender in the exchange offer, you will receive a
payment, in cash or in common stock at our
election, of $50 for each $1,000 principal amount
of the exchange notes issued to you in the
exchange offer. If we elect to make this payment
in common stock, the shares of common stock will
be valued at 90% of the average of the closing
prices for the five trading days immediately
preceding the second trading day prior to the
interest payment date. You may tender all, some
or none of your existing notes. We may pay
interest on the exchange notes with shares of our
common stock, par value $0.0001 per share, or in
cash, solely at our option.

Conversion price............ The exchange notes will be convertible at any
time prior to maturity at a conversion price of
$4.51 per share, subject to adjustment.

Expiration date; extension;
termination...............
The exchange offer and withdrawal rights will
expire at 12:00 midnight, Eastern Standard Time,
on March 15, 2000, or any subsequent date to
which we extend it. We may extend the expiration
date for any reason. In the case of any
extension, we will issue a press release or other
public announcement no later than 9:00 a.m.,
Eastern Standard Time, on the next business day
after the previously scheduled expiration date.
You must tender your existing notes prior to this
date if you wish to participate in the offer. We
have the right to:

. extend the expiration date of the exchange
offer and retain all tendered existing notes,
subject to your right to withdraw your
tendered notes, or

. waive any condition or otherwise amend the
terms of the exchange offer in any respect,
other than the condition that the registration
statement be declared effective.

6
<PAGE>

Conditions to the exchange The exchange offer is subject to the registration
offer....................... statement and any post-effective amendment to the
registration statement covering the exchange
notes being effective under the Securities Act of
1933. The offer also is subject to customary
conditions, which we may waive.

Please read "The Exchange Offer--Conditions for
completion of the exchange offer" for more
information.

Withdrawal rights........... You may withdraw a tender of your existing notes
at any time before the exchange offer expires by
delivering a written notice of withdrawal to
Norwest Bank Minnesota, National Association, the
exchange agent, before the expiration date. If
you change your mind, you may retender your
existing notes by again following the exchange
offer procedures before the exchange offer
expires.

Procedures for tendering
existing notes............
If you hold existing notes through a broker,
dealer, commercial bank, trust company or other
nominee, you should contact that person promptly
if you wish to tender your existing notes.
Tenders of your existing notes will be effected
by book-entry transfers through The Depository
Trust Company.

If you hold your existing notes through a broker,
dealer, commercial bank, trust company or other
nominee, you also may comply with the procedures
for guaranteed delivery.

Please do not send letters of transmittal to us.
You should send those letters to Norwest Bank
Minnesota, National Association, the exchange
agent. The exchange agent can answer your
questions regarding how to tender your existing
notes.

Interest.................... Interest on the exchange notes will be payable in
cash or, at our option, in common stock at a rate
of 10% per year, payable on March 1 and September
1 of each year.

Exchange agent.............. Norwest Bank Minnesota, National Association

Information agent........... Georgeson Shareholder Communications Inc.

For information regarding the exchange offer,
please call (toll free (800) 223-2064; collect
(212) 440-9800).

Dealer manager.............. Robertson Stephens

To ascertain the conversion price to be used two
days prior to the expiration date, please call
(800) 234-2663.

Risk factors................ You should consider carefully the matters
described under "Risk Factors," as well as other
information set forth in this prospectus and in
the letter of transmittal.

7
<PAGE>

Deciding whether to
participate in the
exchange offer............
Neither we nor our officers or directors make any
recommendation as to whether you should tender or
refrain from tendering all or any portion of your
existing notes in the exchange offer. Further, we
have not authorized anyone to make any such
recommendation. You must make your own decision
whether to tender your existing notes in the
exchange offer and, if so, the aggregate amount
of existing notes to tender after reading this
prospectus and the letter of transmittal and
consulting with your advisers, if any, based on
your own financial position and requirements.

Consequences of not
exchanging existing
notes..................... If you do not exchange your existing notes in the
exchange offer, your existing notes will be
subordinate to the exchange notes. Further, the
liquidity and trading market for existing notes
not tendered in the exchange could be adversely
affected to the extent existing notes are
tendered and accepted in the exchange offer.

Cash offer.................. If you tender some or all of your existing notes
in the exchange offer, you may purchase
additional exchange notes in the cash offer
described below.

Cash Offer

Cash offer for additional
exchange notes............
We will issue approximately $54.1 million
aggregate of additional exchange notes for cash
pursuant to the cash offer. The discussion under
the heading "Cash Offer For Additional Exchange
Notes" provides further information regarding the
cash offer.

Use of proceeds............. If the interest payment on the existing notes not
tendered in the exchange has not been paid or
provided for by us prior to the closing date, a
purchaser of the additional exchange notes will
deposit the purchase price for the additional
exchange notes and we will deposit a global
security for the additional exchange notes with
the escrow agent, which will then be released
from escrow if the following two conditions are
met on or prior to March 30, 2000:

. the blockage notice, if any, on the existing
notes has been lifted by the banks under our
bank facility, allowing us to make the payment
of interest on the existing notes not tendered
in the exchange offer; and

. we have agreed with the banks under our bank
facility as to the percentage of the escrow
proceeds to be paid to the banks.

Norwest Bank Minnesota will be the escrow agent.
Robertson Stephens will act as agent for the
purchasers under the Escrow Agreement. If these
conditions are met, remaining proceeds from the
escrow after the payment of funds to the banks
will be used by us for general corporate
purposes.

Placement agent............. Robertson Stephens

8
<PAGE>

Comparison of Exchange Notes and Existing Notes

The following is a brief summary of the terms of the exchange notes and the
existing notes. For a more complete description of the exchange notes, see
"Description of Exchange Notes."

<TABLE>
<CAPTION>
Exchange Notes Existing Notes
-------------------------------- ---------------------------------
<C> <S> <C>
Securities.......... $172,500,000 aggregate principal $345,000,000 aggregate principal
amount of 10% Convertible amount of 6 1/2% Convertible
Subordinated Notes due September Subordinated Notes due September
1, 2004. The exchange notes will 1, 2004.
be issued in principal amount of
$1,000 and integral multiples of
$1,000.
Issuer.............. Read-Rite Corporation. Read-Rite Corporation.
Maturity............ September 1, 2004. September 1, 2004.
Interest............ Interest on the exchange notes Interest on the existing notes is
will be payable in cash or, at payable in cash at a rate of 6
our option, in common stock at a 1/2% per year, payable on March 1
rate of 10% per year, payable on and September 1 of each year.
March 1 and September 1 of each
year. If we elect to pay
interest in common stock, the
shares of common stock will be
valued at 90% of the average of
the closing prices for the five
trading days immediately
preceding the second trading day
prior to the interest payment
date.
Conversion:
General........... The exchange notes will be The existing notes are
convertible at any time prior to convertible at any time prior to
the maturity at a conversion the maturity at a conversion rate
price of $4.51 per share, of 24.8524 shares for each $1,000
subject to adjustment. principal amount of existing
notes, subject to adjustment.
Auto-conversion... We may elect to automatically None.
convert the exchange notes on or
prior to maturity if our common
stock price has exceeded 200% of
the conversion price for at
least 20 trading days during a
30-day trading period ending
five trading days prior to the
notice of automatic conversion.
If an automatic conversion
occurs on or prior to March 5,
2002, we will pay additional
interest in cash or, at our
option, in common stock equal to
two years worth of interest on
the converted exchange notes,
less any interest actually paid
prior to automatic conversion.
If we elect to pay the
additional interest in common
stock, the shares of common
stock will be valued at 90% of
the
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
Exchange Notes Existing Notes
------------------------ ---------------------------------
<C> <S> <C>
(Auto-conversion, average of the closing
continued) prices for the five
trading days immediately
preceding the second
trading day prior to the
conversion date.
Ranking............. The exchange notes will The existing notes are
be subordinated to all subordinated to all of our senior
of our senior debt and debt and will be subordinated to
will be senior in right the exchange notes. As of
of payment to our December 31, 1999, we had
existing notes. The approximately $121.8 million of
exchange notes also are outstanding senior debt. The
effectively subordinated existing notes also are
to all indebtedness and effectively subordinated to all
other liabilities of our indebtedness and other
subsidiaries, including liabilities of our subsidiaries,
trade payables but including trade payables but
excluding intercompany excluding intercompany
liabilities. liabilities. As of December 31,
1999 our subsidiaries had
approximately $136.3 million
outstanding indebtedness and
other liabilities.
Optional We may redeem the We may redeem the existing notes
redemption........ exchange notes on or on or after September 7, 2000, in
after March 5, 2002, in whole or in part, on not less
whole or in part, on not than 20 but no more than 60 days'
less than 20 but no more notice, at the redemption prices
than 60 days' notice, at set forth in this prospectus,
the redemption prices plus accrued and unpaid interest,
set forth in this if any, to the redemption date.
prospectus, plus accrued
and unpaid interest, if
any, to the redemption
date.
Repurchase at option
of holders........ You may require us to You may require us to repurchase
repurchase all or part all or part of your existing
of your exchange notes notes upon a change in control at
upon a change in control a repurchase price equal to 100%
at a repurchase price of the outstanding principal
equal to 105% of the amount of the existing notes
outstanding principal being redeemed, plus any accrued
amount of the exchange and unpaid interest. We have the
notes being redeemed, option to pay the repurchase
plus any accrued and price in cash, common stock or a
unpaid interest. We have combination of cash and common
the option to pay the stock.
repurchase price in
cash, common stock or a
combination of cash and
common stock.
Listing............. The exchange notes are The existing notes trade in the
expected to trade in the over-the-counter market.
over-the-counter market.
</TABLE>

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<PAGE>

RISK FACTORS

You should carefully consider the risks described below before you decide
to exchange your existing notes for exchange notes or buy for cash additional
exchange notes. The risks and uncertainties described below are not the only
ones facing our company. Additional risks and uncertainties that we do not
presently know or that we currently deem immaterial may also impair our
business operations.

If any of the following risks actually occur, they could materially
adversely affect our business, financial condition or operating results. In
that case, the trading price of our common stock and the existing notes could
decline.

If our plan to refinance our existing bank facility fails, we will not be able
to successfully implement our business and financial strategy necessary to
return us to profitable operations.

We may not be able to successfully refinance our current bank facility. Our
ability to refinance our bank facility will depend, among other things, on our
ability to complete one or more of the following transactions:

. completing the exchange offer;

. raising cash from the issuance of the additional exchange notes; and

. raising additional funds through a variety of alternative sources,
including the sale of additional securities or from other financing
arrangements, including proceeds from an asset-based financing
arrangement, or the sale of assets.

Unless we have a high percentage of participation in the exchange offer, we
will not be able to sufficiently reduce our cash interest payment and to
implement our plan to effect a refinancing of our existing bank facility.

In addition, our ability to raise cash proceeds from the issuance of the
additional exchange notes will depend, in part, on completion of the exchange
offer. If we are unable to raise cash proceeds from the sale of the additional
notes, the banks may not allow us to pay the cash interest due on the existing
notes not tendered in the exchange. In addition, our current waiver,
forbearance and amendment may not be extended from May 25, 2000 to August 25,
2000 unless the banks rescind the blockage notice and permit the cash interest
payment. If we fail to raise new money from the issuance of the additional
exchange notes, our plan to effect a restructuring or refinancing of our
existing bank facility may fail.

If we are unable to sell additional securities or portions of our existing
assets or enter into a new bank facility such as an asset-based facility, we
will not be able to refinance the bank facility. We may not receive any offers
for our assets or the offers we may receive may not adequately reflect the
value of the assets. We have currently received preliminary proposals from
asset-based lenders. We are currently reviewing these proposals. However, we
can not guarantee that we will be able to obtain an asset-based facility on
acceptable terms or at all. Any of these factors could cause us to be unable to
refinance our bank facility.

Because we are not in compliance with a number of financial covenants under our
bank facility, we may not be able to pay interest on the existing notes.

We are not in compliance with a number of financial covenants under our
bank facility. As a result, the banks blocked the interest payment due on our
existing notes on March 1, 2000, and we are currently not allowed to make the
March 1, 2000 interest payment on the existing notes. We have until March 30,
2000, to make the interest payment. If the interest payment is not made by
March 30, 2000, an event of default would occur.

We may not be able to remove the blockage notice. If the banks refuse to
withdraw the payment blockage notice after completion of the exchange offer, we
would be in default under the existing notes. If we default on our existing
notes, the existing noteholders could accelerate the outstanding principal on
the existing notes.

11
<PAGE>

This acceleration could give the exchange note holders the right to a cross-
acceleration of the exchange notes if more than $25 million in existing notes
remain outstanding after the exchange offer. Finally, amounts under our bank
facility would be accelerated as well. If this were to occur, we would be
unable to meet our obligations as they become due.

Concerns from current and prospective customers, suppliers, employees and
lenders about the going-concern explanatory paragraph in our audit report could
detrimentally affect our operating results and financial condition.

We incurred operating losses in fiscal years 1998 and 1999. We are also not
in compliance with a number of financial covenants under our bank facility. Our
failure to comply with covenants under our bank facility has forced us to seek
to obtain short-term waivers to the bank facility, the most recent waiver
extending to May 25, 2000. Due to the short-term nature of the waivers, we have
had to reclassify our debt under the bank facility from long-term debt to
short-term debt. As a result, our independent auditors have included a going-
concern explanatory paragraph for our fiscal year ended September 30, 1999.
This emphasis paragraph represents our auditor's conclusion that there is
substantial doubt as to our ability to continue as a going concern for a
reasonable time. If we are unable to complete the exchange offer, raise
additional funds or refinance the bank facility, our auditors may not remove
the explanatory paragraph from their opinion and any of the following may
occur:

. our customer relationships and orders with our customers could
deteriorate;

. suppliers could reduce their willingness to extend credit;

. employee attrition could increase; and

. new lenders could be unwilling to refinance our bank facility.

If our financial condition continues to deteriorate, we may have to seek relief
under Chapter 11 of the Bankruptcy Code.

If our financial condition continues to deteriorate and we are unable to
reduce our losses or obtain additional financing, we may be forced to seek
relief under Chapter 11 of the bankruptcy code. Chapter 11 permits a company to
remain in control of its business, protected by a stay of all creditor action,
while the company attempts to negotiate and confirm a plan of reorganization
with its creditors. If we commenced a case under Chapter 11, we would expect
deterioration in our customer relationships, a reduction in orders, the loss of
suppliers and an erosion of employee morale. We may be unsuccessful in our
attempts to confirm a plan of reorganization with our creditors. Many
Chapter 11 cases are unsuccessful and virtually all involve substantial expense
and damage to the business. When a company is unsuccessful in obtaining
confirmation of a plan of reorganization, the assets of the company are
liquidated.

In a bankruptcy case, holders of our senior debt will be entitled to
receive full payment on their claims before the holders of the existing notes
and the exchange notes receive any payment. While we have not performed a
liquidation analysis, we believe that in a bankruptcy liquidation the holders
of our subordinated debt would recover a relatively small percentage of their
notes or may not receive anything. While the exchange notes would be senior to
the existing notes and entitled to payment in full prior to payment of the
existing notes, both would be subordinate to the prior right of payment of
senior debt.

We have a large amount of debt and our ability to meet our debt payment
obligations depends upon our future operating performance and cash flows.

We incurred losses of approximately $155.7 million in fiscal 1999 and
$319.7 million in fiscal 1998. We also incurred losses in the first quarter of
fiscal year 2000 and these losses could continue. If we are unable to refinance
our bank facility and reduce the level of our existing debt, we may not be able
to make payments on

12
<PAGE>

our existing debt. As of December 31, 1999, we had approximately $466.8 million
of debt, of which approximately $121.8 million was senior to the existing
notes.

Our ability to make scheduled debt payments will depend on our future
operating performance and cash flow. Our operating performance and cash flow,
in part, are subject to economic factors beyond our control, including
prevailing interest rates. We may not be able to generate enough cash flow to
meet our obligations and commitments, including payments under our bank
facilities or on the existing notes or exchange notes. If we cannot generate
sufficient cash flow from operations to service our debt, we may need to
refinance our debt, dispose of assets, or issue equity to obtain the necessary
funds. We do not know whether we will be able to refinance our debt, issue
equity or dispose of assets to raise funds on a timely basis or on terms
satisfactory to us. In addition, our current bank facility restricts our
ability to raise funds through asset sales. If we are unable to refinance the
bank facility, raise funds through asset sales, sales of equity or otherwise,
our ability to pay principal and interest in cash on the exchange notes would
be harmed.

Our large amount of debt could negatively impact holders of the exchange
notes in many ways, including:

. reducing funds available to fund our business operations and for other
corporate purposes because portions of our cash flow from operations
must be dedicated to the payment of principal and interest on our debt;

. impairing our ability to obtain additional financing for working
capital, capital expenditures, acquisitions or general corporate
purposes;

. increasing vulnerability to increases in interest rates;

. reducing financial flexibility because the debt outstanding under our
current bank facility is secured by substantially all of our existing
and future acquired assets and 65% of the capital stock of our existing
and future acquired international operating subsidiaries;

. placing us at a competitive disadvantage because we are substantially
more leveraged than certain of our competitors;

. hindering our ability to adjust rapidly to changing market conditions;
and

. making us more vulnerable to a downturn in general economic conditions
or in our business.

We may not be able to raise future capital for the substantial capital
expenditures needed to operate our business competitively.

Our business is highly capital intensive. We need to have enough production
capacity and flexibility to meet our customers' needs. Our ability to
accurately plan our expected production capacity may be inhibited by:

. the pace of technological change;

. availability of financing;

. unpredictable demand variations;

. the effects of variable manufacturing yields; and

. the long lead times for our plant and equipment expenditures, requiring
major expenditure commitments well before actual requirements.

Due to our recent financial performance, we may not be able to maintain
adequate sources of capital to finance our capital expenditures. We do not know
when the additional financing will be available to us or available on favorable
terms. If we use equity as a source of capital, it could be dilutive to
existing stockholders and noteholders.

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<PAGE>

Our operating results and cash flow may fluctuate because of a number of
factors.

Our operating results and cash flow have fluctuated significantly in the
past and are likely to continue to fluctuate in the future as a result of the
following factors:

. short product life cycles that require us to constantly qualify new
products for our customers' programs;

. our inability to be selected as an initial supplier, generally referred
to as "design-in wins," on customer programs due to increased
competition or our failure to execute;

. industry cycles of over and under manufacturing capacity and aggressive
pricing strategies;

. low product manufacturing yields;

. delayed product introductions;

. under-utilization of capacity for lower than anticipated demand;

. decreased demand or decreased average selling prices for our products;

. increased operating costs associated with the ramp-up of production due
to increased capacity;

. capacity constraints on certain technologies;

. product mix changes;

. increased material costs or the unavailability of material or
equipment;

. disruptions in our domestic or foreign operations;

. reduced average selling prices; and

. delays and cancellations of customer product orders.

As a result of these factors, our past financial results are not
necessarily a good predictor of our future operating results. Further, our
future operating results may not meet the expectations of public market
analysts and investors.

Any decrease in demand for our products could further reduce our revenue,
operating margins and cash flows.

Our customers provide us with individual purchase orders that may be
changed or cancelled on short notice, often without material penalties. In the
past, our operating results have been harmed by fluctuations in demand for our
products. Demand for our products is generally difficult to accurately predict.
In the past, demand for our product has been impacted as follows:

. in the second half of fiscal 1996, we had significant orders
unexpectedly cancelled or rescheduled;

. in the first quarter of fiscal 1998, there was an abrupt reduction in
demand for advanced inductive thin film products as there was a quicker
than expected industry transition from advanced inductive to
magnetoresistive technology;

. in fiscal 1998, we were harmed by general industry conditions; and

. in fiscal 1999, the industry made a faster than anticipated transition
from magnetoresistive technology to giant magnetoresistive technology.

14
<PAGE>

We were harmed in each case because of the decreases in demand. If
cancellations or reductions in demand for our products occur in the future, our
business, financial condition and results of operations could be seriously
harmed.

Delays and cancellations of our customer orders may cause us to underutilize
our production capacity, which could significantly reduce our gross margins and
result in significant losses.

Our business has a large amount of fixed costs as we are highly capital
intensive. If there is a decrease in demand for our products, our production
capacity could be under-utilized and as a result we may experience:

. equipment write-offs;

. restructuring charges;

. reduced average selling prices;

. increased unit costs; and

. employee layoffs.

We have had losses in recent years and we may not be able to regain
profitability in the foreseeable future, which could adversely affect our
ability to implement our business and finance strategies.

We had net losses of approximately $155.7 million in fiscal 1999 and $319.7
million in fiscal 1998 after having net income of $76.2 million in fiscal 1997.
These losses were caused in part by:

. continued competitive pricing pressure;

. industry trends toward fewer head gimbal assemblies for each headstack
assembly;

. short product life cycles, which resulted in write-down of excess
inventory and obsolete products and equipment; and

. the industry's quicker than expected transition in fiscal 1998 from
advanced inductive to magnetoresistive technology and in fiscal 1999
from magnetoresistive to giant magnetoresistive technology.

If we are unable to successfully compete in the highly competitive disk drive
industry, our operating results could be harmed.

The disk drive industry is highly competitive at both the drive level and
the component level. Our products often have short life cycles. The price for
our products declines substantially over their useful life. We compete on price
and our ability to deliver new technology in a timely manner. We also compete
on customer service and support, product quality and manufacturing capability.
If we are unable to effectively compete, our business, operating results and
financial condition could be harmed.

Our competitors in the merchant market include TDK, Alps, Hitachi Metal,
Headway Technologies and IBM. We also compete against disk drive manufacturers
with "captive" or internal recording head manufacturing capabilities, such as
Fujitsu, IBM and Seagate. These manufacturers are formidable competitors
because they have greater resources and greater customer access. For example in
June 1998, one of our largest customers, Western Digital Corporation, announced
an agreement with IBM under which IBM would supply Western Digital with giant
magnetoresistive heads and other components for Western Digital's manufacture
of desktop hard disk drives. If our competitors enter into similar agreements
with our customers to supply giant magnetoresistive products in the merchant
market in volume quantities at competitive pricing, our operating results could
be harmed.

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<PAGE>

We receive a large percentage of our revenues from only a few customers, the
loss of any one would adversely affect our business and financial condition.

We sell our products to a limited number of customers. Our largest
customers are Western Digital, Maxtor, and Samsung. Western Digital represented
37%, Maxtor represented 32% and Samsung represented 19% of our net sales during
fiscal 1999. We produced head gimbal assemblies in volume for five customers,
headstack assemblies in volume for four customers and tape drive products in
volume for four customers during fiscal 1999. There are a small number of high
performance disk drive and tape drive manufacturers who require an independent
source for their head gimbal assemblies, headstack assemblies or tape head
supplies. As a result, we are heavily dependent upon a limited number of
customers. If we lose a large customer or if one or more of our large customers
reduces their orders, our business, financial condition and operating results
will be harmed.

If one or more of our customers is acquired, merged or liquidated, our
operating results could be harmed.

We are heavily dependent on a limited number of customers. If one of these
customers is acquired or merged, our business, financial condition and
operating results could be harmed. For example, in a series of transactions,
Seagate:

. acquired the tape head operations of AMC in fiscal 1995;

. completed the acquisition of Conner Peripherals, Inc., then one of our
major customers, in fiscal 1996; and

. completed the acquisition of Quinta Corporation, our partner and sole
customer for our magneto-optical head development effort, in August
1997.

In November 1997, Singapore Technologies, Pte. Ltd. unexpectedly liquidated
one of its wholly owned subsidiaries, Micropolis Ltd. We had anticipated that
Micropolis would account for approximately 1.5% of our net sales during that
quarter. A similar liquidation by one of our current customers could harm our
business, financial condition and operating results.

Because we sell our products to a limited number of customers, we have a
concentration of credit risk.

We are subject to the credit risk of our customers. Consequently, if any
one of our customers experiences financial difficulties, our financial
condition and business would be affected. For example, in November 1997
Micropolis Ltd. ceased doing business. As a result, in fiscal 1997, we wrote-
off $9.3 million of accounts receivables due from that customer as well as
additional write-off of our inventory and equipment related to that customer's
orders.

If our customers vertically integrate by acquiring or increasing internal
production and assembly of head gimbal assemblies or headstack assemblies, our
operating results could be harmed.

If one or more of our customers vertically integrates by acquiring or
increasing their internal head gimbal assembly or headstack assembly production
capability, our business, financial condition and results of operations could
be harmed. For example, in 1994, Quantum Corporation, one of our principal
customers with no previous magnetic recording head capacity, acquired Digital
Equipment Corporation's recording head and disk drive operations. In May 1997,
Quantum Corporation announced the formation of a joint venture with its primary
manufacturing partner in Japan, Matsushita Kotobuki Electronics, to manufacture
magnetoresistive recording heads for rigid disk drives. In October 1998,
Quantum and Matsushita announced that the joint venture was dissolved, but
Matsushita retaining the slider fabrication and head gimbal assembly factory.
Matsushita continues to operate this facility. If Matsushita re-enters the
wafer fabrication business and becomes a full line manufacturer, we may not be
able to supply head gimbal assemblies to Quantum Corporation. Any

16
<PAGE>

further vertical integration in this industry could also materially and
adversely affect our business, financial condition and results of operations.

Because our customers in the disk drive industry have been limiting the number
of suppliers of recording heads, we may not be able to achieve design-in wins.

Customers in the disk drive industry have been increasingly moving towards
limiting their number of suppliers of recording heads per program. Customers
also have focused their own efforts on fewer and larger new programs. As a
result, we expect it will be increasingly important for us to successfully
achieve design-in wins for all major programs for our primary customers. As a
result, the loss of any customer, a significant decrease in orders from one or
more large customers, or if we fail to achieve a design-in win or wins on
particular customer programs, our business, financial condition and results of
operations could be harmed.

Our industry experiences rapid technological change, and our inability to
timely anticipate and develop new products and production technologies could
harm our competitive position.

Technology changes rapidly in our industry. The rapid changes require us to
address current technologies and anticipate new technologies. If we are unable
to anticipate and smoothly transition to new technologies, our business,
financial condition and results of operations may suffer. For example, in the
first quarter of fiscal 1998, we incurred a special charge of $114.8 million,
primarily for the write-off of equipment and inventory associated with the
phase-out of advanced inductive technologies. In the third quarter of fiscal
year 1999, we incurred a restructuring charge of $37.7 million for the write-
off of equipment associated with our transition to giant magnetoresistive
technology and the decrease in customer demand for the earlier generation
magnetoresistive heads. Similar changes in the future will have an adverse
effect on our business.

The rapid introduction of new, higher performance products, shorter product
life cycles and the trend toward fewer heads per drive places significant
pricing pressure on hard disk drives and drive components, including recording
heads. In addition, during fiscal 1998 and continuing into fiscal 1999, the sub
$700 PC market emerged. Users in the sub $700 PC market typically require less
storage capacities. As a result, they require a lower number of heads per drive
than that for the office desktop computer applications. We expect growth in the
sub $700 PC market and the trend for lower number of heads per drive to
continue for the foreseeable future.

We expect the development and advancement of technologies, such as pico
sliders and giant magnetoresistive heads, to continue in fiscal 2000. Other
manufacturers may already have or may develop more advanced giant
magnetoresistive technology or giant magnetoresistive production capability
than we possess or may develop. In addition, other alternative data storage
technologies, such as solid-state (flash or ferroelectric) memory or optical
disk drive technologies, are being developed that do not utilize our products.
If one of our competitors introduces improved or new technologies or products
before we do, or if we are unable to respond to new product introductions by
our competitors, our business, financial condition and results of operations
could be seriously harmed.

If we underestimate or overestimate our capacity requirements, our business,
financial condition and results of operations could be harmed.

We have made substantial capital expenditures and installed significant
production capacity to support our new technologies, to meet the increased
demand for our products, to improve manufacturing yields and to increase our
margins. We made capital expenditures during fiscal 1999 of $101.0 million and
$186.2 million during fiscal 1998. We plan to spend approximately $80 million
during fiscal 2000. We cannot guarantee that our net sales and cash flows from
operations will increase enough to absorb these additional costs or that we
will have sufficient capital to finance our planned capital expenditures.

17
<PAGE>

We face risks associated with our international operations that could harm our
company.

Substantially all of our machining, assembly and test operations for our
head gimbal assembly, our headstack assembly and tape head assembly operations
are conducted outside of the Unites States. As a result, our international
operations are subject to a variety of risks, 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.

We have in the past had labor organizational activities at some of our
foreign operations. While none of our employees are currently represented by a
union, we may be unable to avoid work stoppages or other labor issues in the
future.

In addition, several Asian countries, including Japan, Thailand and the
Philippines, have experienced fluctuations in the value of their currencies
relative to the U.S. dollar in recent periods. These foreign currency
fluctuations may impact our ability to manufacture products in these markets.
We enter into foreign currency forward contracts to manage our exposure to
foreign currency fluctuations. These hedging activities, however, do not
completely eliminate the exposure to foreign currency risk.

Any failure to manage our inventory could adversely affect our company.

The hard disk drive industry is subject to business cycles and rapid
technological change. As a result, if we do not properly manage our inventory,
we could have too much, or too little, inventory on hand. We monitor our
inventories on a periodic basis and provide inventory write-downs if deemed
appropriate for excess, obsolete or lower of cost or market concerns. We have
limited remedies in the event of order cancellations because of:

. our dependence on a few customers;

. the limited number of product programs for each customer; and

. the magnitude of the commitments we must make to support our customers'
product programs.

If a customer cancels or reduces a product program, or experiences
financial difficulties, we may take significant inventory charges. We have
taken charges and provided inventory write-downs in the past. We may in the
future have to take additional inventory write-downs if we are unable to obtain
necessary product qualifications or our customers cancel their orders.

We manufacture custom products for a limited number of customers. As a
result, we cannot typically shift raw materials, work-in-process or finished
goods from customer to customer. We must invest substantial resources and make
significant materials commitments to our customers. In addition, the disk drive
products

18
<PAGE>

typically have very short life cycles. Our customers have also implemented
just-in-time hubs to limit their purchase order commitments from us. If our
customer does not have demand from their end customer, they will not use the
inventory from the just-in-time hub. If the inventory is not used, we may have
excess or obsolete inventory and increased inventory risk. Customers also have
canceled or materially modified purchase orders with us without significant
penalties. Canceled orders could lead to charges for inventory obsolescence,
which could seriously harm our business, operating results and financial
condition.

Insufficient demand for products from our joint venture in Japan with Sumitomo
Metal Industries, Ltd. will continue to adversely affect operations.

We currently have a wafer fabrication facility at Read-Rite SMI
Corporation, a joint venture between us and Sumitomo Metal Industries Ltd.,
near Osaka, Japan. Read-Rite SMI manufactures thin-film magnetic recording
heads. Market demand in Japan for thin film heads manufactured by Read-Rite SMI
may not develop. Read-Rite SMI is also a supplier for Quantum/Matsushita on
certain giant magnetoresistive programs. However, Read-Rite SMI may be unable
to qualify for future Quantum/Matsushita giant magnetoresistive programs. If we
are unable to obtain a positive operating margin from Read-Rite SMI in the near
term, we will have to take actions to align our cost structure, cash flows, and
equity position.

Problems associated with our complex manufacturing processes could harm our
revenues.

Our manufacturing processes involve numerous complex steps. Minor
deviations can cause substantial manufacturing yield loss and, in some cases,
suspension of production. Manufacturing yields for new products initially tend
to be lower until we complete product development and commence volume
manufacturing. Yields typically increase as we ramp to full production. Because
forward product pricing assumes improving manufacturing yields, material
variances between projected and actual manufacturing yields have a direct
effect on our gross margin and profitability. In addition, the shortening of
product life cycles requires us to produce new products at higher volume and
acceptable manufacturing yields without, in many cases, reaching the longer-
term, higher volume manufacturing cycle conducive to higher manufacturing
yields and declining costs.

Increased amounts of defective products could harm our business.

We typically test our head gimbal assemblies before shipment to ensure that
the head gimbal assemblies meet customer specifications. Customers may return
defective lots if the customer determines that an agreed upon percentage of the
head gimbal assemblies in the lot do not meet specifications. We expect
manufacturing yields to increase during fiscal 2000 as we ramp-up production of
giant magnetoresistive head gimbal assemblies. However, we may not be able to
achieve component cost levels, manufacturing yields and productivity levels
necessary to achieve adequate giant magnetoresistive head gimbal assembly
margins.

Because we depend on a limited number of suppliers, if our suppliers experience
capacity constraints or production failures, our production could be
significantly harmed.

We depend on a limited number of suppliers and subcontractors for our raw
materials. In some cases, we depend on a single source. Limitations or
interruptions in the supply of these components could severely and adversely
affect our production and operating results. We have limited alternative
sources of key materials such as wafer substrates, wires and suspensions and
these suppliers are also generally determined in advance by our customers. In
addition, we frequently rely on a single equipment supplier for a particular
type of equipment due to either a lack of viable alternatives or to insure
process consistency. As a result, if our suppliers experience capacity
constraints or production failures, our production could be significantly
harmed.

If we are unable to adequately protect our intellectual property rights, our
operating results and financial condition may be harmed.

We believe that the success of our business depends on our proprietary
technology, information processes and know-how. Much of our proprietary
information and technology relating to manufacturing processes is not

19
<PAGE>

patented and may not be patentable. We rely primarily on trade secret
protection to protect our intellectual property. We face a number of
intellectual property risks:

. our competitors may be able to develop similar technology
independently;

. we may not be able to adequately protect our technology;

. claims allowed on any patents held by us may not be sufficiently broad
to protect our technology; and

. foreign intellectual property laws may not adequately protect our
intellectual property rights.

We expect to continue to file patent applications when appropriate to
protect our proprietary technologies. However, seeking patent protection can be
expensive and time consuming. We may not be able to enforce patents outside the
U.S. As a result, we may not be able to stop our competitors from infringing on
our patents.

We have, from time to time, been notified of claims that we may be
infringing patents owned by others. If we receive additional claims of
infringement in the future, we may decide to seek licenses under patents that
we are allegedly infringing. However, we may not be able to obtain a license on
acceptable terms. If we have to defend an infringement claim or if we fail to
obtain a key patent license, we may incur substantial liabilities or be unable
to manufacture products utilizing such patented inventions.

Our inability to retain and attract key personnel and a skilled workforce may
materially and adversely affect our financial condition.

We depend on a limited number of key management, sales, engineering,
customer support and product development personnel. Many of our key personnel
would be difficult to replace and are not subject to employment or non-
competition agreements. We believe our future success will depend on our
ability to attract and retain highly-skilled managerial, engineering, sales,
customer support and product development personnel. Competition for qualified
personnel in our industry and geographic locations is intense. If we are unable
to retain existing or hire key personnel, our business, financial condition and
results of operations could be harmed.

The nature of our operations makes us susceptible to material environmental
liabilities which could adversely affect our financial condition.

We are subject to a variety of federal, state, local and foreign
regulations relating to:

. the use, storage, discharge and disposal of hazardous materials used
during our manufacturing process;

. the treatment of water used in our manufacturing process; and

. air quality management.

We are required to obtain necessary permits for expanding our facilities.
We must also comply with new regulations on our existing operations. Public
attention has increasingly been focused on the environmental impact of
manufacturing operations that use hazardous materials. If we fail to comply
with environmental regulations or fail to obtain the necessary permits:

. we could be subject to significant penalties;

. our ability to expand or operate at locations in California or our
locations in Thailand, Japan and the Philippines could be restricted;

. our ability to establish additional operations in other locations could
be restricted; or

. we could be required to obtain costly equipment or incur significant
expenses to comply with environmental regulations.

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<PAGE>

Any accidental hazardous discharge could result in significant liability
and clean-up expenses which could harm our business, financial condition and
results of operations.

We use a significant amount of water in our manufacturing process. Future
drought conditions could cause the state or local authorities to mandate higher
fees or reductions in water usage allocations. If we are required to restrict
our production because of water scarcity, our business, financial condition and
results of operations could be adversely affected.

Delisting of our common stock could have a material adverse effect on the
market price of, and the efficiency of the trading market for, our common
stock, the exchange notes and the existing notes.

As a result of the going-concern opinion in our recent Form 10-K, we
received a letter from Nasdaq-Amex regarding our ability to maintain compliance
with the Nasdaq Stock Market listing requirements. The Nasdaq National Market
has alternative compliance requirements for the continued listing of common
stock on its exchange of either: (i) $4 million of net tangible assets or (ii)
a $5 minimum closing bid price. As of the date of this filing, we are currently
complying with only the $4 million of net tangible assets requirement. If we
experience loses that drop our net tangible assets below $4 million, and if our
stock price continues to remain below $5 per share, our common stock may not
remain listed on The Nasdaq National Market. This could have a material adverse
effect on the market price of, and the efficiency of the trading market for,
our common stock and the exchange notes.

The exchange notes are subordinated to our senior debt, but senior in payment
to the existing notes.

The exchange notes will be unsecured and subordinated in right of payment
to senior debt, including our existing bank facility. The exchange notes are
also senior to the existing notes. As a result of such subordination, in the
event of our liquidation or insolvency, a payment default with respect to
senior debt, a covenant default with respect to designated senior debt or upon
acceleration of the exchange notes due to an event of default, our assets will
be available to pay obligations on the exchange 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 exchange notes then outstanding. Neither
we nor our subsidiaries are prohibited under the exchange note indenture from
incurring debt.

As of December 31, 1999, we had approximately $121.8 million of outstanding
senior debt. The existing notes are also effectively subordinated to all
indebtedness and other liabilities of our subsidiaries, including trade
payables but excluding intercompany liabilities.

The exchange notes are obligations exclusively of Read-Rite Corporation.
Substantially all of our operations are conducted through our subsidiaries. As
a result, our cash flow and our ability to service our debt, including the
exchange notes, is dependent upon the earnings of our subsidiaries. In
addition, we are dependent on the distribution of our subsidiaries' earnings,
loans and other payments by our subsidiaries to us.

Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the exchange notes or to provide
us with funds for our payment obligations, whether by dividends, distributions,
loans or other payments. In addition, any payment of dividends, distributions,
loans or advances by our subsidiaries to us could be subject to statutory or
contractual restrictions. Payments to us by our subsidiaries will also be
contingent upon our subsidiaries' earnings and business considerations.

We may not have the financial resources to repurchase the exchange notes in the
event of a change in control.

We may be unable to repurchase the exchange notes in the event of a change
in control. Upon a change in control, you may require us to repurchase all or a
portion of your exchange notes. If a change in control were to occur, we may
not have enough funds to pay the repurchase price for all tendered exchange
notes. The

21
<PAGE>

terms of our existing bank facility prohibit the repurchase of the exchange
notes in cash. Any future credit agreements or other debt agreements may
contain similar provisions, or expressly prohibit the repurchase of the
exchange notes upon a change in control or may provide that a change in control
constitutes an event of default under that agreement. If a change in control
occurs at a time when we are prohibited from repurchasing the exchange notes,
we could seek the consent of our lenders to repurchase the exchange notes or
could attempt to refinance the debt agreements. If we do not obtain consent, we
could not repurchase the exchange notes. Our failure to repurchase the exchange
notes would constitute an event of default under the exchange note indenture,
which might constitute an event of default under the terms of our other debt.
Our obligation to offer to repurchase the exchange notes upon a change in
control would not necessarily afford you protection in the event of a highly
leveraged transaction, reorganization, merger or similar transaction.

If an active market for the exchange notes fails to develop, the trading price
and liquidity of the exchange notes could be materially adversely affected.

Prior to the offering there has been no trading market for the exchange
notes. The dealer manager has advised us that it currently intends to make a
market in the exchange notes. The liquidity of the trading market for the
exchange notes will depend in part on the level of participation of the holders
of existing notes in the exchange offer. The greater the participation in the
exchange offer, the greater the liquidity of the trading market for the
exchange notes and the lesser the liquidity of the trading market for the
existing notes not tendered in the exchange offer. However, Robertson Stephens
is not obligated to make a market and may discontinue this market making
activity at any time without notice. In addition, market making activity by
Robertson Stephens will be subject to the limits imposed by the Securities Act
and the Exchange Act. As a result, we cannot assure you that any market for the
exchange notes will develop or, if one does develop, that it will be
maintained. If an active market for the exchange notes fails to develop or be
sustained, the trading price and liquidity of the exchange notes could be
materially adversely affected.

We expect the trading price of the exchange notes and the underlying common
stock to be highly volatile, which could adversely affect the market price of
our exchange notes and underlying common stock.

The trading price of the exchange notes and the underlying common stock
will fluctuate in response to variations in:

. operating results;

. announcements by us or our competitors of technological innovations or
new products;

. qualifications of volume shipment programs from major customers;

. general conditions in the disk drive and computer industries; and

. general economic and market conditions.

In addition, stock markets have experienced extreme price volatility in
recent years, particularly for high technology companies. In the past, our
common stock has experienced volatility not necessarily related to
announcements of our financial performance. Broad market fluctuations may also
adversely affect the market price of our exchange notes and underlying common
stock.

In the event of a change in control after the expiration date, holders of the
exchange notes will receive substantially less than holders of existing notes
to the extent that a holder elects to exercise his or her repurchase right.

In the event that there is a change in control prior to the expiration date
of the exchange offer, holders of existing notes would have the right to
receive, to the extent they elected to exercise their repurchase right,
$345,000,000 in aggregate principal amount as a result of the change in
control. In the event that there is a

22
<PAGE>

change in control after the expiration date of the exchange offer and 100% of
the holders of the existing notes tendered in the exchange, holders of the
exchange notes would have the right to receive, to the extent they elected to
exercise their repurchase right, $172,500,000 as a result of the change in
control.

If we automatically convert the exchange notes, you should be aware that there
is a substantial risk that the price of our common stock could fluctuate from
the date we elect to automatically convert to the conversion date.

We may elect to automatically convert the exchange notes on or prior to
maturity if our common stock price has exceeded 200% of the conversion price
for at least 20 trading days during a 30-day trading period ending five trading
days prior to the notice of automatic conversion. You should be aware that
there is a substantial risk that the price of our common stock could fluctuate
between the time when we may first elect to automatically convert the exchange
notes and the automatic conversion date. This time period may extend from 15 to
30 calendar days from the time we elect to automatically convert the exchange
notes until the conversion date.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS WITH RESPECT TO THE CASH
OFFER FOR ADDITIONAL EXCHANGE NOTES

In connection only with the cash offer for additional exchange notes, the
prospectus, including the sections entitled "Summary" and "Risk Factors,"
contains forward-looking information. This forward-looking information is
subject to risks and uncertainties including the factors listed under "Risk
Factors," as well as elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "intends," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," or the negative of these
terms or other comparable terminology. These statements are only predictions
and may be inaccurate. Actual events or results may differ materially. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined under "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. The safe harbor for forward-looking
statements made in connection with the exchange offer pursuant to the
registration statement or the Form TO are not and have not been protected under
the Securities Litigation Reform Act.

23
<PAGE>

USE OF PROCEEDS

We will not receive any proceeds from the exchange of the existing notes
for the exchange notes pursuant to the exchange offer. We will also issue $54.1
million aggregate principal amount of additional exchange notes for cash. We
intend to use the proceeds, if any, from the sale of the additional exchange
notes to repay amounts due under our bank facility. As of January 1, 2000, we
had $50 million of revolving loans outstanding under our bank facility at
variable rates (9.5% as of January 1, 2000). The banks' lending commitments
under the bank facility will be permanently reduced by the amount of the loan
repayment we make from these proceeds. We may also apply any remaining portion
of the proceeds of the offering to pay the remaining interest payments, if any,
due March 1, 2000 on the existing notes or for general corporate purposes. We
have not yet determined the amount of net proceeds to be used specifically for
each of these purposes. Pending such use, we intend to invest the net proceeds
in high quality, interest-bearing instruments.

PRICE RANGE OF COMMON STOCK

The following table sets forth the high and low closing sales prices of a
share of the common stock reported on The Nasdaq National Market during the
indicated periods.

<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
Fiscal year ending September 30, 1998
First Quarter............................................ $26 13/16 $15 3/8
Second Quarter........................................... 17 9/16 12 3/8
Third Quarter............................................ 15 1/4 6 13/16
Fourth Quarter........................................... 9 17/32 5 1/2
Fiscal year ending September 30, 1999
First Quarter............................................ $16 15/16 $ 6 1/16
Second Quarter........................................... 19 11/16 6 1/8
Third Quarter............................................ 8 5 35/64
Fourth Quarter........................................... 6 7/8 4 1/32
Fiscal year ending September 30, 2000
First Quarter............................................ $ 5 15/16 $ 3 15/32
Second Quarter (through March 15, 2000).................. 6 7/16 2 25/32
</TABLE>

On March 15, 2000, the last reported sales price of our common stock on The
Nasdaq National Market was $4 17/32 per share.

DIVIDEND POLICY

We do not pay any dividends on our common stock. We currently intend to
retain earnings, if any, for use in our business and do not anticipate paying
cash dividends to holders of our common stock. Our existing credit facility
currently restricts the payment of dividends.

24
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated unaudited capitalization of
Read-Rite:

. at December 31, 1999:

. as adjusted to give effect to the issuance of the exchange notes in the
exchange offer on the assumption that $324.7 million of the outstanding
existing notes were validly tendered and accepted for exchange:

. as adjusted to give effect to the issuance for cash of an approximately
$54.1 million of additional exchange notes;

. as adjusted to give effect to the issuance of $7.0 million of exchange
notes to the dealer manager for payment of their fees in connection
with the exchange offer and for their placement of the approximately
$54.1 million of additional exchange notes; and

. as adjusted to reflect an extraordinary gain of $158.3 million on the
assumed early extinguishment of all outstanding existing notes.

To the extent that existing notes are not validly tendered or accepted in
the exchange offer, the amount attributed to the exchange notes would decrease
and the amount attributed to the existing notes would increase. The financial
data at December 31, 1999 in the following table are derived from our unaudited
financial statements for the quarter ended December 31, 1999.

<TABLE>
<CAPTION>
December 31, 1999
----------------------
Actual As Adjusted
--------- -----------
(dollars in
thousands)
<S> <C> <C>
Long-term debt
10% Convertible Subordinated Notes due 2004 (exchange
notes)............................................... $ -- $ 223,537
6 1/2% Convertible Subordinated Notes due 2004
(existing notes)..................................... 345,000 20,324
Other long-term debt................................... 15,900 15,900
--------- ---------
Total long-term debt.................................. 360,900 259,761
--------- ---------
Stockholders' equity:
Preferred stock, par value $0.0001 per share, issuable
in series; 4,000,000 shares authorized, none issued
and outstanding...................................... -- --
Common stock, par value $0.0001 per share, 160,000,000
shares authorized, 49,927,337 shares issued and
outstanding (1)...................................... 5 5
Additional paid-in capital............................. 370,118 370,118
Accumulated Deficit.................................... (341,783) (183,477)
Accumulated other comprehensive income (loss).......... (738) (738)
--------- ---------
Total stockholders' equity............................ 27,602 185,908
--------- ---------
Total capitalization................................. $ 388,502 $ 445,669
========= =========
</TABLE>
- --------
(1) Outstanding shares exclude the shares reserved for issuance upon conversion
of the exchange notes and 15,600,735 shares issuable under our stock award
and purchase plans.

25
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated operating data for the three years in the period ended
September 30, 1999 and the balance sheet data at September 30, 1998 and
September 30, 1999 are derived from our audited consolidated financial
statements audited by Ernst & Young LLP, independent auditors, which are
incorporated by reference in this prospectus. Please refer to the complete
consolidated financial statements and related existing notes for more
information. The selected operating data for the years ended September 30, 1995
and September 30, 1996 and the balance sheet data at September 30, 1995,
September 30, 1996 and September 30, 1997 have been derived from our
consolidated financial statements audited by Ernst & Young LLP that are not
included or incorporated by reference. The consolidated operating data for the
three months ended December 31, 1998 and December 31, 1999, and the
consolidated balance sheet data as of December 31, 1999 are derived from our
unaudited consolidated financial statements, and include in our opinion all
adjustments, including normal recurring adjustments necessary to present fairly
the financial information therein. These results are not necessarily indicative
of the results that may be expected for future periods.

<TABLE>
<CAPTION>
Three Months
Years Ended September 30, Ended
---------------------------------------------------- ------------------
Dec. 31, Dec. 31,
1995 1996 1997 1998 1999 1998 1999
---------- -------- ---------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales............... $1,003,040 $991,118 $1,162,050 $ 808,622 $ 716,460 $230,118 $114,492
Cost of sales--on net
sales................. 739,000 887,464 923,244 826,602 739,725 195,327 145,619
Cost of sales--special
charges............... -- -- -- 114,800 -- -- --
---------- -------- ---------- --------- --------- -------- --------
Gross margin............ 264,040 103,654 238,806 (132,780) (23,265) 34,861 (31,127)
Operating expenses:
Research and
development.......... 41,788 52,221 64,995 92,265 92,211 23,732 19,147
Selling, general and
administrative....... 44,406 43,644 54,098 34,137 29,154 7,289 6,581
Restructuring costs.... -- -- -- 93,728 37,685 -- --
---------- -------- ---------- --------- --------- -------- --------
Total operating
expenses............ 86,194 95,865 119,093 220,130 159,050 31,021 25,728
---------- -------- ---------- --------- --------- -------- --------
Operating income
(loss)................ 117,846 7,789 119,713 (352,910) (182,315) 3,840 (56,855)
Interest expense........ 5,589 12,897 15,699 29,648 31,910 7,368 8,845
Interest income and
other, net............ 5,257 9,024 8,627 7,126 4,143 (1,048) 4,592
---------- -------- ---------- --------- --------- -------- --------
Income (loss) before
provision (benefit)
for income taxes and
minority interest..... 177,514 3,916 112,641 (375,432) (210,082) (4,576) (61,108)
Provision (benefit) for
income taxes.......... 41,715 34,582 29,311 (24,577) (25,946) 48 --
---------- -------- ---------- --------- --------- -------- --------
Income (loss) before
minority interest..... 135,799 (30,666) 83,330 (350,855) (184,136) (4,624) (61,108)
Minority interest in net
income (loss) of
consolidation
subsidiary............ 12,234 12,320 7,151 (31,108) (28,421) (5,746) (3,633)
---------- -------- ---------- --------- --------- -------- --------
Net income (loss)....... $ 123,565 $(42,986) $ 76,179 $(319,747) $(155,715) $ 1,122 $(57,475)
========== ======== ========== ========= ========= ======== ========
Basic net income (loss)
per common share...... $ 2.69 $ (0.92) $ 1.61 $ (6.59) $ (3.16) $ .02 $ (1.15)
========== ======== ========== ========= ========= ======== ========
Diluted net income
(loss) per common
share................. $ 2.59 $ (0.92) $ 1.56 $ (6.59) $ (3.16) $ .02 $ (1.15)
========== ======== ========== ========= ========= ======== ========
Number of shares used in
per common share
computation:
Basic................... 45,951 46,755 47,444 48,513 49,352 49,027 49,834
========== ======== ========== ========= ========= ======== ========
Diluted................. 47,653 46,755 48,775 48,513 49,352 50,671 49,834
========== ======== ========== ========= ========= ======== ========
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
At September 30, At
------------------------------------------------- December 31,
1995 1996 1997 1998 1999 1999
-------- -------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $286,902 $113,959 $ 343,185 $ 97,618 $ 18,714 $(22,802)
Total assets............ 939,457 908,672 1,301,481 879,800 784,490 695,522
Long-term debt.......... 137,406 172,037 403,871 388,248 361,668 360,900
Stockholders' equity.... 537,977 453,799 545,653 233,929 84,209 27,602
Ratio of earnings to
fixed charges(1)...... 22.7x 1.3x 6.4x NM(2) NM(2) NM(2)
</TABLE>
- --------
(1) For purposes of this ratio, "earnings" consist of earnings before income
taxes, minority interest and fixed charges. "Fixed charges" consist of
interest on indebtedness and capital lease obligations, the interest
component of rental expense, amortization of debt discount and issuance
expenses. Earnings were insufficient to cover fixed charges by
$375,432,000, $210,082,000 and $61,108,000 for the years ended
September 30, 1998 and September 30, 1999, and the three-month period ended
December 31, 1999, respectively. On a pro forma basis, assuming the full
conversion of the existing notes for exchange notes as of the beginning of
the year ended September 30, 1999 and the three months ended December 31,
1999, and using the estimated net change in interest expense from the
exchange, earnings were insufficient to cover fixed charges by $210,082,000
and $61,108,000 respectively.
(2) Not meaningful

27
<PAGE>

BANK FACILITY REFINANCING

History of the bank facility

In October 1997, we entered into a $200 million unsecured bank facility
with a syndicate of banks that had a $150 million revolving credit facility and
a $50 million four year term loan. Under the terms of the bank facility, we had
to maintain specified financial ratios and meet additional covenants. During
the period ended December 31, 1997, in response to the industry-wide shift to
magnetoresistive technology, we incurred a special charge of approximately
$114.8 million as a result of the write-off of equipment and inventory
associated with the phase out of advanced inductive technologies. Primarily as
a result of this write-off, we were out of compliance with two of the bank
facility covenants. We obtained an amendment to the bank facility revising
these covenants in February 1998.

During the period ended June 30, 1998, we incurred a restructuring charge
of approximately $93.7 million. As a result, we were not in compliance with
several financial covenants under the bank facility. In August 1998, we
obtained an amendment to the bank facility to maintain compliance with the
facility. Under the amendment, the revolving credit facility was reduced from
$150 million to $100 million. In addition, the bank facility was converted from
an unsecured to secured facility. Read-Rite Corporation's assets and 65% of the
stock of our international subsidiaries secures the facility. Borrowings under
the revolving credit facility became based upon eligible receivables of Read-
Rite Corporation and Read-Rite International and cash balances of Read-Rite
Corporation.

In April 1999, in response to industry-wide downturns in the average
selling prices for head gimbal assembly and headstack assembly products and in
anticipation of approximately $37.7 million restructuring costs in that
quarter, we drew down the entire $100 million available under the bank facility
to improve our cash balances. This was the first time that we borrowed under
the revolving credit facility.

As of September 30, 1999, we had $42.5 million of the term loan outstanding
and $100 million outstanding on our revolving credit facility. As a result of
losses incurred by us in fiscal year 1999, we were unable to maintain
compliance with some of the financial covenants under the bank facility. In
October 1999, we repaid $25 million on the bank facility, reducing the size of
the revolving credit facility from $100 million to $75 million. In connection
with this repayment, the bank waived compliance with several financial
covenants through December 31, 1999. Due to the short term nature of the
waiver, the debt under the facility was classified as a current liability and
our independent auditors included a going-concern explanatory paragraph in our
Annual Report on Form 10-K for the fiscal year ended September 30, 1999.

For the three-month period ended December 31, 1999, we were unable to
maintain compliance with the financial covenants concerning consolidated
tangible net worth, senior debt, interest expense coverage and minimum earnings
under our bank agreement; we obtained a waiver with respect to our
noncompliance under the bank facility. In connection with this waiver, we
reduced the size of the revolving credit facility by $25 million, to $50
million. We have continued to pay all principal and interest payments under
this facility on the scheduled due dates. In addition, we have reduced the
amount outstanding under the bank facility from $101.3 million as of December
31, 1999 to $86.3 million as of January 21, 2000.

Current waiver and forbearance

Effective February 1, 2000, we obtained from our bank group a waiver,
forbearance and fifth amendment to the bank facility. In connection with this
waiver, we repaid an additional $15 million of the principal amount of the bank
facility, reducing the outstanding principal amount to approximately $71.3
million under the bank facility.

28
<PAGE>

bank facility to block the scheduled payment of interest on March 1, 2000. On
February 25, we reached an agreement with the banks on the terms under which
the banks will remove their blockage of the interest payment due on March 1,
2000 with respect to our outstanding existing notes. Under the terms of the
agreement, the banks will agree to lift the blockage notice on the existing
notes and permit the payment of interest due on the existing notes not
submitted in the exchange offer if the following conditions are met:

(1) 66 2/3% of the existing notes are exchanged for the 10% Convertible
Subordinated Notes due September 1, 2004 in the exchange offer;

(2) we receive at least $13.7 million in proceeds from the sale of the
additional exchange notes;

(5) we restructure the payment of interest on all loans under the bank
facility from quarterly to monthly; and

(6) we agree to use our best efforts to repay or refinance the debt under
our bank facility.

Proposed bank facility refinancing

We are undertaking a series of actions to enable us to refinance our
current bank facility. First, we are offering to exchange the existing notes
for the exchange notes pursuant to this exchange offer. Completion of the
exchange offer would reduce our level of outstanding debt. In addition, we
would have the option to pay interest on the exchange notes in cash or common
stock. We would also reduce the principal amount of existing notes outstanding
which would reduce our obligation to pay cash interest on the existing notes.

Second, we could raise cash proceeds through the sale of the additional
exchange notes. Proceeds from the sale of the additional exchange notes will be
held in escrow. The escrow proceeds will be released only when:

. the blockage notice with respect to the March 1, 2000 interest payment
on existing notes has been lifted by the banks under our bank facility
allowing us to make the payment of interest on the existing notes not
tendered in the exchange, and;

. we have agreed with the banks as to the percentage of the cash raised,
if any, from the sale of additional exchange notes to be paid to the
banks under our bank facility.

Third, we are attempting to raise additional funds though a variety of
alternative sources to enable us to repay the balance of the amounts
outstanding under the bank facility, while continuing discussions with our
existing banks with respect to the possibility of refinancing the existing bank
facility at a lower level of outstanding borrowings. These sources could
include proceeds of a new lending arrangement, the sale of
additional securities by us, the sale of non-core assets, or a combination of
the foregoing. We have received several proposals from lenders for asset-based
lending arrangements which we are currently evaluating.

Our current plan is to complete the exchange offer, raise additional cash
proceeds from the sale of additional exchange notes and put in place a new loan
facility or refinance the existing bank facility as soon as possible.

29
<PAGE>

Our ability to successfully refinance the bank facility is likely to depend
on a number of factors, including:

. our ability to successfully complete the exchange offer;

. our ability to raise funds from the sale of additional notes or obtain
alternate sources of funds; and

. our ability to continue to improve the performance of our business.

Whether we are able to refinance the bank facility is therefore subject to
a number of risks, including those risks identified under "Risk Factors."

30
<PAGE>

THE EXCHANGE OFFER

Terms of the exchange offer; Period for tendering existing notes

We are offering to exchange $1,000 principal amount of exchange notes for
each $2,000 principal amount of existing notes that are validly tendered on
the terms and subject to the conditions set forth in this prospectus and in
the accompanying letter of transmittal. In addition, you will receive a
payment, in cash or in common stock at our election, of $50 for each $1,000
principal amount of exchange notes issued to you in the exchange offer in the
event that the interest payment on the existing notes due on March 1, 2000 has
not been paid or provided for by us prior to the exchange date. If we elect to
make this payment in common stock, the shares of common stock will be valued
at 90% of the average of the closing prices for the five trading days
immediately preceding the second trading day prior to the interest payment
date. In the event that this payment is paid in common stock, we may at our
election either round up to avoid distribution of fractional shares, or pay
any fractional share amount in cash.

Holders must tender existing notes in a principal amount of $2,000 and any
integral multiple of $2,000.

You may tender all, some or none of your existing notes.

The exchange offer is not being made to, and we will not accept tenders
for exchange from, holders of existing notes in any jurisdiction in which the
exchange offer or the acceptance of the offer would not be in compliance with
the securities or blue sky laws of that jurisdiction.

Our board of directors and officers do not make any recommendation to the
holders of existing notes as to whether or not to tender all or any portion of
their existing notes. In addition, we have not authorized anyone to make any
recommendation. You must make your own decision whether to tender your
existing notes and, if so, the amount of existing notes to tender.

Expiration date

The expiration date for the offer is midnight, Eastern Standard Time, on
March 15, 2000, unless we extend the offer. We may extend this expiration date
for any reason. The last date on which tenders will be accepted, whether on
March 15, 2000 or any later date to which the exchange offer may be extended,
is referred to as the expiration date.

Extensions; Amendments

We expressly reserve the right, in our discretion, for any reason to:

. delay the acceptance of existing notes for exchange,

. extend the time period during which the exchange offer is open, by
giving oral or written notice of an extension to the holders of
existing notes in the manner described below. During any extension, all
existing notes previously tendered and not withdrawn will remain
subject to the exchange offer, and

. amend the terms of the exchange offer other than the condition that the
registration statement become effective under the Securities Act.

If we consider an amendment to the exchange offer to be material, or if we
waive a material condition of the exchange offer, we will promptly disclose
the amendment in a prospectus supplement, and if required by law, we will
extend the exchange offer for a period of five to ten business days.

We will give oral or written notice of any (1) extension, (2) amendment,
(3) non-acceptance or (4) termination to the holders of the existing notes as
promptly as practicable. In the case of any extension, we will issue a press
release or other public announcement no later than 9:00 a.m., Eastern Standard
Time, on the next business day after the previously scheduled expiration date.

31
<PAGE>

Procedures for tendering existing notes

Your tender to us of existing notes and our acceptance of your tender will
constitute a binding agreement between you and us upon the terms and subject to
the conditions set forth in this prospectus and in the accompanying letter of
transmittal.

Tender of existing notes held through a custodian. If you are a beneficial
holder of the existing notes, that are held of record by a custodian bank,
depository institution, broker, dealer, trust company or other nominee, you
must instruct the custodian to tender the existing notes on your behalf. Your
custodian will provide you with their instruction letter which you must use to
give these instructions. Any beneficial owner of existing notes held of record
by The Depository Trust Company or its nominee, through authority granted by
The Depository Trust Company, may direct The Depository Trust Company
participant through which the beneficial owner's existing notes are held in The
Depository Trust Company to tender on the beneficial owner's behalf.

Tender of existing notes held through The Depository Trust Company. To
effectively tender existing notes that are held through The Depository Trust
Company, Depository Trust Company participants should transmit their acceptance
through the Automated Tender Offer Program ("ATOP"), for which the transaction
will be eligible, and The Depository Trust Company will then edit and verify
the acceptance and send an agent's message to the exchange agent for its
acceptance. Delivery of tendered existing notes must be made to the exchange
agent pursuant to the book-entry delivery procedures set forth below or the
tendering Depository Trust Company participant must comply with the guaranteed
delivery procedures set forth below. No letters of transmittal will be required
to tender existing notes through ATOP.

In addition, the exchange agent must receive:

. a completed and signed letter of transmittal or an electronic
confirmation pursuant to The Depository Trust Company's ATOP system
indicating the principal amount of existing notes to be tendered and
any other documents, if any, required by the letter of transmittal, and

. prior to the expiration date, a confirmation of book-entry transfer of
such existing notes, into the exchange agent's account at The
Depository Trust Company, in accordance with the procedure for book-
entry transfer described below, or

. the holder must comply with the guaranteed delivery procedures
described below.

Your existing notes must be tendered by book-entry transfer. The exchange
agent will establish an account with respect to the existing notes at The
Depository Trust Company for purposes of the exchange offer within two business
days after the date of this prospectus. Any financial institution that is a
participant in The Depository Trust Company must make book-entry delivery of
existing notes by having The Depository Trust Company transfer such existing
notes into the exchange agent's account at The Depository Trust Company in
accordance with The Depository Trust Company's procedures for transfer.
Although your existing notes will be tendered through The Depository Trust
Company facility, the letter of transmittal, or facsimile, or an electronic
confirmation pursuant to The Depository Trust Company's ATOP system, with any
required signature guarantees and any other required documents, if any, must be
transmitted to and received or confirmed by the exchange agent at its address
set forth below under "Exchange agent," prior to 5:00 pm Eastern Standard Time
on the expiration date. You or your broker must ensure that the exchange agent
receives an agent's message from The Depository Trust Company confirming the
book-entry transfer of your existing notes. An agent's message is a message
transmitted by The Depository Trust Company and received by the exchange agent
that forms a part of the book-entry confirmation which states that The
Depository Trust Company has received an express acknowledgement from the
participant in The Depository Trust Company tendering the shares that such
participant agrees to be bound by the terms of the letter of transmittal.
Delivery of documents to The Depository Trust Company in accordance with its
procedures does not constitute delivery to the exchange agent.

32
<PAGE>

If you are an institution which is a participant in The Depository Trust
Company's book-entry transfer facility, you should follow the same procedures
that are applicable to persons holding existing notes through a financial
institution.

Do not send letters of transmittal or other exchange offer documents to us,
Robertson Stephens or Georgeson Shareholder Communications Inc., the
information agent.

It is your responsibility that all necessary materials get to the exchange
agent before the expiration date. If the exchange agent does not receive all of
the required materials before the expiration date, your existing notes will not
be validly tendered.

Any existing notes not accepted for exchange for any reason will be
returned without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.

We will have accepted the validity of tendered existing notes if and when
we give oral or written notice to Norwest Bank Minnesota, National Association,
the exchange agent. The exchange agent will act as the tendering holders' agent
for purposes of receiving the exchange notes from us. If we do not accept any
tendered existing notes for exchange because of an invalid tender or the
occurrence of any other event, Norwest Bank Minnesota, National Association
will return those existing notes to you, without expense, promptly after the
expiration date via book-entry transfer through The Depository Trust Company.

Our interpretations are binding

We will determine in our sole discretion, all questions as to the validity,
form, eligibility and acceptance of existing notes tendered for exchange. Our
determination will be final and binding. We reserve the absolute right to
reject any and all tenders of any particular existing notes not properly
tendered or to not accept any particular existing note which acceptance might,
in our judgment or our counsel's judgment, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any particular existing notes either before or after the
expiration date, including the right to waive the ineligibility of any holder
who seeks to tender existing notes in the exchange offer. Our interpretation of
the terms and conditions of the exchange offer as to any particular existing
note either before or after the expiration date, including the letter of
transmittal and the instructions to such letter of transmittal, will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of existing notes for exchange must be cured within
such reasonable period of time as we shall determine. Neither we, the exchange
agent nor any other person shall be under any duty to give notification of any
defect or irregularity with respect to any tender of existing notes for
exchange, nor shall any of them incur any liability for failure to give such
notification.

Acceptance of existing notes for exchange; Delivery of exchange notes

Once all of the conditions to the exchange offer are satisfied or waived,
we will accept, promptly after the expiration date, all existing notes properly
tendered, and will issue the exchange notes promptly after acceptance of the
existing notes. The discussion under the heading "Conditions for completion of
the exchange offer" provides further information regarding the conditions to
the exchange offer. For purposes of the exchange offer, we shall be deemed to
have accepted properly tendered existing notes for exchange when, as and if we
have given oral or written notice to the exchange agent, with written
confirmation of any oral notice to be given promptly after giving such notice.

For each $2,000 principal amount of existing notes accepted for exchange,
the holder of such existing note will receive an exchange note having a
principal amount of $1,000. In addition, you will also receive payment, in cash
or in common stock, at our option of $50 for each $1,000 principal amount of
exchange notes issued to you in the exchange offer in the event that the
interest payment due on March 1, 2000 with respect to the existing notes has
not been paid or provided for prior to the exchange date. In the event the
interest payment is paid in common stock, we may at our election either round-
up to avoid distribution of fractional

33
<PAGE>

shares, or pay any fractional share amount in cash. The exchange notes will
bear interest from the issue date. Existing notes accepted for exchange will
cease to accrue interest from and after the date of consummation of the
exchange offer. Holders of existing notes whose existing notes are accepted for
exchange will not receive any payment in respect of accrued interest on such
existing notes.

In all cases, issuance of exchange notes for existing notes that are
accepted for exchange in the offer will be made only after timely receipt by
the exchange agent of:

. a timely book-entry confirmation of such existing notes. into the
exchange agent's account at the book-entry transfer facility,

. a properly completed and duly executed letter of transmittal or an
electronic confirmation of the submitting holder's acceptance through
The Depository Trust Company's ATOP system, and

. all other required documents, if any.

If we do not accept any tendered existing notes for any reason set forth in
the terms and conditions of the exchange offer, or if existing notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged existing notes tendered by book-entry transfer
into the exchange agent's account at the book-entry transfer facility will be
returned in accordance with the book-entry procedures described above, and the
existing notes that are not exchange notes will be credited to an account
maintained with The Depository Trust Company, as promptly as practicable after
the expiration or termination of the exchange offer.

Guaranteed delivery procedures

If you desire to tender your existing notes and you cannot complete the
procedures for book-entry transfer set forth above on a timely basis, you may
still tender your existing notes if:

. your tender is made through an eligible institution,

. prior to the expiration date, the exchange agent received from the
eligible institution a properly completed and duly executed letter of
transmittal, or a facsimile of such letter of transmittal or an
electronic confirmation pursuant to the Depository Trust Company's ATOP
system, and notice of guaranteed delivery, substantially in the form
provided by us, by facsimile transmission, mail or hand delivery, that:

(a) sets forth the name and address of the holder of existing notes and
the amount of existing notes tendered,

(b) states that the tender is being made thereby, and

(c) guarantees that within three New York Stock Exchange trading days
after the expiration date a book-entry confirmation and any other
documents required by the letter of transmittal, if any, will be
deposited by the eligible institution with the exchange agent; and

. book-entry confirmation and all other documents, if any, required by
the letter of transmittal are received by the exchange agent within
three New York Stock Exchange trading days after the expiration date.

Withdrawal rights

You may withdraw your tender of existing notes at any time prior to
midnight, Eastern Standard Time, on the expiration date.

For a withdrawal to be effective, the exchange agent must receive a written
notice of withdrawal at the address or, in the case of eligible institutions,
at the facsimile number, set forth below under the heading

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<PAGE>

"Exchange agent" prior to midnight, Eastern Standard Time, on the expiration
date. Any notice of withdrawal must:

. specify the name of the person who tendered the existing notes to be
withdrawn;

. contain a statement that you are withdrawing your election to have your
existing notes exchanged;

. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the existing notes were tendered,
including any required signature guarantees; and

. if you have tendered your existing notes in accordance with the
procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at The
Depository Trust Company to be credited with the withdrawn existing
notes and otherwise comply with the procedures of such facility.

Any existing notes that have been tendered for exchange, but which are not
exchanged for any reason, will be credited to an account maintained with the
book-entry transfer facility for the existing notes, as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn existing notes may be retendered by following the
procedures described under the heading "Procedures for tendering existing
notes" above at any time on or prior to midnight, Eastern Standard Time, on
the expiration date.

Conditions for completion of the exchange offer

We will not accept existing notes for exchange notes and may terminate or
not complete the exchange offer if the registration statement covering the
exchange offer is not effective under the Securities Act.

We may not accept existing notes for exchange and may terminate or not
complete the exchange offer if:

. any action, proceeding or litigation seeking to enjoin, make illegal or
delay completion of the exchange offer or otherwise relating in any
manner to the exchange offer is instituted or threatened;

. any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect, or any statute, rule, regulation, governmental order
or injunction shall have been proposed, enacted, enforced or deemed
applicable to the exchange offer, any of which would or might restrain,
prohibit or delay completion of the exchange offer or impair the
contemplated benefits of the exchange offer to us;

. any of the following occurs and the adverse effect of such occurrence
shall, in our reasonable judgment, be continuing:

. any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the over-the-
counter market in the United States;

. any extraordinary or material adverse change in U.S. financial
markets generally, including, without limitation, a decline of at
least twenty percent in either the Dow Jones Average of Industrial
stocks or the Standard & Poor's 500 Index from January, 2000;

. a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States;

. any limitation, whether or not mandatory, by any governmental
entity on, or any other event that would reasonably be expected to
materially adversely affect, the extension of credit by banks or
other lending institutions;

. a commencement of a war or other national or international calamity
directly or indirectly involving the United States, which would
reasonably be expected to affect materially and adversely, or to
delay materially, the completion of the exchange offer;

. if any of the situations described above existed at the time of
commencement of the exchange offer and that situation deteriorates
materially after commencement of the exchange offer;

35
<PAGE>

. any tender or exchange offer, other than this exchange offer by us,
with respect to some or all of our outstanding common stock or any
merger, acquisition or other business combination proposal involving us
shall have been proposed, announced or made by any person or entity;

. any event or events occur that have resulted or may result, in our
judgment, in an actual or threatened change in our business condition,
income, operations, stock ownership or prospects and our subsidiaries,
taken as a whole;

. as the term "group" is used in Section 13(d)(3) of the Securities
Exchange Act,

. any person, entity or group acquires more than five percent of our
outstanding shares of common stock, other than a person, entity or
group which had publicly disclosed such ownership with the SEC
prior to February 7, 2000;

. any such person, entity or group which had publicly disclosed such
ownership prior to such date shall acquire additional common stock
constituting more than two percent of our outstanding shares; or

. any new group shall have been formed that beneficially owns more
than five percent of our outstanding shares of common stock which
in our judgment in any such case, and regardless of the
circumstances, makes it inadvisable to proceed with the exchange
offer or with such acceptance for exchange of shares.

If any of the above events occur, we may:

. terminate the exchange offer and as promptly as practicable return all
tendered existing notes to tendering note holders;

. extend the exchange offer and, subject to the withdrawal rights
described in "--Withdrawal rights" on page 34, retain all tendered
existing notes until the extended exchange offer expires;

. amend the terms of the exchange offer; or

. waive the unsatisfied condition and, subject to any requirement to
extend the period of time during which the exchange offer is open,
complete the exchange offer.

The conditions are for our sole benefit. We may assert these conditions
with respect to all or any portion of the exchange offer regardless of the
circumstances giving rise to them. We may waive any condition in whole or in
part at any time in our discretion. Our failure to exercise our rights under
any of the above conditions does not represent a waiver of these rights. Each
right is an ongoing right which may be asserted at any time. Any determination
by us concerning the conditions described above will be final and binding upon
all parties.

If a stop order issued by the SEC is in effect with respect to the
registration statement of which this document is a part, we will not accept any
existing notes tendered and we will not exchange for any exchange notes.

Fees and expenses

Robertson Stephens is acting as the dealer manager in connection with the
exchange offer. Robertson Stephens will receive a fee in the manner described
below for its services as dealer manager, in addition to being reimbursed for
its out-of-pocket expenses, including attorneys' fees, in connection with the
exchange offer. The fees will be payable if and when the exchange offer is
completed.

The fee will be paid for each $1,000 principal amount of existing notes
tendered, based on a sliding scale, with higher fees per existing note paid on
the incremental principal amount of existing notes tendered above specified
thresholds. The fee scale ranges from $5.00 per $1,000 principal amount up to a
maximum of $35.00 per $1,000 principal amount if more than 75% of the aggregate
principal amount of the existing notes are tendered. Based on the foregoing fee
structure, if all the outstanding existing notes are tendered in the exchange

36
<PAGE>

offer, Robertson Stephens will receive an aggregate fee of approximately $4.3
million, or 1.25%, of the principal amount of existing notes currently
outstanding. This fee will be paid in the form of exchange notes.

Robertson Stephens will also be reimbursed for its reasonable out-of-pocket
expenses incurred in connection with the exchange offer (including the
reasonable fees and disbursements of counsel).

We have agreed to indemnify Robertson Stephens against specified
liabilities relating to or arising out of the offer, including civil
liabilities under the federal securities laws, and to contribute to payments
which Robertson Stephens may be required to make in respect thereof. However,
in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. Robertson
Stephens may from time to time hold existing notes, exchange notes and our
common stock in its proprietary accounts, and to the extent it owns existing
notes in these accounts at the time of the exchange offer, Robertson Stephens
may tender these existing notes.

We have retained Georgeson Shareholder Communications Inc. to act as the
information agent and Norwest Bank Minnesota, National Association to act as
the exchange agent in connection with the exchange offer. The information agent
may contact holders of existing notes by mail, telephone, facsimile
transmission and personal interviews and may request brokers, dealers and other
nominee stockholders to forward materials relating to the exchange offer to
beneficial owners. The information agent and the exchange agent each will
receive reasonable compensation for their respective services, will be
reimbursed for reasonable out-of-pocket expenses and will be indemnified
against liabilities in connection with their services, including liabilities
under the federal securities laws.

Neither the information agent nor the exchange agent has been retained to
make solicitations or recommendations. The fees they receive will not be based
on the principal amount of existing notes tendered under the exchange offer.

We will not pay any fees or commissions to any broker or dealer or any
other person, other than Robertson Stephens, for soliciting tenders of existing
notes under the exchange offer. Brokers, dealers, commercial banks and trust
companies will, upon request, be reimbursed by us for reasonable and necessary
costs and expenses incurred by them in forwarding materials to their customers.

Legal limitation

The above conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition, or may be
waived by us in whole or in part at any time prior to the expiration date of
the exchange offer in our sole discretion. Our failure at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right and
each such right shall be deemed an ongoing right which may be asserted at any
time prior to the expiration date of the exchange offer.

In addition, we will not accept for exchange any existing notes tendered,
and no exchange notes will be issued in exchange for any such existing notes,
if at such time any stop order shall be threatened or in effect with respect to
the registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.

Exchange agent

Norwest Bank Minnesota, National Association, has been appointed as the
exchange agent for the exchange offer. All executed letters of transmittal
should be directed to the exchange agent at the address set forth below.
Questions, requests for assistance, requests for additional copies of this
prospectus or of the letter

37
<PAGE>

of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:

Norwest Bank Minnesota, National Association, Exchange Agent

<TABLE>
<S> <C>
By Registered & Certified Mail: By Regular Mail or Overnight Courier:

NORWEST BANK MINNESOTA, N.A. NORWEST BANK MINNESOTA, N.A.
Corporate Trust Operations Corporate Trust Operations
MAC N9303-121 MAC N9303-121
P.O. Box 1517 Sixth & Marquette Avenue
Minneapolis, MN 55480 Minneapolis, MN 55479
</TABLE>

In Person by Hand Only:

NORWEST BANK MINNESOTA, N.A.
12th Floor--Northstar East Building
Corporate Trust Services
608 Second Avenue South
Minneapolis, MN

For Information Call:

(612) 667-9764

By Facsimile Transmission (for Eligible Institutions only):
Attention: Corporate Trust Operations
Confirm by Telephone

(612) 667-4927

If you deliver the letter of transmittal to an address other than as set
forth above or transmission of instructions via facsimile other than as set
forth above, then such delivery or transmission does not constitute a valid
delivery of such letter of transmittal.

Fees and expenses

We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer. The estimated cash expenses to be incurred
in connection with the exchange offer will be paid by us. We estimate these
expenses in the aggregate to be approximately $500,000.

Consequences of exchanging or failing to exchange existing notes

Holders who tender their existing notes for exchange will not be obligated
to pay any related transfer taxes.

The existing notes that are not exchanged for exchange notes pursuant to
the exchange offer will be subordinate in payment to the exchange notes.

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<PAGE>

CASH OFFER FOR ADDITIONAL EXCHANGE NOTES

In addition to the exchange offer, we will issue to certain holders who
tendered existing notes in the exchange offer and indicated an interest to
purchase additional exchange notes $54.1 million aggregate principal amount of
additional exchange notes for cash, which we refer to as the "cash offer." The
exchange notes in the cash offer are identical in all respects to the exchange
notes issued in the exchange offer as described in this document under the
heading "Description of Exchange Notes."

If the interest payment on the existing notes not tendered in the exchange
has not been paid or provided for by us prior to the closing date, a purchaser
of the additional exchange notes will deposit the purchase price for the
additional exchange notes and we will deposit a global security for the
additional exchange notes with the escrow agent, which will then be released
from escrow if the following two conditions are met on or prior to March 30,
2000:

. the blockage notice, if any, on the existing notes has been lifted by
the banks under our bank facility, allowing us to make the payment of
interest on the existing notes not tendered in the exchange offer; and

. we have agreed with the banks as to the percentage of the proceeds of
the cash raised, if any, from the sale of the additional exchange notes
that is to be paid to the banks under our bank facility.

Norwest Bank Minnesota will be the escrow agent. Robertson Stephens will
act as agent for the purchasers under the Escrow Agreement. If these conditions
are met, remaining proceeds from the escrow after the payment of funds to the
banks will be used by us for general corporate purposes.

If a noteholder's tender of existing notes is withdrawn we will not sell
any additional exchange notes to that holder. Offers to purchase additional
exchange notes must be in denominations of principal amount of $1,000 and any
integral multiple of $1,000.

You may indicate your interest in purchasing additional exchange notes on
the letter of transmittal or by contacting Robertson Stephens.

39
<PAGE>

DESCRIPTION OF EXCHANGE NOTES

We will issue the exchange notes under a subordinated indenture, dated as
of March 1, 2000, between us and Norwest Bank Minnesota, National Association,
as exchange notes trustee, to be supplemented by a supplemental indenture,
dated as of March 1, 2000, between us and the exchange notes trustee. In this
description, we refer to the subordinated indenture, as supplemented by the
supplemental indenture, as the "exchange notes indenture." The following
description is a summary of the material provisions of the exchange notes and
the exchange notes indenture. This summary is subject to and is qualified by
reference to all the provisions of the exchange notes indenture.

As used in this "Description of Exchange Notes" section, references to
"Read-Rite," "we," "our" or "us" refer solely to Read-Rite Corporation and not
its subsidiaries.

General

The exchange notes will be unsecured subordinated obligations of Read-Rite.
The exchange notes are limited to $234,000,000 aggregate principal amount,
which amount includes:

The exchange notes will mature on September 1, 2004 and be payable at a
price of 100% of the principal amount of the exchange notes. The exchange notes
will bear interest at the rate of 10% per year. Interest will be in cash or, at
our option, in common stock at a rate of 10% per year, payable on March 1 and
September 1 of each year. If we elect to pay interest in common stock, the
shares of common stock will be valued at 90% of the average of the closing
prices for the five trading days immediately preceding the second trading day
prior to the interest payment date.

The exchange notes will be unsecured obligations of Read-Rite. The exchange
notes are subordinated to all our senior debt, but senior in right of payment
to the existing notes. Neither we nor our subsidiaries are prohibited from
incurring debt under the exchange notes indenture. There are no financial
covenants in the exchange notes indenture. The exchange notes are effectively
subordinated in right of payment to all indebtedness and liabilities of our
subsidiaries.

The exchange notes will be convertible into common stock at a conversion
price equivalent to a 15% premium over the average of the daily volume weighted
average price for the common stock for each of the five trading days
immediately preceding the second trading day prior to the expiration date of
the exchange offer. The average of the daily volume weighted average price,
known as "VWAP," shall mean the daily volume weighted average price of our
common stock, based on a trading day from 9:00 a.m. to 4:00 p.m., on the Nasdaq
National Market as reported by Bloomberg Financial. We will notify holders of
the conversion price after such determination. The conversion rate will be
subject to adjustment as described under "--Conversion Rights." The exchange
notes are convertible at any time prior to maturity, unless previously redeemed
or repurchased.

We will pay principal and premium, if any, on the exchange notes any you
may submit your exchange notes for conversion, transfer or exchange, without
service charge, at our office maintained for the purpose in the Borough of
Manhattan, The City of New York, which shall initially be an office or agency
of the exchange notes trustee.

If and to the extent we elect to make a payment in common stock instead of
cash with respect to any payment under the terms of the indenture that permits
such election, we may either pay cash for any fractional shares or round the
fractional share up to the nearest whole share.

Book-entry system

The exchange notes will be issued in the form of a global security held in
book-entry form. The Depository Trust Company or its nominee will be the sole
registered holder of the exchange notes for all

40
<PAGE>

purposes under the exchange notes indenture. Owners of beneficial interests in
the exchange notes represented by the global security will hold these interests
pursuant to the procedures and practices of The Depository Trust Company.
Owners of beneficial interest must exercise any rights in respect of their
interests, including any right to convert or require repurchase of their
interests, in accordance with The Depository Trust Company's procedures and
practices. Beneficial owners will not be holders, and will not be entitled to
any rights under the global security or the exchange notes indenture with
respect to the global security. We and the exchange notes trustee may treat The
Depository Trust Company as the sole holder and owner of the global security.

Conversion rights

You may convert your exchange note, in whole or in part, into common stock
at any time prior to the close of business on the maturity date, unless
previously redeemed or repurchased. Your right to convert an exchange 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.

If you are a beneficial owner of exchange notes, you may exercise your
conversion right by delivering to The Depository Trust Company the appropriate
conversion instruction form pursuant to The Depository Trust Company's
conversion program. You can obtain this conversion notice from the office of
any conversion agent. The conversion date will be the date when you deliver
your exchange note and the duly signed and completed notice of conversion to
the conversion agent. As promptly as practicable on or after the conversion
date, we will issue and deliver to the exchange notes trustee a certificate or
certificates for the number of full shares of common stock issuable upon
conversion, together with payment for any fractional shares. These certificates
will be sent by the exchange notes trustee to the conversion agent for delivery
to the holder. The shares of common stock issuable upon conversion of the
exchange notes will be fully paid and nonassessable and will rank pari passu
with our other shares of common stock.

If you surrender your exchange note 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, your exchange note must be
accompanied by payment of an amount equal to the interest payable on such
interest payment date on the principal amount of surrendered exchange notes.
However, you will not be required to submit payment in this period if exchange
notes, or portions of exchange notes, are 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. We will not make any
payment or adjustment for interest or dividends upon conversion. If you convert
your exchange notes, you 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. We will not issue fractional shares but will
instead pay cash based on the market bid price of common stock at the close of
business on the last trading day prior to conversion.

You will not be required to pay any taxes or duties upon conversion but
will be required to pay any tax or duty if the common stock issued upon
conversion of the exchange notes is in a name other than your name.
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.

We will adjust the conversion rate if the following events occur:

(1) we issue common stock as a dividend or distribution on our common
stock;

(2) we issue to all holders of our common stock rights, options or
warrants entitling them to subscribe for or purchase common stock at
less than the current market price of our common stock, provided the
conversion rate will be readjusted if these rights, options or
warrants are not exercised prior to expiration;

(3) we subdivide, combine or reclassify our common stock;

41
<PAGE>

(4) we distribute to all holders of our common stock evidences of
indebtedness of Read-Rite, shares of capital stock or assets,
including securities, but excluding:

. those dividends and distributions listed in (1) above,

. those rights, options and warrants listed in (2) above, and

. all-cash distributions listed in (5) below;

(5) we make distributions consisting exclusively of cash to all holders of
our common stock in an aggregate amount that, combined together with
(A) other such all-cash distributions made within the preceding 12
months in respect of which no adjustment has been made and (B) any
cash and the fair market value of other consideration payable in
respect of any tender offer by us or any of our subsidiaries for
common stock concluded within the preceding 12 months in respect of
which no adjustment has been made, exceeds 12.5% of our market
capitalization; and

(6) we or any of our subsidiaries successfully complete a tender offer for
common stock which involves an aggregate consideration that, together
with (A) any cash and other consideration payable in a tender offer by
us or any of our 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 (B) the aggregate amount of any
such all-cash distributions referred to in (5) 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 our market capitalization on the expiration of such
tender offer.

We reserve the right to make reductions in the conversion rate in addition
to those specified above as we consider 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. We will not make any
conversion rate adjustment until the cumulative adjustments amount to 1.0% or
more of the conversion rate. We will compute any adjustments to the conversion
rate pursuant to this paragraph and will give you notice by mail of any
adjustments.

Under the provisions of our rights agreement, 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. In addition, if we implement a new shareholder rights plan, this
new rights plan must provide that upon conversion of the exchange notes the
holders will receive, in addition to the common stock issuable upon such
conversion, the rights whether or not such rights have separated from the
common stock at the time of such conversion.

If we consolidate or merge with or into another person or any person merges
into us, or in case of any sale, transfer or lease of all or substantially all
of our assets, each exchange note then outstanding will, without the consent of
the holder of any exchange 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 number of shares
of common stock into which the exchange note was convertible immediately prior
this event. However, this provision will not apply to any merger that does not
result in any reclassification, conversion, exchange or cancellation of our
common stock.

We may from time to time increase the conversion rate by any amount for any
period of at least 20 days if our board of directors has made a determination
that such increase would be in the best interests of Read-Rite, which
determination shall be conclusive. We shall give at least 15 days' notice of
any proposed increase. 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, and

. whether the closing price of the common stock is at least 200% of the
conversion price for purposes of determining whether we may
automatically convert the exchange notes.

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<PAGE>

If we make a distribution of property to our stockholders that would be
taxable to such stockholders as a dividend for United States federal income tax
purposes and the number of shares into which exchange notes are convertible is
increased as a result of above antidilution provisions, this increase may be
deemed to be a payment of a taxable dividend to holders. See "Federal Income
Tax Considerations."

We may elect to automatically convert the exchange notes if our stock price
hits specific targets.

We may elect to automatically convert the exchange notes at any time prior
to maturity if the price of our common stock has exceeded 200% of the
conversion price for at least 20 trading days during a 30-day trading period
ending five trading days prior to the notice of automatic conversion. We refer
to this as an "automatic conversion." The notice of automatic conversion must
be given not more than 30 and not less than 15 days before the date of
automatic conversion.

If an automatic conversion occurs on or prior to March 5, 2002, we will pay
additional interest in cash or, at our option, in common stock to holders of
notes. If we elect to pay the additional interest in common stock, the shares
of common stock will be valued at 90% of the average of the closing prices for
the five trading days immediately preceding the second trading day preceding
the conversion date. This additional interest shall be equal to two year's
worth of interest, less any interest actually paid prior to the date of
automatic conversion.

Subordination

The exchange notes will be subordinate in right of payment to the prior
payment in full of all senior debt. The exchange notes would be senior to the
existing notes, since the exchange notes are "notes" within the definition of
senior debt for the existing notes under the indenture for the existing notes.

In the event of:

. any insolvency or bankruptcy case or proceeding, or

. any receivership, liquidation, reorganization or debt restructuring, or

. any liquidation, dissolution or other winding up of Read-Rite, or

. any assignment for the benefit of creditors or any other marshaling of
assets and liabilities of Read-Rite,

the holders of senior debt will be entitled to receive payment in full of all
senior debt in cash or other payment satisfactory to the holders of senior debt
before the holders of the exchange notes are entitled to receive any payment.
However, any amounts previously deposited by us with the exchange notes trustee
or paying agent in accordance with the subordination provisions of the exchange
notes indenture at the time of the deposit may be paid to the holders of the
exchange notes (called "defeased payments").

In the event of our liquidation or insolvency, creditors of Read-Rite 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 exchange
notes.

In the event that any exchange notes are declared due and payable before
their stated maturity as a result of an event of default, the holders of the
senior debt will be entitled to receive payment in full of all senior debt
before the holders of the exchange notes are entitled to receive any payment by
us on the exchange notes, other than defeased payments. If the payment of
exchange notes is accelerated because of an event of default, we are required
under the exchange notes indenture to promptly notify holders of senior debt of
this acceleration.

We may not make any payment on the exchange notes or purchase, redeem or
acquire the exchange notes or make any sinking fund or defeasance payment on
the exchange notes to the exchange notes trustee or paying agent, other than
defeased payments, if:

. a default in the payment of senior debt occurs and is continuing beyond
the applicable grace period, or

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<PAGE>

. any other event of default occurs and is continuing with respect to
designated senior debt that permits the holders of designated senior
debt or their representatives to accelerate the maturity, and the
exchange notes trustee receives a notice of such default (called a
"payment blockage notice") from us, a holder of designated senior debt
or any other person permitted to give this notice under the exchange
notes indenture.

We may resume payments on the exchange notes or purchase, redeem or
otherwise acquire the exchange notes or make a sinking fund or defeasance
payment:

. in the case of a payment default, upon the date on which this default
is cured or waived or ceases to exist, and

. in the case of a nonpayment default, the earlier of the date on which
this 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 the exchange notes
indenture prohibit the payment, distribution, purchase, redemption,
acquisition, sinking fund payment or defeasance payment at such time,
including, without limitation, in the case of a nonpayment default
referred to 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 exchange notes trustee
shall be the basis for a subsequent payment blockage notice. Any payment,
issuance and delivery of cash, property or securities, upon conversion of an
exchange note will be deemed to constitute payment on account of the principal
of the exchange notes, other than stock and subordinated securities of Read-
Rite.

Definitions

"designated senior debt" means our obligations under certain existing
senior debt, including our existing bank revolving credit agreement and bank
term loan agreement, and our obligations under any other particular senior debt
that expressly provides that such senior debt shall be "designated senior debt"
for purposes of the exchange notes indenture.

"senior debt" means the principal of, 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 us 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 exchange notes indenture or thereafter created,
incurred or assumed:

. our indebtedness evidenced by a credit or loan agreement, note, bond,
debenture or other written obligation,

. all of our obligations for money borrowed,

. all of our obligations evidenced by a note or similar instrument given
in connection with the acquisition of any businesses, properties or
assets of any kind,

. our obligations as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting
principles,

. our obligations as lessee under other leases for facilities, equipment
or related assets, whether or not capitalized, entered into or leased
after the date of the exchange notes indenture for financing purposes,
as determined by us,

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<PAGE>

. our obligations under any lease or related document, including a
purchase agreement, that provides that we are contractually obligated
to purchase or cause a third party to purchase the leased property and
our obligations under such lease or related document to purchase or to
cause a third party to purchase such leased property,

. all of our obligations under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts, or similar
agreements or arrangements,

. all of our obligations under letters of credit, bankers' acceptances or
similar facilities, including reimbursement obligations with respect to
any of the foregoing,

. all of our obligations issued or assumed as the deferred purchase price
of property or services, but excluding trade accounts payable arising
in the ordinary course of business,

. all obligations of the type referred to in the above clauses of another
person and all dividends of another person, the payment of which, in
either case, we have assumed or guaranteed, or in effect guaranteed
through an agreement to purchase or otherwise, or for which we are
responsible or liable, directly or indirectly, jointly or severally, as
obligor, guarantor or otherwise, or which is secured by a lien on our
property, and all of our obligations with respect thereto, and

. renewals, extensions, modifications, replacements, restatements and
refundings of, or any indebtedness or obligation issued in exchange
for, any such indebtedness or obligation described the above clauses.

However, senior debt shall not include the existing notes or the exchange
notes or any indebtedness or obligation if the terms of the indebtedness or
obligation expressly provide that the indebtedness or obligation is not
superior in right of payment to the exchange notes.

Optional redemption

At any time on or after March 5, 2002, we may redeem the exchange notes, in
whole or in part, upon not less than 20 nor more than 60 days' notice, at the
following prices, expressed as a percentage of principal amount:

<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
Beginning on March 5, 2002 and ending on February 28, 2003........ 105.0%
Beginning on March 1, 2003 and ending on August 31, 2004.......... 102.5
</TABLE>

and 100% at September 1, 2004, in each case together with accrued interest to,
but excluding, the redemption date.

If fewer than all the exchange notes are to be redeemed, the exchange notes
trustee will select the exchange notes to be redeemed in principal amounts of
$1,000 or multiples of $1,000 by lot or, in its discretion, on a pro rata
basis. If any exchange note is to be redeemed in part, a new exchange note or
exchange notes in principal amount equal to the unredeemed principal portion
thereof will be issued. If a portion of a holder's exchange notes is selected
for partial redemption and the holder converts a portion of this exchange note,
the converted portion shall be deemed to be taken from the portion selected for
redemption.

No sinking fund is provided for the exchange notes.

Repurchase at option of holders upon a change in control

If a change in control occurs, you have the right, at your option, to
require us to repurchase all of your exchange notes, in whole or in part, on
the repurchase date that is 45 days after the date of the company notice,

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<PAGE>

at a price equal to 105% of the principal amount of the exchange notes to be
repurchased, together with interest accrued to, but excluding, the repurchase
date. The exchange notes will be repurchased in multiples of $1,000 principal
amount.

We may, at our option, instead 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. However, we will
not be able to pay the repurchase price in common stock unless we satisfy
certain conditions prior to the repurchase date as provided in the exchange
notes indenture.

We are obligated to give you notice at the change in control and your
repurchase right within 30 days after the occurrence of a change in control
(called the "company notice"). At our request, on or before the 15th day after
the occurrence of a change in control the exchange notes trustee shall give the
company notice. We must also deliver a copy of the company notice to the
exchange notes trustee. To exercise the repurchase right, you must deliver on
or before the 30th day after the date of the company notice irrevocable written
notice to the exchange notes trustee of your decision to exercise your
repurchase right, together with your exchange notes.

A "change in control" shall be deemed to have occurred if there shall
occur:

1. 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 Read-Rite entitling such person to exercise
50% or more of the total voting power of all shares of capital stock
of Read-Rite entitled to vote generally in elections of directors,
other than any such acquisition by Read-Rite, any subsidiary of Read-
Rite or any employee benefit plan of Read-Rite, or

2. any consolidation of Read-Rite with, or merger of Read-Rite into, any
other person, any merger of another person into Read-Rite, or any sale
or transfer of all or substantially all of the assets, other than to a
wholly-owned subsidiary of Read-Rite, of Read-Rite to any other
person, other than

. any such transaction pursuant to which the holders of 50% or more
of the total voting power of all shares of capital stock of Read-
Rite 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

. a merger (A) which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of
capital stock of Read-Rite or (B) which is effected solely to
change the jurisdiction of incorporation of Read-Rite and results
in a reclassification, conversion or exchange of outstanding shares
of common stock into solely shares of common stock.

However, a change in control shall not be deemed to have occurred if
either:

. 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 (1) 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 (2) above) shall equal or exceed 105% of
the conversion price of the exchange notes in effect on each trading
day, or

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<PAGE>

described in clause (1) and/or clause (2) 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 exchange 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 SEC under the Exchange Act. "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 information
to security holders in the event of an issuer tender offer. These Exchange Act
rules may apply in the event that the repurchase option becomes available to
holders of the exchange notes. We will comply with these rules to the extent
applicable at that time.

We may purchase exchange notes in the open market or by tender at any price
or by private agreement. Any exchange note so purchased by us may:

. be reissued or resold, to the extent permitted by applicable law, or

. at our option, be surrendered to the exchange notes trustee for
cancellation.

Any exchange notes surrendered to the exchange notes trustee may not be
reissued or resold and will be canceled promptly. The above provisions would
not necessarily afford you protection in the event of highly leveraged or other
transactions involving us that may adversely affect holders.

Our ability to repurchase exchange notes upon the occurrence of a change in
control is subject to limitations. We may not have the financial resources or
be able to arrange financing to pay the repurchase price for all the tendered
exchange notes. Our existing revolving credit facility and term loan facility
prohibit the repurchase of exchange notes by us or our subsidiaries in cash or
any other form of payment, excluding shares of common stock. In addition, our
ability to repurchase exchange 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. Our ability to repurchase exchange notes may also
be limited by the terms of its subsidiaries' then-existing borrowing
arrangements due to dividend restrictions. Any failure by us to repurchase the
exchange notes when required following a change in control would result in an
event of default under the exchange notes indenture. Any such default may, in
turn, cause a default under our senior debt. In addition, our repurchase of the
exchange 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 other borrowings, including agreements relating to senior
debt.

Consolidation, merger and sale of assets

We may not consolidate with or merge into any other person, in a
transaction in which we are not the surviving corporation, or convey, transfer
or lease its properties and assets substantially as an entirety to, any person
(called a "successor person"), unless:

. 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 our obligations
on the exchange notes and under the exchange notes indenture,

. immediately after giving effect to the transaction, and treating any
indebtedness as a result of the transaction as having been incurred 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

. certain other conditions are met.

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<PAGE>

Modification and waiver

The consent of the holders for a majority principal amount of the
outstanding exchange notes is required to amend or modify the exchange notes
indenture. However, a modification or amendment requires the consent of the
holder of each outstanding exchange note if it would:

. change the stated maturity of the principal of, or any installment of
principal of or interest on, any exchange note,

. reduce the principal amount of, or any premium or interest on, any
exchange note,

. reduce the amount of principal payable upon acceleration of the
maturity,

. change the place or currency of payment of principal of, or any premium
or interest on, any exchange note,

. impair the right to institute suit for the enforcement of any payment
on any exchange note,

. modify the subordination provisions in a manner adverse to the holders
of the exchange notes,

. reduce the percentage in principal amount of exchange notes required
for modification or amendment,

. reduce the percentage in principal amount of exchange notes necessary
for waiver of compliance with certain provisions of the exchange notes
indenture or for waiver of certain defaults, or

. modify such provisions with respect to modification and waiver.

Holders of a majority in principal amount of the exchange notes may waive
any past default under the exchange notes indenture, except a default in the
payment of principal, premium or interest and certain covenants and provisions
of the exchange notes indenture which cannot be amended without the consent of
the holder of each outstanding exchange note.

Events of default

The following will be events of default under the exchange notes indenture:

. we fail to pay principal or premium on any exchange note when due,
whether or not such payment is prohibited by the subordination
provisions of the exchange notes indenture;

. we fail to pay any interest on exchange notes when due, continued for
30 days, whether or not such payment is prohibited by the subordination
provisions of the exchange notes indenture;

. we fail to deposit any sinking fund payment, when due, whether or not
such deposit is prohibited by the subordination provisions of the
exchange notes indenture;

. we fail to perform any of our other covenants in the exchange notes
indenture continued for 60 days after written notice has been given by
the exchange notes trustee or the holders of at least 25% in aggregate
principal amount of the exchange notes as provided in the exchange
notes indenture;

. our bankruptcy, insolvency or reorganization; and

. we fail to pay at final maturity any indebtedness under any bond,
debenture, exchange note or other evidence of indebtedness for money
borrowed by us in a principal amount then outstanding in excess of
$25,000,000, either at stated maturity or upon acceleration, 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
exchange notes indenture.

If an event of default shall occur and be continuing, either the exchange
notes trustee or the holders of at least 25% in aggregate principal amount of
the outstanding exchange notes may declare the principal amount of the exchange
notes to be immediately due and payable. In case of certain events of
bankruptcy, insolvency or

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<PAGE>

reorganization involving Read-Rite, the principal, premium, if any, and
interest on the exchange notes will automatically become immediately due and
payable. Any payment by us on the exchange notes following any such
acceleration will be subject to the subordination provisions of the exchange
notes indenture. After any acceleration, but before a judgment or decree based
on acceleration, holders of a majority in aggregate principal amount of the
outstanding exchange notes 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 exchange notes indenture.

Subject to the provisions of the exchange notes indenture relating to the
duties of the exchange notes trustee in case of an event of default, the
exchange notes trustee will be under no obligation to exercise any of its
rights or powers under the exchange notes indenture at the request or direction
of any of the holders, unless such holders have offered to the exchange notes
trustee reasonable indemnity. Subject to these indemnification provisions,
holders of a majority in aggregate principal amount of the outstanding exchange
notes will have the right to:

. direct the time, method and place of conducting any proceeding for any
remedy available to the exchange notes trustee,

. or exercise any trust or power conferred on the exchange notes trustee
with respect to the exchange notes.

No holder of an exchange note will have any right to institute any
proceeding with respect to the exchange notes indenture unless:

. the holder has previously given to the exchange notes trustee written
notice of a continuing event of default,

. the holders of at least 25% in aggregate principal amount of the
outstanding exchange notes have made a written request and offered
reasonable indemnity to the exchange notes trustee to institute this
proceeding, and

. the exchange notes trustee has failed to institute such proceeding,
within 60 days after this notice, request and offer.

However, these limitations do not apply to a suit instituted by a holder of
an exchange note for the enforcement of payment of the principal, premium, if
any, or interest on the exchange note on or after the due date specified in the
exchange note.

We are required to furnish to the exchange notes trustee annually a
statement by our officers as to whether or not we are in default in the
performance or observance of any of the terms, provisions and conditions of the
exchange notes indenture and, if so, specifying all known defaults.

Transfer and exchange

We have initially appointed the exchange notes trustee as security
registrar, transfer agent and conversion agent, acting through its corporate
trust office. We reserve the right to vary or terminate the appointment of the
security registrar or any transfer agent or conversion agent. In addition, we
may appoint other transfer agents or conversion agents or approve any change in
any security registrar, transfer agent or conversion agent's office.

Purchase and cancellation

Either we or one of our subsidiaries may, to the extent permitted by
applicable law, purchase exchange notes at any price in the open market or
otherwise.

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<PAGE>

All exchange notes surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall be delivered to the
exchange notes trustee. All exchange notes delivered to the exchange notes
trustee shall be canceled promptly by the exchange notes trustee. No exchange
notes shall be authenticated in exchange for any canceled exchange notes.

Replacement of existing notes

We will replace exchange notes that become mutilated, destroyed, stolen or
lost at your expense upon delivery to the exchange notes trustee of the
mutilated exchange notes or evidence of the loss, theft or destruction of the
exchange notes satisfactory to us and the exchange notes trustee. In the case
of a lost, stolen or destroyed exchange note, indemnity satisfactory to the
exchange notes trustee and us may be required at the expense of the holder of
the exchange note before a replacement exchange note will be issued.

Governing law

The subordinated indenture, the supplemental indenture and the exchange
notes are governed by and construed in accordance with the laws of the State of
New York.

The exchange notes trustee

In case an event of default shall occur and not be cured, the exchange
notes 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 this
provision, the exchange notes trustee will be under no obligation to exercise
any of its rights or powers under the exchange notes indenture at the request
of any of the holders of exchange notes, unless they shall have offered to the
exchange notes trustee reasonable security or indemnity.

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<PAGE>

DESCRIPTION OF EXISTING NOTES

We issued the existing notes under a subordinated indenture, dated as of
August 15, 1997, between us and State Street Bank and Trust Company of
California, N.A., as trustee, that was supplemented by the supplemental
indenture, dated as of August 15, 1997, between us and the trustee. In this
description, we refer to the subordinated indenture, as supplemented by the
supplemental indenture, as the "indenture." The following description is a
summary of the material provisions of the existing notes and the indenture.
This summary is subject to and is qualified by reference to all the provisions
of the indenture.

As used in this "Description of Existing Notes" section, references to
"Read-Rite," "we," "our" or "us" refer solely to Read-Rite Corporation and not
its subsidiaries.

General

The existing notes are unsecured subordinated obligations of Read-Rite. The
existing notes are limited to $345,000,000 aggregate principal amount. The
existing notes will mature on September 1, 2004 and be payable at a price of
100% of the principal amount of the existing notes. The existing notes bear
interest at the rate of 6 1/2% per year. Interest will be payable on March 1
and September 1 of each year.

The existing notes are unsecured obligations of Read-Rite. The existing
notes are subordinated to all of our present and future senior debt. Neither we
nor our subsidiaries are restricted from incurring debt under the indenture.
There are no financial covenants in the indenture. The existing notes are
effectively subordinated in right of payment to all indebtedness and
liabilities of our subsidiaries.

The existing notes will be convertible into common stock at the conversion
rate of 24.8524 shares of common stock for each 1,000 principal amount of
existing notes, subject to adjustment as described under "--Conversion Rights,"
at any time prior to maturity, unless previously redeemed or repurchased.

We will pay principal and premium, if any, on the existing notes any you
may submit your existing notes for conversion, transfer or exchange, without
service charge, at our office 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 existing notes were issued in the form of a global security held in
book-entry form. The Depository Trust Company or its nominee will be the sole
registered holder of the existing notes for all purposes under the indenture.
Owners of beneficial interests in the existing notes represented by the global
security will hold these interests pursuant to the procedures and practices of
The Depository Trust Company. Owners of beneficial interest must exercise any
rights in respect of their interests, including any right to convert or require
repurchase of their interests, in accordance with The Depository Trust
Company's procedures and practices. 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. We and the trustee may treat The
Depository Trust Company as the sole holder and owner of the global security.

Conversion rights

You may convert your existing note, in whole or in part, into common stock
at any time prior to the close of business on the maturity date, unless
previously redeemed or repurchased. Your right to convert an existing 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.

If you are a beneficial owner of existing notes, you may exercise your
conversion right by delivering to The Depository Trust Company the appropriate
conversion instruction form pursuant to The Depository Trust Company's
conversion program. You can obtain this conversion notice from the office of
any conversion agent. The conversion date will be the date when you deliver
your existing note and the duly signed and completed notice of conversion to
the conversion agent. As promptly as practicable on or after the conversion
date, we

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<PAGE>

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 for any fractional shares. These certificates will be sent by the
trustee to the conversion agent for delivery to the holder. The shares of
common stock issuable upon conversion of the existing notes will be fully paid
and nonassessable and will rank pari passu with our other shares of common
stock.

If you surrender your existing note 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, your existing note must be
accompanied by payment of an amount equal to the interest payable on such
interest payment date on the principal amount of surrendered existing notes.
However, you will not be required to submit payment in this period if existing
notes, or portions of existing notes, are 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. We will not make any
payment or adjustment for interest or dividends upon conversion. If you convert
your existing notes, you 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. We will not issue fractional shares but will
instead pay cash based on the market bid price of common stock at the close of
business on the last trading day prior to conversion.

You will not be required to pay any taxes or duties upon conversion but
will be required to pay any tax or duty if the common stock issued upon
conversion of the existing notes is in a name other than your name.
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.

We will adjust the conversion rate if the following events occur:

(1) we issue common stock as a dividend or distribution on our common
stock;

(3) we subdivide, combine or reclassify our common stock;

(4) we distribute to all holders of our common stock evidences of
indebtedness of Read-Rite, shares of capital stock or assets,
including securities, but excluding:

. those dividends and distributions listed in (1) above,

. those rights, options and warrants listed in (2) above, and

. all-cash distributions listed in (5) below;

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<PAGE>

Under the provisions of our rights agreement, 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. In addition, if we implement a new shareholder rights plan, this
new rights plan must provide that upon conversion of the existing notes the
holders will receive, in addition to the common stock issuable upon such
conversion, the rights whether or not such rights have separated from the
common stock at the time of such conversion.

If we consolidate or merge with or into another person or any person merges
into us, or in case of any sale, transfer or lease of all or substantially all
of our assets, each existing note then outstanding will, without the consent of
the holder of any existing 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 number of shares
of common stock into which the existing note was convertible immediately prior
this event. However, this provision will not apply to any merger that does not
result in any reclassification, conversion, exchange or cancellation of our
common stock.

If we make a distribution of property to our stockholders that would be
taxable to such stockholders as a dividend for United States federal income tax
purposes and the number of shares into which existing notes are convertible is
increased as a result of above antidilution provisions, this increase may be
deemed to be a payment of a taxable dividend to holders. See "Federal Income
Tax Considerations."

Subordination

The existing notes are subordinate in right of payment to the prior payment
in full of all senior debt. In the event of:

. any insolvency or bankruptcy case or proceeding, or

. any receivership, liquidation, reorganization or debt restructuring, or

. any liquidation, dissolution or other winding up of Read-Rite, or

. any assignment for the benefit of creditors or any other marshaling of
assets and liabilities of Read-Rite,

the holders of senior debt will be entitled to receive payment in full of all
senior debt in cash or other payment satisfactory to the holders of senior debt
before the holders of the existing notes are entitled to receive any payment.
However, any amounts previously deposited by us with the trustee or paying
agent in accordance with the subordination provisions of the indenture at the
time of the deposit may be paid to the holders of the existing notes (called
"defeased payments").

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<PAGE>

In the event that any existing notes are declared due and payable before
their stated maturity as a result of an event of default, the holders of the
senior debt will be entitled to receive payment in full of all senior debt
before the holders of the existing notes are entitled to receive any payment by
us on the existing notes, other than defeased payments. If the payment of
existing notes is accelerated because of an event of default, we are required
under the indenture to promptly notify holders of senior debt of this
acceleration.

We may not make any payment on the existing notes or purchase, redeem or
acquire the existing notes or make any sinking fund or defeasance payment on
the existing notes to the trustee or paying agent, other than defeased
payments, if:

. a default in the payment of senior debt occurs and is continuing beyond
the applicable grace period, or

. any other event of default occurs and is continuing with respect to
designated senior debt that permits the holders of designated senior
debt or their representatives to accelerate the maturity, and the
trustee receives a notice of such default (called a "payment blockage
notice") from us, a holder of designated senior debt or other person
permitted to give this notice under the indenture.

We may resume payments on the existing notes or purchase, redeem or
otherwise acquire the existing notes or make a sinking fund or defeasance
payment:

. in the case of a payment default, upon the date on which this default
is cured or waived or ceases to exist, and

. in the case of a nonpayment default, the earlier of the date on which
this 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 the indenture prohibit
the payment, distribution, purchase, redemption, acquisition, sinking
fund payment or defeasance payment, including, without limitation, in
the case of a nonpayment default referred to 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 shall be the
basis for a subsequent payment blockage notice. Any payment, issuance and
delivery of cash, property or securities, upon conversion of an existing note
will be deemed to constitute payment on account of the principal of the
existing notes, other than stock and subordinated securities of Read-Rite.

Definitions

"senior debt" means the principal of, 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 us 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 indenture or thereafter created, incurred or
assumed:

. our indebtedness evidenced by a credit or loan agreement, note, bond,
debenture or other written obligation,

. all of our obligations for money borrowed,

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<PAGE>

. all of our obligations evidenced by a note or similar instrument given
in connection with the acquisition of any businesses, properties or
assets of any kind,

. our obligations as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting
principles,

. our obligations as lessee under other leases for facilities, equipment
or related assets, whether or not capitalized, entered into or leased
after the date of the indenture for financing purposes, as determined
by us,

. all of our obligations under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts, or similar
agreements or arrangements,

. all of our obligations under letters of credit, bankers' acceptances or
similar facilities, including reimbursement obligations with respect to
any of the foregoing,

. all of our obligations issued or assumed as the deferred purchase price
of property or services, but excluding trade accounts payable arising
in the ordinary course of business,

However, senior debt shall not include the existing notes or any
indebtedness or obligation if the terms of the indebtedness or obligation,
expressly provide that the indebtedness or obligation is not superior in right
of payment to the existing notes.

Optional redemption

At any time on or after September 7, 2000, we may redeem the existing
notes, in whole or in part, upon not less than 20 nor more than 60 days'
notice, at the following prices, expressed as a percentage of principal amount:

<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
Beginning on September 7, 2000 and ending on August 31, 2001..... 103.714%
Beginning on September 1, 2001 and ending on August 31, 2002..... 102.786
Beginning on September 1, 2002 and ending on August 31, 2003..... 101.857
Beginning on September 1, 2003 and ending on August 31, 2004..... 100.929
</TABLE>

and 100% at September 1, 2004, in each case together with accrued interest to,
but excluding, the redemption date.

If fewer than all the existing notes are to be redeemed, the trustee will
select the existing notes to be redeemed in principal amounts of $1,000 or
multiples of $1,000 by lot or, in its discretion, on a pro rata basis. If any
existing note is to be redeemed in part, a new existing note or existing notes
in principal amount equal to the unredeemed principal portion thereof will be
issued. If a portion of a holder's existing notes is selected for partial
redemption and the holder converts a portion of this existing note, the
converted portion shall be deemed to be taken from the portion selected for
redemption.

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<PAGE>

No sinking fund is provided for the existing notes.

Repurchase at option of holders upon a change in control

If a change in control occurs, you have the right, at your option, to
require us to repurchase all of your existing notes, in whole or in part, on
the repurchase date that is 45 days after the date of the company notice, at a
price equal to 100% of the principal amount of the existing notes to be
repurchased, together with interest accrued to, but excluding, the repurchase
date. The existing notes will be repurchased in multiples of $1,000 principal
amount.

We are obligated to give you notice at the change in control and your
repurchase right within 30 days after the occurrence of a change in control
(called the "company notice"). At our request, on or before the 15th day after
the occurrence of a change in control the trustee shall give the company
notice. We must also deliver a copy of the company notice to the trustee. To
exercise the repurchase right, you must deliver on or before the 30th day after
the date of the company notice irrevocable written notice to the trustee of
your decision to exercise your repurchase right, together with your existing
notes.

A "change in control" shall be deemed to have occurred if there shall
occur:

(1) 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 Read-Rite entitling such person to exercise
50% or more of the total voting power of all shares of capital stock
of Read-Rite entitled to vote generally in elections of directors,
other than any such acquisition by Read-Rite, any subsidiary of Read-
Rite or any employee benefit plan of Read-Rite, or

(2) any consolidation of Read-Rite with, or merger of Read-Rite into, any
other person, any merger of another person into Read-Rite, or any sale
or transfer of all or substantially all of the assets, other than to a
wholly-owned subsidiary of Read-Rite, of Read-Rite to any other
person, other than

However, a change in control shall not be deemed to have occurred if
either:

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<PAGE>

the period of 10 consecutive trading days ending immediately before the
change in control (in the case of a change in control under clause (2)
above) shall equal or exceed 105% of the conversion price of the
existing notes in effect on each trading day, or

. 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 control described in
clause (1) and/or clause (2) 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 existing notes become convertible solely into such
common stock.

Rule 13e-4 under the Exchange Act requires the dissemination of
information to security holders in the event of an issuer tender offer. These
Exchange Act rules may apply in the event that the repurchase option becomes
available to holders of the existing notes. We will comply with these rules to
the extent applicable at that time.

We may purchase existing notes in the open market or by tender at any
price or by private agreement. Any existing note so purchased by us may:

. be reissued or resold, to the extent permitted by applicable law, or

. at our option, be surrendered to the trustee for cancellation.

Any existing notes surrendered to the trustee may not be reissued or
resold and will be canceled promptly. The above provisions would not
necessarily afford you protection in the event of highly leveraged or other
transactions involving us that may adversely affect holders.

Our ability to repurchase existing notes upon the occurrence of a change
in control is subject to limitations. We may not have the financial resources
or be able to arrange financing to pay the repurchase price for all the
tendered existing notes. Our existing revolving credit facility and term loan
facility prohibit the repurchase of existing notes by us or our subsidiaries
in cash or any other form of payment, including shares of common stock. In
addition, our ability to repurchase existing 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. Our ability to repurchase
existing notes may also be limited by the terms of its subsidiaries' then-
existing borrowing arrangements due to dividend restrictions. Any failure by
us to repurchase the existing notes when required following a change in
control would result in an event of default under the indenture. Any such
default may, in turn, cause a default under our senior debt. In addition, our
repurchase of the existing 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 other borrowings, including agreements
relating to senior debt.

Consolidation, merger and sale of assets

57
<PAGE>

. certain other conditions are met.

Modification and waiver

The consent of the holders for a majority principal amount of the
outstanding existing notes is required to amend or modify the indenture.
However, a modification or amendment requires the consent of the holder of each
outstanding existing note if it would:

. change the stated maturity of the principal of, or any installment of
principal of or interest on, any existing note,

. reduce the principal amount of, or any premium or interest on, any
existing note,

. reduce the amount of principal payable upon acceleration of the
maturity,

. change the place or currency of payment of principal of, or any premium
or interest on, any existing note,

. impair the right to institute suit for the enforcement of any payment
on any existing note,

. modify the subordination provisions in a manner adverse to the holders
of the existing notes,

. reduce the percentage in principal amount of existing notes required
for modification or amendment,

. reduce the percentage in principal amount of existing notes necessary
for waiver of compliance with certain provisions of the indenture or
for waiver of certain defaults, or

. modify such provisions with respect to modification and waiver.

Holders of a majority in principal amount of the existing notes may waive
any past default under the indenture, except a default in the payment of
principal, premium or interest and certain covenants and provisions of the
indenture which cannot be amended without the consent of the holder of each
outstanding existing note.

Events of default

The following will be events of default under the indenture:

. we fail to pay principal or premium on any existing note when due,
whether or not such payment is prohibited by the subordination
provisions of the indenture;

. we fail to pay any interest on existing notes when due, continued for
30 days, whether or not such payment is prohibited by the subordination
provisions of the indenture;

. we fail to deposit any sinking fund payment, when due, whether or not
such deposit is prohibited by the subordination provisions of the
indenture;

. we fail to perform any of our other covenants in the indenture
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 existing notes as provided in the indenture;

. our bankruptcy, insolvency or reorganization; and

. we fail to pay at final maturity any indebtedness under any bond,
debenture, note or other evidence of indebtedness for money borrowed by
us in a principal amount then outstanding in excess of $25,000,000,
either at stated maturity or upon acceleration, 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.

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<PAGE>

If an event of default shall occur and be continuing, either the trustee or
the holders of at least 25% in aggregate principal amount of the outstanding
existing notes may declare the principal amount of the existing notes to be
immediately due and payable. In case of certain events of bankruptcy,
insolvency or reorganization involving Read-Rite, the principal, premium, if
any, and interest on the existing notes will automatically become immediately
due and payable. Any payment by us on the existing notes following any such
acceleration will be subject to the subordination provisions of the indenture.
After any acceleration, but before a judgment or decree based on acceleration,
holders of a majority in aggregate principal amount of the outstanding existing
notes 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 indenture.

Subject to the provisions of the indenture relating to the duties of the
trustee in case an event of default, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request or
direction of any of the holders, unless such holders shall have offered to the
trustee reasonable indemnity. Subject to these indemnification provisions,
holders of a majority in aggregate principal amount of the outstanding existing
notes will have the right to:

. direct the time, method and place of conducting any proceeding for any
remedy available to the trustee,

. or exercise any trust or power conferred on the trustee with respect to
the existing notes.

No holder of an existing note of any series will have any right to
institute any proceeding with respect to the indenture unless:

. the holder has previously given to the trustee written notice of a
continuing event of default,

. the holders of at least 25% in aggregate principal amount of the
outstanding existing notes have made a written request and offered
reasonable indemnity to the trustee to institute this proceeding, and

. the trustee has failed to institute such proceeding, within 60 days
after this notice, request and offer.

However, these limitations do not apply to a suit instituted by a holder of
an existing note for the enforcement of payment of the principal, premium, if
any, or interest on the existing note on or after the applicable due date
specified in the existing note.

We are required to furnish to the trustee annually a statement by our
officers as to whether or not we are in default in the performance or
observance of any of the terms, provisions and conditions of the indenture and,
if so, specifying all such known defaults.

Transfer and exchange

We have initially appointed the trustee as security registrar, transfer
agent and conversion agent, acting through its corporate trust office. We
reserve the right to vary or terminate the appointment of the security
registrar or any transfer agent or conversion agent. In addition, we may
appoint other transfer agents or conversion agents or approve any change in any
security registrar, transfer agent or conversion agent's office.

Purchase and cancellation

Either we or one of our subsidiaries may, to the extent permitted by
applicable law, purchase existing notes at any price in the open market or
otherwise.

All existing notes surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall be delivered to the
trustee. All existing notes delivered to the trustee shall be canceled promptly
by the trustee. No existing notes shall be authenticated in exchange for any
canceled existing notes.

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<PAGE>

Replacement of existing notes

We will replace existing notes that become mutilated, destroyed, stolen or
lost at your expense upon delivery to the trustee of the mutilated existing
notes or evidence of the loss, theft or destruction of the existing notes
satisfactory to us and the trustee. In the case of a lost, stolen or destroyed
existing note, indemnity satisfactory to the trustee and us may be required at
the expense of the holder of the existing note before a replacement existing
note will be issued.

Governing law

The subordinated indenture, the supplemental indenture and the existing
notes are governed by and construed in accordance with the laws of the State of
New York.

Trustee

In case an event of default shall occur and 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 this provision, 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 existing notes,
unless they shall have offered to the trustee reasonable security or indemnity.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

General

Our authorized capital stock consists of 160,000,000 shares of common
stock, $0.0001 par value per share and 4,000,000 shares of preferred stock,
$0.0001 par value per share. 116,000 shares of our preferred stock are
designated as Series A participating preferred stock. As of December 31, 1999,
there were 49,927,337 shares of common stock issued and outstanding and no
shares of preferred stock issued and outstanding.

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 dividends, if any, as may be declared from time
to time by our board of directors out of legally available funds. In the event
of our liquidation, dissolution or winding up, 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

Our board of directors has designated 116,000 shares of the preferred stock
as Series A preferred stock. 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
of the preferred stock 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 Read-Rite 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. We have no
present plans to issue any of the preferred stock except pursuant to the rights
described below.

Rights agreement

We entered into a Preferred Shares Rights Agreement with ChaseMellon
Shareholder Services, L.L.C., as rights agent in March, 1997. Under the rights
agreement, our board of directors declared a dividend of one right to purchase
one one-thousandth share of our Series A preferred stock for each outstanding
share of common stock. Each right entitles the registered holder to purchase
from Read-Rite one one-thousandth of a share of Series A preferred stock at an
exercise price of $150.00 (called the "purchase price"), subject to adjustment.

The rights will not be exercisable until the distribution date. Rights
certificates will not be sent to stockholders. Currently, the rights trade with
the shares of common stock. The rights will trade separately from the common
stock and the rights will become exercisable upon the earlier of:

. ten days, or such later date as may be determined by our board of
directors,

. following a public announcement that a person or group of affiliated or
associated persons (called an "acquiring person") has acquired
beneficial ownership of 20% or more of our common stock, or

. ten business days, or such later date as may be determined by our board
of directors following the commencement or announcement of a tender
offer or exchange offer which, if consummated, would result in the
beneficial ownership by a person or group of 20% or more of our
outstanding common shares. The earlier of these dates is referred to as
the "distribution date."

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<PAGE>

The right will expire on the earliest of March 17, 2007 or redemption or
exchange of the rights as described below. Following the distribution date,
holders of the rights will initially be entitled to receive one one-thousandth
of a share of Series A preferred stock.

In general, if an acquiring person becomes the beneficial owner of 20% or
more of our common stock, each right not held by the acquiring person will
entitle its holder to common stock having a value equal to two times the
purchase price. If we do not have enough common stock for the rights to be
exercised, or our board decides that this action is necessary and not contrary
to the interests of rights holders, we may instead substitute cash, assets or
other securities for the common stock for which the rights would have been
exercisable.

In general, if an acquiring person becomes the beneficial owner of 20% or
more of our common stock then outstanding:

. we are acquired in a merger or other business transaction, or

. 50% or more of our consolidated assets or earning power are sold, other
than in transactions in the ordinary course of business,

each right will receive, upon exercise, shares of common stock of the acquiring
company having a value equal to two times the purchase price.

At any time after an acquiring person has 20% or more of our common stock
and prior to the acquisition by any person or entity of beneficial ownership of
50% or more of our outstanding common stock, our board of directors may
exchange the rights, other than rights owned by the acquiring person, in whole
or in part, at an exchange ratio of one share of common stock per right.

We may redeem the rights in whole, but not in part, at a price of $0.001
per right. At any time on or prior to the close of business on the earlier of:

. the tenth day following the acquisition by an acquiring person of
beneficial ownership of 20% or more of our common stock or such later
date as may be determined by the board of directors and publicly
announced by Read-Rite, or

. March 17, 2007, the final expiration date of the rights.

Anti-takeover effects of Delaware law

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Under Section 203, we would generally be prohibited from
engaging in any business combination with any interested stockholder for a
period of three years following the time that this stockholder became an
interested stockholder unless:

(1) prior to this 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;

(2) 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, excluding shares owned:

. by persons who are directors and also officers, and

. 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

(3) 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 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.

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<PAGE>

Under Section 203, a "business combination" includes:

. any merger or consolidation involving the corporation and the
interested stockholder;

. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholders;

. any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholders, subject to limited exceptions;

. 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

. 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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<PAGE>

BOOK-ENTRY SYSTEM--THE DEPOSITORY TRUST COMPANY

The exchange notes will be evidenced by a global security initially
deposited with The Depository Trust Company, and registered in the name of Cede
& Co., as The Depository Trust Company's nominee. Except as set forth below,
the global security may be transferred only to another nominee of The
Depository Trust Company or to a successor of The Depository Trust Company or
its nominee.

Holders of exchange notes may hold their interests in the global security
directly through The Depository Trust Company or indirectly through
organizations which are participants in The Depository Trust Company (called
"participants"). Transfers between participants will be affected in the
ordinary way in accordance with The Depository Trust Company rules and will be
settled in clearinghouse funds. The laws of some states require that some
persons take physical delivery of securities in definitive form. As a result,
holders may be unable to transfer beneficial interests in the global security
to those persons.

Holders that are not participants may beneficially own interests in the
global security held by The Depository Trust Company only through participants
or indirect participants, including banks, brokers, dealers, trust companies
and other parties that clear through or maintain a custodial relationship with
a participant. So long as Cede & Co., as the nominee of The Depository Trust
Company, is the registered owner of the global security, Cede & Co. will be
considered the sole holder of the global security for all purposes. Except as
provided below, owners of beneficial interests in the global security will not:

. be entitled to have certificates registered in their names.

. be entitled to receive physical delivery of certificates in definitive
form, and

. be considered registered holders.

We will make payments of interest on and principal of and the redemption or
repurchase price of the global security to Cede & Co., the nominee for The
Depository Trust Company, as the registered holder of the global security. We
will make these payments by wire transfer of immediately available funds.
Neither we, the trustee nor any paying agent will have any responsibility or
liability for:

. records or payments on beneficial ownership interests in the global
security; or

. maintaining, supervising or reviewing any records relating to those
beneficial ownership interests.

We have been informed that The Depository Trust Company's practice is to
credit participants' accounts on the payment date. These payments will be made
in amounts proportionate to participants' beneficial interests in the exchange
notes. Payments by participants to owners of beneficial interests in the
exchange notes represented by the global security held through participants
will be the responsibility of those participants.

We will send any redemption notices to Cede & Co. We understand that if
less than all of the exchange notes are being redeemed, The Depository Trust
Company's practice is to determine by lot the amount of the holdings of each
participant to be redeemed. We also understand that neither The Depository
Trust Company nor Cede & Co. will consent or vote with respect to the exchange
notes. We have been advised that under its usual procedures, The Depository
Trust Company will mail an "omnibus proxy" to us as soon as possible after the
record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights
to those participants to whose accounts the exchange notes are credited on the
record date identified in a listing attached to the omnibus proxy.

A person having a beneficial interest in existing notes represented by the
global security may be unable to pledge that interest to persons or entities
that do not participate in The Depository Trust Company system, or to take
other actions in respect of that interest, because that interest is not
represented by a physical certificate.

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<PAGE>

The Depository Trust Company has advised us that it is:

. a limited purpose trust company organized under the laws of the State
of New York;

. a member of the Federal Reserve System;

. a "clearing corporation" within the meaning of the Uniform Commercial
Code, and

. a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.

The Depository Trust Company was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes to
accounts of its participants. Some of the participants, together with other
entities, own The Depository Trust Company. Indirect access to The Depository
Trust Company system is available to others such as banks, brokers, dealers and
trust companies that clear through, or maintain a custodial relationship with a
participant, either directly or indirectly.

The Depository Trust Company is under no obligation to perform or continue
to perform the above procedures. The Depository Trust Company may discontinue
these at any time. If The Depository Trust Company is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will cause existing notes to be issued in definitive form
in exchange for the global security.

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FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material United States federal income tax
consequences relating to the exchange offer and the ownership and disposition
of the exchange notes and common stock received upon a conversion of exchange
notes by holders that receive their exchange notes in the exchange offer. This
discussion does not purport to address all aspects of United States federal
income taxation that may be relevant to particular holders in light of their
personal circumstances, the United States federal income tax consequences to
certain types of holders subject to special treatment under the Code, or the
effect of any applicable state, local or foreign tax laws. The discussion
assumes that the existing notes are held, and the exchange notes will be held,
as "capital assets" within the meaning of Section 1221 of the Internal Revenue
Code of 1986 (the "Code"). The discussion also assumes that the exchange notes
will be treated as debt for federal income tax purposes.

This discussion is based upon provisions of the Code, the Treasury
Regulations, and judicial and administrative interpretations of the Code and
Treasury Regulations, all as in effect as of the date hereof, and all of which
are subject to change (possibly on a retroactive basis) or different
interpretation. There can be no assurance that the Internal Revenue Service
(the "Service") will not challenge one or more of the tax consequences
described herein, and the Company has not obtained, nor does it intend to
obtain, a ruling from the Service with respect to the federal income tax
consequences of the Exchange Offer.

Investors considering the exchange of existing notes in the exchange offer
are urged to consult their own tax advisors to determine their particular tax
consequences of the exchange offer and the ownership and disposition of the
exchange notes under federal and applicable state, local and foreign tax laws.

As used herein, a "U.S. holder" means a beneficial holder of existing notes
or exchange notes received in the exchange offer that is a citizen or resident
(within the meaning of Section 7701(b) of the Code) of the United States, a
corporation, partnership or other entity formed under the laws of the United
States or any political subdivision thereof, an estate the income of which is
subject to United States federal income taxation regardless of its source and a
trust subject to the primary supervision of a court within the United States
and the control of a United States fiduciary as described in Section
7701(a)(30) of the Code or any other person whose income or gain with respect
to an exchange note is effectively connected with the conduct of a United
States trade or business. A "non-U.S. holder" is any holder other than a U.S.
holder.

Treatment of exchange offer

The tax treatment of a U.S. holder's exchange of existing notes for
exchange notes pursuant to the exchange offer will depend on whether that
exchange is treated as a recapitalization. The exchange will be treated as a
recapitalization only if both the existing notes and the exchange notes
constitute "securities," within the meaning of the provisions of the Code
governing reorganizations. This, in turn, depends upon the facts and
circumstances surrounding the origin and nature of these debt instruments and
upon the interpretation of numerous judicial decisions.

If the exchange of existing notes for exchange notes constitutes a
recapitalization, a U.S. holder will not recognize gain or loss on the
exchange. A U.S. holder will receive a tax basis in the exchange notes equal to
the U.S. holder's adjusted tax basis in the existing notes exchanged for the
exchange notes. The U.S. holder's holding period for the exchange notes will
include the period in which the U.S. holder held the existing notes.

If the exchange of existing notes for exchange notes does not constitute a
recapitalization, a U.S. holder generally will recognize gain or loss on the
exchange of existing notes for exchange notes equal to the difference between
(i) the issue price of the exchange notes received and (ii) the U.S. holder's
adjusted tax basis in the existing notes. A U.S. holder will receive a tax
basis in the exchange notes equal to the fair market value of the exchange
notes, and the U.S. holder's holding period for the exchange notes will
commence on the date after the exchange offer is completed.

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Any gain or loss recognized by a U.S. holder will be long-term capital
gain or loss if the U.S. holder has held the existing notes as capital assets
for more than one year. However, under the market discount rules, any gain
recognized by a U.S. holder will be ordinary income to the extent of the
accrued market discount which has not previously been included in income.

A non-U.S. holder generally will not recognize gain or loss for United
States federal income tax purposes on the exchange of existing notes for
exchange notes, except in the instances comparable to those described in "Non-
U.S. holders--Gain on disposition of the exchange notes and common stock" with
respect to sales of the exchange notes and common stock.

For tax purposes, the exchange offer should generally be considered to
take place on the expiration date.

Tax treatment of the ownership and disposition of exchange notes and common
stock

Stated interest and original issue discount on the exchange notes

The stated interest on the existing notes will be includable in a U.S.
holder's gross income as ordinary income for United States federal income tax
purposes at the time it is paid or accrued in accordance with the U.S.
holder's regular method of tax accounting.

We anticipate that the exchange notes will be issued with de minimis
original issue discount. As a result, we anticipate that a U.S. holder will
not be subject to tax on original issue discount but instead will be subject
to tax only on stated interest on the exchange notes. If, however, the issue
price of the exchange notes is determined to be significantly less than the
stated redemption price at maturity of the exchange notes so that the original
issue discount on the exchange notes is no longer considered to be de minimis,
the United States federal income tax consequences set forth below will apply.

The amount of original issue discount on a debt instrument generally is
equal to the difference between the stated redemption price at maturity of the
debt instrument and the debt instrument's issue price. However, if the
original issue discount on a debt instrument is less than 1/4 of 1 percent of
the stated redemption price at maturity of the debt instrument multiplied by
the number of complete years to maturity, the original issue discount on the
debt instrument is considered de minimis and will be deemed to be zero. The
stated redemption price at maturity of a debt instrument will equal the sum of
all amounts provided under the debt instrument, regardless of whether
denominated as principal or interest, other than "qualified stated interest"
payments. For such purposes, "qualified stated interest" generally means
stated interest that is unconditionally payable in cash or property, other
than debt instruments of the issuer, at least annually at a single fixed rate.
The stated interest on the exchange notes will constitute "qualified stated
interest."

A U.S. holder, other than holders with amortizable bond premium or
offsetting acquisition premium, must include any original issue discount on
the exchange notes as ordinary interest income as it accrues (in advance of
the receipt of any cash payments attributable to such income) in accordance
with a constant yield method based on a compounding of interest, regardless of
such U.S. holder's regular method of tax accounting. Subject to making an
appropriate election, a U.S. holder generally will be permitted to include all
interest that accrues or is to be paid on the exchange notes in income under
the constant yield method applicable to original issue discount, subject to
limitations and exceptions.

Amortizable bond premium and acquisition premium

As discussed above, a U.S. holder's initial tax basis in the exchange
notes will depend in part on the tax treatment of the exchange offer to such
U.S. holder, including whether the U.S. holder reports a gain as a result
thereof. If a U.S. holder's initial tax basis in the exchange notes is greater
than the stated redemption price at maturity, such U.S. holder generally will
not be required to include original issue discount, if any, in income. In
addition, such U.S. holder will have "amortizable bond premium" with respect
to the exchange notes, to the

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extent that the premium is not attributable to the conversion feature on the
exchange note, which may be deductible to the U.S. holder over the term of the
exchange notes.

If a U.S. holder's initial tax basis in the exchange notes is greater than
the issue price of the exchange notes but less than the stated redemption price
at maturity, such U.S. holder generally will be considered to have "acquisition
premium" with respect to the exchange notes, which may reduce the amount of
original issue discount, if any, that the U.S. holder is required to include in
income.

Sale, exchange or retirement of the exchange notes

A U.S. holder generally will recognize gain or loss on the sale, exchange
or retirement of exchange notes equal to the difference between the amount
realized on the sale, exchange or retirement of the exchange notes and the U.S.
holder's adjusted tax basis in the exchange notes. Any gain or loss recognized
on the sale, exchange or retirement of exchange notes will generally be long-
term capital gain or loss if the U.S. holder has held the exchange notes as
capital assets for more than one year, other than amounts attributable to
accrued interest. However, under the market discount rules, any gain recognized
by a U.S. holder will be ordinary income to the extent of the accrued market
discount which has not previously been included in income. For these purposes,
any market discount that the U.S. holder had in the existing notes not been
previously included in income will be considered to be market discount with
respect to the exchange notes.

Constructive dividend

If at any time we make a distribution of property to shareholders that
would be taxable to such shareholders as a dividend for United States federal
income tax purposes and, pursuant to the anti-dilution provisions of the
indenture, the conversion rate of the exchange notes is increased, such
increase may be deemed to be the payment of a taxable dividend to U.S. holders
of exchange notes. If the conversion rate is increased at our discretion, this
increase may be deemed to be the payment of the taxable dividend to U.S.
holders of exchange notes.

Conversion of exchange notes into common stock

A U.S. holder's conversion of an exchange note into common stock will
generally not be a taxable event. The U.S. holder's tax basis in the common
stock received on conversion of exchange notes will be the same as the U.S.
holder's adjusted tax basis in the exchange notes at the time of conversion,
exclusive of any tax basis allocable to a fractional share for which the holder
receives cash. The holding period for the common stock received on conversion
will include the holding period of the exchange notes converted. The receipt of
cash in lieu of fractional shares of common stock should generally result in
capital gain or loss. This capital gain or loss will be measured by the
difference between the cash received for the fractional share interest and the
U.S. holder's tax basis in the fractional share interest.

Common stock

Distributions, if any, paid on the common stock after a conversion, to the
extent made from our current or accumulated earnings and profits, will be
included in a U.S. holder's income as ordinary income as they are paid. Gain or
loss realized on a sale or exchange of common stock will equal the difference
between the amount realized on such sale or exchange and the holder's adjusted
tax basis in such stock. Such gain or loss will generally be long-term capital
gain or loss if the U.S. holder's holding period in the common stock is more
than one year. However, under the market discount rules, any gain recognized by
a U.S. holder will be ordinary income to the extent of the accrued market
discount that has not previously been included in income. For these purposes,
any market discount that the U.S. holder had in the existing notes that carried
over to the exchange notes, and has not been previously included in income,
will be considered to be market discount with respect to the common stock.

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Non-U.S. holders

The following discussion is a summary of the principal United States
federal income and estate tax consequences resulting from the ownership of the
exchange notes or common stock by Non-U.S. holders.

Withholding tax on payments of principal and interest on exchange notes

The payment of principal and interest on exchange notes to a non-U.S.
holder will not be subject to United States federal withholding tax if:

. the Non-U.S. holder does not actually or constructively own 10% or more
of the total voting power of all of our voting stock and is not a
controlled foreign corporation that is related to us within the meaning
of the Code, and

. the beneficial owner of the exchange notes certifies to us or our
agent, under penalties of perjury, that it is not a U.S. holder and
provides its name and address on United States Treasury Form W-8 (or a
suitable substitute form) or 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")
and holds the exchange note certifies under penalties of perjury that
such a Form W-8 (or suitable substitute form) has been received from
the beneficial owner by it or by a financial institution between it and
the beneficial owner and furnishes the payor with a copy thereof.

Gain on disposition of the exchange notes and common stock

Provided that we are at no time a United States real property holding
corporation within the meaning of Section 897(c) of the Code (a "USRPHC"), a
Non-U.S. holder generally will not be subject to United States federal income
tax on gain or income realized on the sale, exchange or redemption of exchange
notes, including the conversion of exchange notes for common stock, or the sale
or exchange of common stock, unless in the case of an individual Non-U.S.
holder such holder is present in the United States for 183 days or more in the
year of such sale, exchange or redemption and either:

. has a "tax home" in the United States and the gain or income is not
attributable to an office or other fixed place of business maintained
by such non-U.S. holder outside of the United States, or

. the gain from the disposition is attributable to an office or other
fixed place of business in the United States.

Even if we are determined to be a USRPHC, a Non-U.S. holder not described
in the preceding sentence will not be subject to United States federal income
tax on any such gain or income provided that such holder does not actually or
constructively own more than 5% of the common stock, including any common stock
that may be received as a result of the conversion of exchange notes and does
not own, on any date on which the holder acquires exchange notes, exchange
notes with an aggregate value of 5% or more of the aggregate value of the
outstanding common stock on such date. Under present law the Company would not
at any time within a specified (generally five-year) period be a USRPHC so long
as during a specified (generally five-year) period:

. the fair market value of its United States real property interests is
less than

. 50% of the sum of the fair market value of its United States real
property interests, interests in real property located outside the
United States and other of its assets that are used or held for use in
a trade or business.

The Company believes that it is not presently a USRPHC, but there can be no
assurance that it will not become a USRPHC in the future.

Common stock

Dividends, if any, paid on the common stock to a Non-U.S. holder generally
will be subject to a 30% United States federal withholding tax, subject to
reduction for non-U.S. holders eligible for the benefits of

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certain income tax treaties. Common stock held by an individual who at the time
of death is not a citizen or resident of the United States (as specially
defined for United States federal estate tax purposes) will be included in the
individual's gross estate subject to reduction of such estate tax if the
individual is eligible for the benefits of an estate tax treaty.

Information reporting and backup withholding

Payments on the exchange notes, and payments of dividends on the common
stock to certain non-corporate holders generally will be subject to information
reporting and possible to "backup withholding" at a rate of 31%. Information
reporting and backup withholding will not apply, however, to payments made on
an exchange note if the certification described under "Non-U.S. holders--
Withholding tax on payments of principal and interest on exchange notes" above
is received, provided in each case that the payor does not have actual
knowledge that the holder is a U.S. holder, or to payments made on the common
stock if such payments are subject to the 30% (or reduced treaty rate)
withholding tax described above under "Non-U.S. holders--Common stock."

Payment of proceeds from the sale of an exchange note or common stock to or
through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding. Payment outside
the United States of the proceeds of the sale of an exchange note or common
stock to or through a foreign office of a "broker" (as defined in applicable
Treasury Regulations) will not be subject to information reporting or backup
withholding, except that, if the broker is a U.S. person, a controlled foreign
corporation for United States tax purposes or a foreign person 50 percent or
more of whose gross income is from a United States trade or business,
information reporting will apply to such payment unless the broker has
documentary evidence in its records that the beneficial owner is not a U.S.
holder and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption.

Any amounts withheld from a payment to a Non-U.S. holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax, and may entitle such holder to a refund, provided
that the required information is furnished to the Service.

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PLAN OF DISTRIBUTION

We have engaged FleetBoston Robertson Stephens Inc. to use its best efforts
to find purchasers for any or all of the $54.1 million of additional exchange
notes to be issued by us for cash pursuant to the cash offer. FleetBoston
Robertson Stephens Inc. is not obligated to take or pay for any of the
additional exchange notes. The purchase price for the additional exchange notes
is 100% of the principal amount of the exchange notes, plus accrued interest
from the issue date. As compensation for its services, we have agreed to pay
FleetBoston Robertson Stephens Inc. a selling commission of 5% of the aggregate
principal amount of additional exchange notes sold in the form of exchange
notes which will be subject to a one-year holding period. We are also paying
FleetBoston Robertson Stephens Inc. a dealer manager fee in connection with the
exchange offer which is discussed under the heading "The Exchange Offer--Fees
and expenses." FleetBoston Robertson Stephens Inc. estimates that attorney's
fees for its counsel will be approximately $450,000 and attorney's expenses
will be approximately $50,000.

The placement agreement provides that the obligations of FleetBoston
Robertson Stephens Inc. are subject to enumerated conditions.

FleetBoston Robertson Stephens Inc. has advised us that it proposes to
resell the exchange notes to holders submitting their existing notes in the
exchange offer that wish to purchase exchange notes in addition to those
received in exchange for their existing notes.

We will enter into a registration rights agreement with FleetBoston
Robertson Stephens Inc. with respect to the exchange notes to be issued to
FleetBoston Robertson Stephens Inc. for payment of their fees in connection
with the issuance of the exchange notes.

Indemnity. The dealer manager agreement provides that we will indemnify
FleetBoston Robertson Stephens Inc. against specific liabilities, including
liabilities under the Securities Act.

Lock-up agreements. All of our executive officers and directors have
agreed, for a period of 90 days after the date of the expiration date of the
exchange offer, not to offer, sell, contract to sell or otherwise sell, dispose
of, loan, pledge, assign or grant (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) any rights to, or
interests in, any shares of common stock, any options or warrants to purchase
any shares of common stock, any securities convertible into or exchangeable for
shares of common stock owned as of the date of this prospectus or subsequently
acquired directly by the holders or to which they have or subsequently acquire
the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc., in some
instances together with Read-Rite, may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. There are no agreements between the representatives and any of our
stockholders providing consent by the representatives to the sale of shares
prior to the expiration of the period of 180 days after the date of this
prospectus.

Future sales. In addition, we have agreed that during the period of 90 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc., issue, sell, contract to sell
or otherwise dispose of any shares of any common stock, any options or warrants
to purchase
any shares of common stock or any securities convertible into, exercisable for
or exchangeable for shares of common stock, other than our sale of shares in
this offering, the issuance of shares of common stock upon the exercise of
outstanding options or warrants and the grant of options to purchase shares of
common stock under our existing stock option, 401(k) or stock purchase plans or
the issuance of shares of common stock upon conversion of the existing notes
and the exchange notes. We also have agreed not to enter into any transaction
(including a derivative transaction) having an economic effect similar to that
of a sale of, any shares or any securities of the company which are
substantially similar to the shares or which are convertible into or
exchangeable for, or represent the right to receive, shares or securities that
are substantially similar to the shares, subject to certain exceptions, without
the prior consent of FleetBoston Robertson Stephens Inc.

No prior market. Prior to this offering, there has been no market for the
exchange notes. Consequently, the initial offering price for the exchange notes
sold in this offering will be determined through negotiations

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between us and FleetBoston Robertson Stephens Inc. Among the factors to be
considered in these negotiations are prevailing market conditions, our
financial information, the price of the existing notes, market valuations of
other companies that we and FleetBoston Robertson Stephens Inc. believe to be
comparable to us, estimates of our business potential and the present state of
our development.

We have been advised by FleetBoston Robertson Stephens Inc. that it
presently intends to make a market in the exchange notes as permitted by
applicable laws and regulations. FleetBoston Robertson Stephens Inc. has no
obligation, however, to make a market in the exchange notes and may discontinue
market making at any time without notice. As a result, we can give you no
assurance regarding the liquidity of the exchange notes or trading markets for
the exchange notes.

Stabilization. We have been advised by FleetBoston Robertson Stephens Inc.
that certain persons participating in this offering may engage in transactions,
including stabilizing bids that may have the effect of stabilizing or
maintaining the market price of the exchange notes. Stabilization bids are bids
for, or the purchase of, exchange notes on behalf of FleetBoston Robertson
Stephens Inc. for the purpose of fixing or maintaining the price of the
exchange notes.

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LEGAL MATTERS

The validity of the exchange notes will be passed upon for us by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
Customary legal matters will be passed upon for the dealer manager by Shearman
& Sterling, Washington, D.C.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our annual report on form 10-K
for the year ended September 30, 1999, as set forth in their report (which
contains an explanatory paragraph describing conditions that raise substantial
doubt about the Company's ability to continue as a going concern as described
in Note 1 to the consolidated financial statements), which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements and schedule are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We file reports, proxy statements and other information with the
Commission, in accordance with the Securities Exchange Act of 1934. You may
read and copy our reports, proxy statements and other information filed by us
at the public reference facilities of the Commission in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-
0330 for further information about the public reference rooms. Our reports,
proxy statements and other information filed with the Commission are available
to the public over the Internet at the Commission's World Wide Web site at
http://www.sec.gov.

The Commission allows us to "incorporate by reference" the information we
filed with them, which means that we can disclose important information by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
made by us with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until our offering is complete:

. Annual Report on Form 10-K for the fiscal year ended September 30,
1999, and

. Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,
1999.

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:

Investor Relations Department
Read-Rite Corporation
345 Los Coches Street
Milpitas, California
(510) 683-7676

You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of those documents.

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The exchange agent:

Norwest Bank Minnesota, National Association

<TABLE>
<S> <C>
By Regular Mail or Overnight Courier: By Registered & Certified Mail:

NORWEST BANK MINNESOTA, N.A. NORWEST BANK MINNESOTA, N.A.
Corporate Trust Operations Corporate Trust Operations
MAC N9303-121 MAC N9303-121
Sixth & Marquette Avenue P.O. Box 1517
Minneapolis, MN 55479 Minneapolis, MN 55480

</TABLE>
In Person by Hand Only:
NORWEST BANK MINNESOTA, N.A.
12th Floor--Northstar East Building
Corporate Trust Services
608 Second Avenue South
Minneapolis, MN

By Facsimile Transmission
(For Eligible Institutions Only):

(612) 667-4927

For Information or Confirmation by Telephone:

(612) 667-9764

The Information Agent:

GEORGESON SHAREHOLDER COMMUNICATIONS INC.

---------------------

17 State Street, 10th Floor
New York, New York 10004
Banks and Brokers Call Collect: (212) 440-9800
Call Toll Free: (800) 223-2064

Any questions or requests for assistance or additional copies of this
prospectus and the letter of transmittal may be directed to the information
agent at its telephone number and location set forth above. You may also
contact your broker, dealer, commercial bank or trust company or other nominee
for assistance concerning the exchange offer.

The dealer manager for the exchange offer:

ROBERTSON STEPHENS
555 California Street, Suite 2600
San Francisco, CA 94104
(415) 781-9700
Call Toll Free: (800) 234-2663
Attention: Mark McGlade, Convertible Securities Desk