I read here an article where are explained couple methods of how to solve Subversion conflicts. What I did not find there, what in my opinion is the easiest way to solve conflict, is the next described method:
Delete all 4 files (README, README.mine, README.r5, README.r6) and update your working copy. The last version from repository will be reverted to your working copy (README with your colleague modifications).
Of course if you made some modifications in README file before Update command with the above method your modifications will be lost.