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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
 
(MARK ONE)
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         FOR THE FISCAL YEAR ENDED JANUARY 2, 1998
         OF
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURIITES EXCHANGE ACT OF 1934
         FOR THE TRANSITION PERIOD FROM              TO
 
                        COMMISSION FILE NUMBER 333-36675
 
                            ------------------------
 
                             BURKE INDUSTRIES, INC.
 
                     (See Table of Other Registrants Below)
             (Exact name of registrant as specified in its charter)
 
                 CALIFORNIA                            94-3081144
      (State or other jurisdiction of               (I.R.S. employer
       incorporation or organization)            identification number)
          2250 SOUTH TENTH STREET
            SAN JOSE, CALIFORNIA                          95112
  (Address of principal executive offices)             (Zip code)
 
                                 (408) 297-3500
              (Registrant's telephone number, including area code)
 
                            ------------------------
 
          Securities Registered Pursuant to Section 12(b) of the Act:
 
                                             NAME OF EACH EXCHANGE ON WHICH
            TITLE OF EACH CLASS:                       REGISTERED:
  ----------------------------------------  ---------------------------------
                    None                                  None
 
          Securities Registered Pursuant to Section 12(g) of the Act:
                           10% SENIOR NOTES DUE 2007
                    GUARANTEES OF 10% SENIOR NOTES DUE 2007
                                (Title of class)
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. /X/
 
    As of March 15, 1998, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $1,872,650. As
of March 15, 1998, the number of outstanding shares of the registrant's Common
Stock was 3,857,000.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
                                     None.
 
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<PAGE>
                           TABLE OF OTHER REGISTRANTS
 
<TABLE>
<CAPTION>
                                                                                                  ADDRESS INCLUDING ZIP
                                                                                                 CODE AND AREA CODE AND
                                         JURISDICTION           PRIMARY          IRS EMPLOYER      TELEPHONE NUMBER OF
                                              OF          STANDARD INDUSTRIAL    IDENTIFICATION    PRINCIPAL EXECUTIVE
NAME OF CORPORATION                      INCORPORATION   CLASSIFICATION NUMBER      NUMBER              OFFICERS
---------------------------------------  -------------  -----------------------  -------------  -------------------------
<S>                                      <C>            <C>                      <C>            <C>
Burke Flooring Products, Inc...........    California               3069            94-2147284      2250 Tenth Street
                                                                                                   San Jose, CA 95112
                                                                                                     (408) 297-3500
 
Burke Rubber Company, Inc..............    California               3069            94-2157283      2250 Tenth Street
                                                                                                   San Jose, CA 95112
                                                                                                     (408) 297-3500
 
Burke Custom Processing, Inc...........    California               3069            94-2157282      2250 Tenth Street
                                                                                                   San Jose, CA 95112
                                                                                                     (408) 297-3500
</TABLE>
 
                                       i
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                             BURKE INDUSTRIES, INC.
                      INDEX TO ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED JANUARY 2, 1998
 
<TABLE>
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            CAPTION                                                                                             PAGE
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PART I
 
Item 1.     Business.......................................................................................           3
 
Item 2.     Properties.....................................................................................          16
 
Item 3.     Legal Proceedings..............................................................................          17
 
Item 4.     Submission of Matters to a Vote of Security Holders............................................          17
 
PART II
 
Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters..........................          18
 
Item 6.     Selected Financial Data........................................................................          18
 
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations..........          23
 
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.....................................          26
 
Item 8.     Consolidated Financial Statements and Supplementary Data.......................................          26
 
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........          26
 
PART III
 
Item 10.    Directors and Executive Officers of the Registrant.............................................          27
 
Item 11.    Executive Compensation.........................................................................          30
 
Item 12.    Security Ownership of Certain Beneficial Owners and Management.................................          32
 
Item 13.    Certain Relationships and Related Transactions.................................................          33
 
PART IV
 
Item 14.    Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K..................          36
</TABLE>
 
                                       2
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                                     PART I
 
ITEM 1. BUSINESS
 
                                    OVERVIEW
 
SUMMARY
 
    Burke, headquartered in San Jose, California, is a leading, diversified
manufacturer of highly engineered, rubber, silicone and vinyl-based (herein
"elastomer") products. Through its vertically integrated operations and
reputation for quality elastomer-based products, Burke has become (i) the
largest domestic producer of precision silicone seals for commercial and
military aircraft ("Aerospace Products"), (ii) a leading nationwide producer of
both rubber and vinyl cove base and floor covering accessories for commercial
and industrial applications ("Flooring Products") and (iii) a value-added
producer of high-performance silicone hose, roofing and membrane products for
the heavy-duty truck, commercial building and fluid containment industries
("Commercial Products").
 
    The Company has grown through new product development and the successful
integration of acquired product lines and production assets. As a result, net
sales increased from $36.4 million in 1993 to $90.2 million in 1997 and EBITDA
increased from $3.8 million to $16.9 million (adjusted to exclude certain
expenses and other items related to the Recapitalization (as defined under the
caption "History" below)) over the same period.
 
AEROSPACE PRODUCTS
 
    Burke is the largest domestic producer of precision silicone seals used at
airframe and internal component junctures in commercial and military aircraft.
Burke's seals are specified on virtually all major domestically produced
commercial aircraft, including every aircraft series manufactured by Boeing and
on substantially all United States military aircraft including cargo, fighter
and bomber series airplanes and several helicopter models. As a result, Burke's
products have been designed into some of the most successful commercial and
military aircraft in the world, including the Boeing 717, 737, 747, 757, 767 and
777, the McDonnell Douglas DC and MD series, the Northrop Grumman F-14 and the
Lockheed Martin L1011. Burke bases its belief that it is the largest domestic
producer of certain components used in commercial and military aircraft upon
internal analysis and informal feedback from customers and competitors.
 
    Products are engineered to customer specifications for selected aircraft
body and engine models and are generally made from custom tooling maintained and
controlled by Burke for use over the life of the specific aircraft program.
Burke benefits from a lengthy product-demand cycle, which can remain active for
as long as 30 years, driven by new aircraft assembly and retrofit and
maintenance projects. Retrofit and maintenance projects accounted for
approximately one-third of the Company's 1997 Aerospace Products sales.
 
    The Aerospace Products business also manufactures low-observable,
radar-absorbing seals and exterior tapes and coatings for stealth military
aircraft and other military applications. These products are currently in use on
the B-2 bomber and will also be used in the F-22, which is being developed to
replace the F-15 as the premier fighter in the United States military arsenal.
 
    Aerospace Products sales increased from $3.6 million in 1993, the year that
Burke first entered the aerospace market with its purchase of assets of Purosil,
Inc. ("Purosil") to $31.2 million in 1997, accounting for approximately 35.0% of
the Company's total net sales in 1997. Management believes the Aerospace
Products business is well positioned to benefit from the strong increase in
commercial aircraft build rates currently occurring and projected by industry
analysts to continue, along with the associated retrofit, refurbishment,
replacement and upgrade projects that are required over the life of the
aircraft.
 
                                       3
<PAGE>
FLOORING PRODUCTS
 
    Through its Flooring Products business, Burke is a leading nationwide
producer of floor covering accessories for commercial and industrial
applications. Burke has historically been the dominant supplier of rubber cove
base (floor border that joins flooring or carpet to a wall), manufactured under
the name BurkeBase, and other rubber-based flooring accessories for commercial
and industrial applications in the western United States.
 
    Burke's principal product offerings include vinyl cove base and rubber cove
base, tile, stair treads, corners, shapes and other flooring accessories. Demand
for the Company's cove base is driven by new commercial construction,
remodeling, redecorating and general maintenance. During periods of slower
growth in new commercial construction, remodeling and redecorating activities
tend to increase, providing stable overall demand for the Company's products.
Flooring Products sales were $23.5 million in 1997, comprising 26.0% of the
Company's total net sales in 1997.
 
COMMERCIAL PRODUCTS
 
    Burke's expertise in the mixing, blending and formulation of silicone and
organic rubber compounds has established its Commercial Products business as a
growing, value-added supplier of elastomer products for use in both intermediate
and end products. The Commercial Products business is comprised of three primary
product lines: (i) high-performance silicone truck hoses for heavy-duty trucks
and buses marketed under the Purosil brand name, (ii) membranes for commercial
roofing and fluid containment systems marketed under the Burkeline trade name
and manufactured from DuPont's patented Hypalon polymer material and (iii)
precision-formulated custom products and sheet goods that utilize Burke's
extensive formulation and production capabilities for use in end-product
elastomer applications. Commercial Products net sales increased from $14.8
million in 1993 to $35.5 million in 1997, and represented 39.4% of the Company's
total net sales in 1997. Management believes that the Commercial Products
business has significant growth potential primarily through the expansion of the
Purosil line of high-end hoses to new customers and channels of distribution and
the development of new applications for the silicone custom product line.
 
COMPETITIVE STRENGTHS
 
    Burke has secured a strong competitive position in each of its specialized
market segments. Burke is the largest provider of aerospace seals to the
domestic commercial and military aerospace industries and also maintains strong
positions in its flooring, roofing and membrane, truck hose and custom product
lines. These competitive positions are sustained through the following
strengths.
 
    ESTABLISHED CUSTOMER RELATIONSHIPS.  The Company enjoys long-term
relationships with many of its customers in each of its markets. These
relationships, whether built by Burke over its long history or assumed in recent
asset acquisitions, provide the Company with a stable base from which to pursue
future expansion and give Burke a significant advantage over potential
competitors seeking to enter the Company's markets. Several of the Burke
trademarks and trade names (BurkeBase, Burkeline, SFS, Haskon and Purosil) are
widely recognized by end users and distributors and are generally associated
with superior levels of quality and customer service in their respective
markets.
 
    DIVERSE REVENUE BASE.  The Company's products are used in a wide variety of
industries and applications and a significant share of the Company's revenue is
derived from the repair and replacement market for its products, including
aerospace seals and tape, cove base, truck hoses and fluid containment membrane.
Replacement demand is typically less affected by slower economic periods.
Management believes that this diversity has and will continue to mitigate the
effect of economic fluctuations.
 
    TECHNOLOGICAL LEADERSHIPS IN ELASTOMER-BASED PRODUCTS.  Burke is widely
recognized as a technological leader in elastomer-based products due to its
strong engineering, design and research capabilities. Burke
 
                                       4
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has 25 specialists in its engineering, design and laboratory departments devoted
to new product development and product cost reduction. Management believes that
its aerospace technical staff is significantly larger than those of its direct
competitors, providing the Company with a competitive advantage in pursuing and
maintaining relationships in the technologically advanced defense and commercial
aerospace industries.
 
    VERTICALLY INTEGRATED PRODUCTION CAPABILITIES.  Burke has vertically
integrated production capabilities that enable it to transform raw organic
rubber and silicone gum into a diverse array of finished products. This
capability allows management more direct control over the Company's product
development, cost structure and quality requirements, providing a competitive
edge in its targeted market segments and enables Burke's Commercial Products
business to selectively participate in market segments as a value-added,
intermediate supplier to other elastomer product producers and users.
 
    EXPERIENCED MANAGEMENT TEAM.  The management team has extensive experience
both with the Company and within the industry and encompasses a balance of both
senior leadership and a strong group of young managers. This management team has
successfully managed the Company's continuing vertical integration efforts and
acquired five independent operations since 1993.
 
BUSINESS STRATEGY
 
    Burke intends to capitalize on its aforementioned competitive strengths in a
variety of ways in each of its major market segments. Key components of this
strategy for each of the Company's businesses include:
 
AEROSPACE PRODUCTS
 
    - PENETRATE INTERNATIONAL MARKET FOR AEROSPACE SEALS.  Management believes
      that the Company is the largest domestic aerospace seal manufacturer and
      has the production capacity to market beyond the United States. With the
      Company's recent acquisitions dramatically increased production capacity
      and, as a result, the Company recently sought and was successful, in being
      designated as a qualified parts manufacturer for a large subcontractor of
      Airbus.
 
    - FOCUS ON VALUE-ADDED MANUFACTURING.  Management intends to further
      increase its participation in the trend towards integrating higher levels
      of processing and finishing to products before shipping to OEMs.
 
    - MAINTAIN STRONG RELATIONSHIPS WITH LEADING PRIME CONTRACTORS.  Management
      believes that its existing relationships with leading prime military
      contractors have positioned the Company to continue to participate in
      "next generation" stealth military programs, including the Joint Strike
      Fighter currently being developed for NATO, through the sale of
      low-observable seals and tape.
 
FLOORING PRODUCTS
 
    - BROADEN DOMESTIC DISTRIBUTION OF FLOORING PRODUCTS.  Although the Company
      is the dominant producer of rubber cove base in the western United States,
      the Company believes it can successfully expand this product line into
      other geographic regions by offering the full complement of its rubber and
      newly acquired vinyl flooring products.
 
    - LEVERAGE BRAND NAME RECOGNITION AND EXISTING DISTRIBUTION CHANNELS.  The
      Company intends to continue to capitalize on the BurkeBase trade name by
      expanding and upgrading its existing product line. The Company also
      believes that it can leverage its strong distribution network for its
      flooring products through the introduction of flooring accessories. For
      example, the Company's new BurkeEmerge product line of photoluminescent
      emergency lighting is an alternative to strip lighting at a 70% lower
      cost. Emergency lighting is increasingly being utilized due to heightened
      public awareness of the dangers that can result from unlit corridors and
      confusing exit signs.
 
                                       5
<PAGE>
COMMERCIAL PRODUCTS
 
    - INCREASE PENETRATION OF PUROSIL SILICONE HOSES.  The Company believes the
      growth opportunities for its Purosil silicone hoses have not yet fully
      been developed, particularly in the heavy-duty truck and bus aftermarket.
      New initiatives include increasing customer share at a major new
      private-label customer, initiating production of silicone hoses for a
      major new OEM customer, and expanding into new product lines.
 
    - PROMOTE ADDITIONAL HYPALON APPLICATIONS.  Management is continuing to work
      with DuPont to promote Hypalon as a durable and environmentally sound
      liner product suitable for new water-containment applications.
 
    In addition to these internal growth strategies, the Company intends to seek
selective acquisitions, where it can expand and strengthen existing product
lines and its distribution and technological capabilities. The Company believes
that certain market niches in which it competes are highly fragmented, with a
number of manufacturers that would make attractive acquisition candidates.
 
INDUSTRY OVERVIEW
 
    Virtually every industry contains applications for elastomeric products.
These products are used wherever there is a need for materials that are
flexible, yet retain their original shape and other properties. Elastomeric
products tend to be a small portion of the total cost of any product, yet can be
critical to a successful design. The Company believes that the demand for
elastomeric products will continue to grow as the performance requirements of
various products are increased.
 
    The Company serves a number of industries with significant usage of
highly-engineered elastomer-based products, including organic rubber, silicone
rubber and vinyl. Customers in these industries value quality, on-time
performance, and the ability to provide technical problem-solving capabilities.
The increasingly complex product design effort of companies in these and other
industries provides ongoing and new opportunities for elastomeric product
applications. The Company believes that its technical resources, experience, and
reputation provide it with a competitive advantage in seeking to provide
products to these industries.
 
                                    HISTORY
 
    The Burke Rubber Company was founded in 1942 as a family-owned manufacturer
of custom industrial rubber products. By the early 1950s, Burke manufactured a
proprietary line of rubber floor tile and cove base as well as custom-molded
rubber products. The Burke product line subsequently grew to include flexible
membrane products for industrial uses, as well as engineered elastomer-based
products for defense-related applications. In 1970, Burke developed an improved
roofing and fluid barrier technology based upon DuPont's patented Hypalon
elastomer polymer. The Company was renamed Burke Industries, Inc. in 1972 to
reflect its broadened base of business. In August 1997, the Company entered into
a recapitalization (the "Recapitalization") pursuant to which the Company was
recapitalized by means of a merger and J.F. Lehman Equity Investors I, L.P.
("JFLEI") and its affiliates became the owners of approximately 65% of the
common equity of the Company, without giving effect to the exercise of certain
options issued to management of the Company.
 
    The Company began expanding beyond its traditional product lines with its
acquisition of the silicone-based aerospace seal and automotive hose production
assets of Purosil in March 1993. In 1995, recognizing that the seals segment of
the aerospace industry was fragmented and ripe for consolidation, Burke sought
to expand its position in the category through the acquisition of assets of two
former industry leaders that were then experiencing financial difficulties:
California-based SFS Industries and Massachusetts-based Haskon Corporation.
Purosil, SFS and Haskon had each been an independent producer of precision
silicone aerospace components, and together had over 100 years of service to the
commercial and military
 
                                       6
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aerospace industry. In the Flooring Products division, the Company expanded its
product lines through the purchase of Kentile's vinyl cove base production
assets in April 1996.
 
    Burke's integration of these acquisitions has led to a dominant position in
the aerospace seals market, opened new markets for its Flooring Products
business, improved operating efficiencies, consolidated overhead and
strengthened technical capabilities.
 
                              PRODUCTS AND MARKETS
 
    Burke is a leader in a number of markets where the Company's vertically
integrated production capabilities and design, engineering and manufacturing
expertise result in a strong competitive position. The Company currently serves
markets for aerospace components, floor covering accessories and a variety of
other commercial products.
 
AEROSPACE PRODUCTS
 
    Operating out of Santa Fe Springs, California and Taunton, Massachusetts,
Burke, through its Aerospace Products business, is the leading domestic
manufacturer of two principal product lines: highly engineered elastomer-based
seals for commercial and military aircraft and low-observable, radar-absorbing
materials for stealth military applications. Burke's non-stealth aerospace
components are marketed under the SFS and Haskon trade names.
 
PRODUCTS
 
    Burke's major aerospace seals products include: aerodynamic seals for
commercial and military airframes, firewall seals for aircraft engines and
nacelles, aircraft door and hatch seals, inflatable seals for cockpit canopies
and large openings, aircraft window seals, and aircraft conductive seals for
electromagnetic interference survivable conditions. Burke's product line ranges
from the most basic extruded seals, costing an average of $30 to $40, to
exceptionally complex seals which may cost in excess of $10,000. Burke's design
and engineering teams have a history of developing solutions for difficult
sealing and shielding problems. Burke's silicone seals are also reinforced (if
required) with a variety of materials including Kevlar, Dacron, Nomex, ceramic
cloth, fiberglass, conductive fabrics, metal mesh, nylon and other materials
which accommodate their demanding applications.
 
    During the late 1980s and early 1990s, SFS invested significant capital
towards the research and development of radar-absorbing and signature-masking
composite materials. This initial research and development established SFS as
the technological leader in this niche defense-related area. Burke has continued
the development of this technology since its acquisition of SFS in 1995.
Generally, Burke works on an exclusive basis with the United States military to
test and develop these highly engineered and technical materials. Once a
contract has been awarded, Burke has historically become the sole supplier to
the United States government as an approved defense contractor. Based on its
history and the Company's proven record in this area, management believes that
Burke will remain a critical partner in product development opportunities in
this sector. Burke maintains a classified area within the Santa Fe Springs
facility where stealth technology products are developed, manufactured and
tested.
 
MARKETS AND CUSTOMERS
 
    Burke's silicone seals are sold directly to manufacturers of commercial and
military aircraft, aerospace component distributors and the United States
government. Burke has maintained its leading position in this market through its
advanced in-house design, engineering, technical and production capabilities
coupled with superior customer service. The engineering staff at Burke works
directly with OEMs to design custom silicone sealing applications. Burke's
aerospace products are designed by Burke engineers in accordance with precise
OEM specifications and quality requirements. Products are rigorously tested
against ISO and OEM standards by Burke and its customers before final approval.
In 1997, the top five
 
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customers of the Aerospace Products division accounted for $22.1 million in net
sales, representing 24.5% and 70.8%, respectively, of the Company's total and
the Aerospace Product division's net sales in that year.
 
    Boeing is the single largest customer of Aerospace Products, and management
believes Burke is likewise the leading supplier of these products to Boeing.
Boeing currently controls over 60% of the worldwide commercial passenger
aircraft market and is enjoying a dramatic expansion in its backlog and orders.
In addition to Boeing, the Company produces seals for every major commercial
aircraft manufacturer in the world and for substantially all major military
manufacturers in the United States, including McDonnell Douglas, Lockheed
Martin, Northrop Grumman, Airbus Industries, Pratt & Whitney, General Electric,
Gulfstream, Rohr, Bombardier and Textron. As a result, Burke's products have
been designed into some of the most successful commercial and military aircraft
in the world, including the Boeing 717, 737, 747, 757, 767 and 777, the
McDonnell Douglas DC and MD series, the Northrop Grumman F-14 and the Lockheed
Martin L1011.
 
    Burke's advanced Aerospace Products business has successfully introduced
several technologies in use by branches of the United States Navy, Air Force and
Army. These include radar-absorbing seals, tapes and other composite materials
utilized on the B-2 bomber, the F-22 fighter and naval surface ships.
Ground-based applications are also being developed in conjunction with United
Defense. The Burke radar-absorbing material technology has potentially much
broader applications than are currently in use, and the Company is presently
involved in initiatives that management believes will greatly expand the market
for its Advanced Aerospace Products business.
 
    The Northrop Grumman B-2 radar-resistant tape program presents a potential
opportunity for expansion of Burke's aerospace business. Burke's revenues from
this program are generated both by new aircraft production and by replacement
tape applied as part of the repair or scheduled maintenance of the aircraft.
Burke has also been qualified to supply the F-22 program. The F-22 is the latest
generation United States Air Force fighter aircraft and is designed to replace
the F-15 as the premier fighter in the United States military arsenal in
approximately four to five years. However, both the B-2 bomber and the F-22
fighter are subject to continuous budgetary scrutiny and Burke's ability to
expand its aerospace business could be limited if either of these programs were
to be curtailed or eliminated.
 
    The advanced Aerospace Products business is also in the second phase of
redesigning the original "over-wing-fairing" seal for the B-1 bomber. This
redesign will proceed with the sale by the Company of working models of the seal
to the United States government in mid 1998. The Company has also bid on a
contract to develop seals for the new Joint Strike Fighter program. Both Boeing
and Lockheed Martin have been selected as the finalists for this program which
is ultimately expected to procure approximately 3,000 multi-service aircraft for
the United States Air Force, Marine Corps and Navy and the United Kingdom Royal
Navy. The program is scheduled for production after the year 2005.
 
COMPETITION
 
    Burke is the largest domestic supplier of highly-engineered silicone seals
for the aerospace OEM market and aftermarket. Burke's domestic competitors are
primarily small, privately-held companies which generally lack Burke's track
record, long-term OEM relationships and capabilities. These competitors include
Kirkhill Rubber Company, Chase-Walton Elastomers, Inc. and Elastomeric Silicone
Products, which was purchased by Bestobell Aviation in August 1997. Management
believes that each of Burke's competitors had silicone aerospace seals revenues
that were significantly less than the Company's revenues from those products in
1997. Additionally, the Company has two principal European competitors, Dunlop
France S.A. and Bestobell Aviation, of the United Kingdom, which enjoy
significant market share among European aircraft manufacturers, including Airbus
Industries.
 
    Management believes that Burke's long-standing customer relationships,
unique design capabilities and superior product quality will continue to support
its position as the leading supplier of engineered silicone seals within this
fragmented market.
 
                                       8
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    Burke is one of only a few companies with the combination of knowledge and
manufacturing capabilities required to develop, test and manufacture engineered
elastomer-based products to military specifications. Many of Burke's Advanced
Aerospace Products are classified in nature, and in many cases project leaders
return to previous classified product suppliers for a preliminary assessment of
future development opportunity.
 
GROWTH AND OPPORTUNITIES
 
    The strong expansion in 1997 commercial aircraft build rates is expected to
continue and to drive long-term growth within Burke's Aerospace Products
business. Boeing and other aircraft producers continue to experience strong
demand for new aircraft. According to recent publications, Boeing expects to
deliver over 500 new aircraft in 1998, compared with 374 in 1997. This increase
in deliveries is the continuation of what many industry analysts believe is a
prolonged industry upturn.
 
    The demand for new aircraft is being driven by increases in passenger miles
traveled and an aging aircraft fleet worldwide. The Aerospace Industries
Association reports that approximately 3,900 existing aircraft will require
replacement over the next 20 years due to age, regulations and prohibitive
maintenance costs. The two largest commercial aircraft manufacturers, Boeing and
Airbus, have recently released their annual market forecasts which corroborate
this view. Management believes that the continuing need for aircraft replacement
parts and upgrades will provide ongoing sales opportunities for Burke over the
life of the aircraft due to Burke's proprietary, in-house tooling for specified
seals and related components. As an OEM-specified supplier of multiple seals and
related components to a variety of aircraft, Burke should benefit from a
substantial installed base for future retrofit and refurbishment projects.
 
    Defense-related applications are also expected to provide significant,
ongoing growth. Lockheed Martin is the primary contractor for the F-22 program
and has been selected as a finalist, along with Boeing, to develop the Joint
Strike Fighter for the United States military and the United Kingdom Royal Navy.
Management believes that Burke's existing supplier relationships with both of
these prime contractors will provide opportunities to participate in these and
other future program developments.
 
    Burke management is also participating in a trend towards more value-added
manufacturing for aerospace OEMs by integrating higher levels of processing and
finishing to components before shipping to OEMs. Burke is encouraging this
higher value-added, higher margin practice with several of its customers in an
effort to strengthen its position as a long-term key supplier.
 
    Burke is currently cooperating with United Defense to develop and test
products that utilize the Company's signature-masking stealth capabilities for
conventional ground-based military applications. Management is optimistic that
one or more of these concepts will receive federal funding and become important
products for Burke. Management has committed significant technical, engineering
and production resources to the Advanced Products division and believes that
programs from this division have the potential to generate substantial revenues
and profitability going forward.
 
FLOORING PRODUCTS
 
    Burke is the leading producer and distributor of specialty rubber flooring
accessory products for use in commercial markets in the western United States.
Burke's trademark BurkeBase has enjoyed a dominant market share in that region
since the early 1950s and is well known throughout the industry. In addition,
Burke extended its BurkeBase flooring product lines beyond rubber products
through its 1996 acquisition of the vinyl cove base production assets of
Kentile. Kentile was a nationally recognized producer of vinyl cove base and
flooring products which were sold into the commercial construction and
refurbishment markets. Burke purchased the cove base manufacturing assets and
subsequently relocated them to its San Jose, California facility. The
integration of Burke's newly acquired vinyl cove base products from Kentile
significantly enhances Burke's national market position in flooring accessories
given vinyl's broad appeal in geographic regions where rubber products have
traditionally been less popular.
 
                                       9
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PRODUCTS
 
    Burke's Flooring Product line consists of a variety of commercial rubber and
vinyl flooring products and accessories including rubber and vinyl cove base,
flooring tiles, stair treads, corners, shapes, special application adhesives and
newly developed luminescent emergency lighting accessories sold under the
BurkeEmerge trademark. Burke flooring and flooring accessory products are
generally recognized by architects, builders, and contractors as the
highest-quality commercial rubber flooring and flooring accessory products
available in terms of construction, durability and ease of installation. In its
principal markets, BurkeBase is utilized in most commercial applications using
resilient tile flooring and virtually all commercial applications involving
carpeting. Other Burke flooring products are employed in commercial and
institutional settings where durability and resilience are of primary
importance.
 
    The addition of commercial vinyl cove base production capabilities from the
acquisition of the Kentile assets in 1996 was an important complement to Burke's
product offerings. Rubber flooring products are generally more expensive than
vinyl products due to their material and manufacturing cost but yield a
longer-lasting product. However, vinyl flooring products are extremely popular
for less demanding applications and are the predominant commercial flooring
construction material in geographic regions outside of the western United
States. The addition of a vinyl cove base product line will create a lower-cost,
complementary offering targeted at less demanding, more cost-sensitive
applications.
 
    New product developments, including profile stair treads, tiles and other
shapes, are becoming increasingly important components of the Flooring Products
business as well. For example, Burke previously sourced its profile tile from an
offshore manufacturer of specialty flooring products. However, in 1996 the
Company invested in production machinery and tooling necessary to manufacture
profile tile in the San Jose facility. This investment will enable Burke to
service this market in a more responsive and price-competitive manner.
 
    Utilizing a proprietary, patent-pending system developed by Burke, the
BurkeEmerge safety strips are photoluminescent runners which can be attached to
cove bases in corridors, on stairwell treads and hand rails, around doors,
windows and signs and in basements, providing up to eight hours of illumination
and leading people to building exits in the event of a power failure. Unlike
conventional emergency lighting, BurkeEmerge requires no batteries or other
electrical power source. These safety strips serve a market for internal
emergency exit aids that has grown due to heightened public awareness of the
dangers that can result from unlit corridors and confusing exit signage.
BurkeEmerge is available in a variety of colors and can be easily installed over
existing cove base, making it suitable for new construction as well as emergency
retrofitting applications.
 
MARKETS AND CUSTOMERS
 
    Burke's Flooring Products are sold primarily to dealers and distributors in
the western United States and through a network of flooring products
distributors in other regions. BurkeBase products are mostly found in commercial
and industrial buildings in the western United States, where the Company enjoys
a dominant market share, including an estimated 80% share of the commercial
rubber cove base market in California. In addition to the San Jose manufacturing
facility, the Company has distribution facilities in Santa Fe Springs,
California and in Bensonville, Illinois, and has hired additional sales
personnel to expand the Company's historically regional focus. As vinyl cove
base is more widely used than rubber cove base at the national level, the
introduction of a Burke vinyl cove base product is expected to create
significant opportunities beyond Burke's traditional product line and geographic
territories. In 1997, the top five customers of the Flooring Products division
accounted for $7.7 million in net sales, representing 8.5% and 32.8%,
respectively, of Burke's total and the Flooring Product division's net sales in
that year. Sales in the western United States accounted for over 80% of Burke's
Flooring product sales in 1997.
 
                                       10
<PAGE>
COMPETITION
 
    While there are a number of companies, both large and small, servicing the
floor covering market, Burke is the largest producer of rubber cove base in the
western United States. Burke's focus over many years on this specialized niche
has created significant brand awareness and customer loyalty. Burke's primary
competitors in flooring accessory products include Roppe Corporation,
Johnsonite, Flexco and Vinyl Plastics Incorporated.
 
GROWTH AND OPPORTUNITIES
 
    While Burke enjoys the leading share of the western United States rubber
cove base market, management believes there are opportunities to increase its
national presence through promotional and incentive-based distributor programs
and through the introduction of its vinyl wall base and moulding product line.
The continued development of the Company's vinyl product line, will allow the
Company to penetrate the eastern United States markets where vinyl has
historically been preferred. Burke's distributor organization is being
strengthened as new distributors either take on Burke as a new supplier due to
its new vinyl production capabilities or, in an effort to consolidate their
supplier base, allow Burke, as its existing rubber flooring products supplier,
to displace other vinyl flooring products suppliers.
 
    A relatively small portion of Burke's Flooring Products sales are currently
made outside of the western United States, although the market for rubber cove
base nationwide is estimated by management at approximately $100 million.
Management believes that its new vinyl product line and midwestern distribution
center will increase Burke's scope and presence in the midwestern and eastern
regions. These initiatives, along with Burke-produced profile tile and
BurkeEmerge safety luminescent products, are expected to support the ongoing
growth within and beyond Burke's traditional markets.
 
COMMERCIAL PRODUCTS
 
    Burke's Commercial Products business serves end markets with both
intermediate and finished silicone and organic rubber-based compounds and
products.
 
PRODUCTS
 
    PUROSIL PRODUCTS.  Burke manufactures and markets a wide range of private
label and Purosil-branded engineered silicone hose products for high-pressure,
heat-sensitive applications. These high-performance products are sold primarily
to OEMs and the aftermarket for heavy-duty trucks and buses. Burke was the first
silicone hose producer in the industry to become ISO 9002 certified and is
preparing for QS 9000 certification. The Company guarantees the performance of
certain higher quality silicone truck hoses for 1,000,000 miles and experiences
negligible product returns and warranty claims each year. The Company also
manufactures silicone hose products for applications in the powerboat, potable
water and food service industries.
 
    New product development is an important focus within this group. Purosil has
responded to recent market demand with newly designed charged-activated-coupling
and knitted hose products for specific applications within the Class 8 truck
market. These additions are expected to strengthen the silicone hose product
line and increase Burke's penetration of the OEM market.
 
    Burke plans to lease an additional facility of approximately 45,000 square
feet beginning in mid 1998. This facility will be devoted to the manufacture and
distribution of Purosil products and should help to increase efficiency and
customer service levels for all of the Company's silicone-based products.
 
    MEMBRANE PRODUCTS.  Burke's membrane products business utilizes the
Company's elastomer-based manufacturing expertise to produce high-end,
single-ply commercial roof-covering systems and flexible liner membranes.
Commercial roofing systems are sold into the new roofing and re-roofing markets
under the Burkeline trade name and have been installed in large and small
commercial and institutional facilities
 
                                       11
<PAGE>
around the world. The Company's membrane products are also used as reservoir
liners and floating potable and waste water covers.
 
    Burke's roofing and liner membrane systems are designed with DuPont's
patented Hypalon polymer material, which is an extremely durable and flexible
material, widely regarded as the highest-quality single-ply product available in
the commercial roofing and membrane market. Burke's membrane products typically
incorporate structural fabric laminated between thin layers of Hypalon.
Burkeline roofing systems are installed by Burke-approved contractors and
technical assistants and are fully warranted for up to 20 years.
 
    Membrane liners and covers are used primarily for protective purposes in
potable water and wastewater projects. The liners and covers are most often used
to protect against contamination of potable water during its storage and
transfer. Hypalon is one of the few polymers which meets environmental standards
regarding sanctioned potable water contact materials. Burke's in-house technical
and engineering groups work directly with municipal engineers and with
distributors and fabricators to assist in the design, testing and selection of
the final product. Burke also manufactures and provides a full line of
custom-made shrouds, gas vents, adhesives and other components necessary to
produce a complete system package.
 
    CUSTOM PRODUCTS.  The custom products group within Burke's Commercial
Products division has capitalized on the Company's sophisticated formulation and
production capabilities to become a value-added partner that collaborates
closely with its customers in designing application-specific advanced products
in both the silicone and organic rubber products markets. The group focuses on
identifying high-margin products that complement its existing product lines and
utilize excess production capacity. These custom products are typically complex
blending and compounding formulations serving as intermediate or finished
products for manufacturers of specialty rubber products and include oil drilling
equipment components, road tape, rocket motor insulation and surface ship bow
domes.
 
MARKETS AND CUSTOMERS
 
    Management believes that the Company is the only approved supplier of
silicone hoses to Mack Trucks. Burke's automotive hose products are also
designed and specified into model builds of other major Class 8 truck OEMs
including Peterbilt and Freightliner.
 
    Burke's membrane roofing products are sold both to distributors and directly
to end-users who favor higher-quality roofing systems and who select Burke based
on its reputation for quality. These roofing systems are typically employed in
high value-added applications where quality, as measured by durability and ease
of maintenance, is critical.
 
    Burke's liner membrane products are used in applications which are typically
outsourced by municipalities on a bid basis and take several months to complete.
Burke's covers and liners are sold to distributors and fabricators who heat weld
the Hypalon-constructed sheets together to create a final product. It is not
unusual for Burke to work with multiple distributors who are bidding for the
same municipal project.
 
    Most of Burke's customers of the custom products unit are repeat users and
range from large industrial companies to niche manufacturers producing
specialized elastomeric products. Burke has developed long-standing
relationships with a broad base of customers as a supplier of both intermediate
and finished products whose technical complexities are suited to its unique
capabilities. Burke markets these products using direct and independent sales
representatives in both the United States and Europe. In 1997, the top five
customers of the Commercial Products division accounted for $11.7 million in net
sales, representing 12.9% and 32.9%, respectively, of the Company's total and
the Custom Product division's net sales in that year.
 
                                       12
<PAGE>
COMPETITION
 
    The marketplace for engineered silicone hose applications is supplied by
three principal companies: Flexfab Horizons International, Thermopol
Incorporated and the Company.
 
    In both roofing and liner systems, Burke competes with other Hypalon-based
product manufacturers and with lower-cost alternatives. Leading manufacturers of
these alternative systems include JPS Elastomerics Corp. and Carlisle Companies,
Inc. Each has significant single-ply membrane roofing businesses and emphasize
their membrane products manufactured from alternative materials as lower-cost,
higher-volume products. Their Hypalon offerings represent a small portion of
their aggregate sales.
 
    There are a number of manufacturers that compete in custom-mixing and
product formulation business, although management believes that only a few match
Burke's comprehensive capabilities in terms of its research, design, materials
compounding, engineering and laboratory testing resources. Burke's custom
products product line has developed a reputation for solving complex formulation
problems and is staffed with experienced compounding professionals.
 
GROWTH AND OPPORTUNITIES
 
    Management believes that the Commercial Products division has significant
growth potential. The Company's Purosil line of silicone truck and industrial
hose is expected to command an increased share of the market based on its
development of new clients and new distribution channels. New initiatives
include increasing customer share at a major private-label customer, initiating
the production of silicone hoses for a major new OEM customer and expanding into
new product areas.
 
    Management also foresees growth potential in the membrane products line as
it works with DuPont to promote Hypalon as a durable and environmentally sound
liner product for new applications. Moreover, management continues to look for
opportunities to capitalize on the Company's vertical integration, wide customer
base and technological leadership to identify new high-margin custom
elastomer-based products.
 
                              SALES AND MARKETING
 
    Burke's sales and marketing personnel are organized by product lines. Based
on the nature of the markets served and the established distribution channels in
a particular segment, products are sold either directly to end-users or through
distributors and independent sales representatives. Burke's Aerospace Products
business has long-standing direct relationships with OEMs and aftermarket
suppliers to the aerospace industry and supports these relationships by
integrating its engineering and operating groups during the design, tooling and
production phases of a customer's project. Burke solidifies its relationships
through ongoing technical support throughout the life of a project.
 
    Burke's Flooring Products business sells through a direct sales effort and
through flooring products distributors. The addition of a vinyl-based product
line will enable Burke to (i) increase its number of first-tier distributors,
specifically in the midwest and east, who, in the past, have not carried Burke
products due to Burke's lack of a vinyl product offering, and (ii) displace
other vinyl suppliers with distributors that already carry Burke's rubber
flooring products line. The Flooring Products business currently utilizes 14
direct sales representatives who manage direct sales and orchestrate the
Company's national marketing efforts through approximately 90 commercial
flooring products distributor locations.
 
    Burke's Commercial Products business utilizes several different sales and
marketing approaches due to the scope of its product offering. Purosil's
high-performance silicone hoses are sold directly to OEMs in the heavy-duty
truck and bus market. The Company also manufactures a number of "standard"
product hoses which are marketed through sales representatives and a national
network of distributors. The other commercial products that Burke produces are
primarily sold through specialized in-house representatives adept at identifying
potential customers who can benefit from Burke's vertically integrated
manufacturing, compound formulation and engineering capabilities.
 
                                       13
<PAGE>
                                 MANUFACTURING
 
RAW MATERIALS
 
    Principal raw materials purchased by the Company for use in its products
include various custom and standard grades of rubber, silicone gum and vinyl as
well as the Hypalon polymer material. The Company has historically not
experienced any significant supply restrictions and has generally been able to
pass through increases in the price of these materials to customers. In 1995,
however, the Company experienced a significant price increase in one of the raw
materials used in the manufacture of one of its Flooring Products. Due to the
competitive nature of the Flooring Products business and the Company's
proprietary formula for this product, the Company was unable to fully pass this
price increase along to its consumers and its gross margins for this product
were adversely affected. Although the Company does not currently anticipate that
it will experience any similar price increases for this or any other raw
material used by the Company in the near future, there can be no assurance that
such price increases will not occur and that the Company's results of operations
will not be adversely affected thereby.
 
VERTICAL INTEGRATION
 
    Burke's operations are vertically integrated for the production of both
silicone and organic rubber-based products. The Company's production process
commences with the receipt of raw materials, followed by a variety of production
steps which generally include mixing, milling, calendering (or extrusion or
stripping), forming and molding and, in the case of silicone, roto-curing.
Management believes Burke's vertical integration provides a key competitive
advantage within the markets it serves.
 
                               OTHER INFORMATION
 
BACKLOG AND WARRANTY
 
    The Company's backlog consists of cancelable orders and is dependent upon
trends in consumer demand throughout the year. Customer order patterns vary from
year to year, largely because of annual differences in consumer end-product
demand, marketing strategies, overall economic and weather conditions. Orders
for the Company's products are generally subject to cancellation until shipment.
As a result, comparison of backlog as of any date in a given year with backlog
at the same date in a prior year is not necessarily indicative of sales trends.
Moreover, the Company does not believe that backlog is necessarily indicative of
the Company's future results of operations or prospects.
 
    The Company's warranty policy is to accept returns of products with defects
in materials or workmanship. The Company will also accept returns of incorrectly
shipped goods where the Company has been notified on a timely basis and, in
certain cases, to maintain customer goodwill. In accordance with normal industry
practice, the Company ordinarily accepts returns only from its customers and
does not ordinarily accept returns directly from consumers. Certain of the
products returned to the Company by its customers, however, may have been
returned to those customers by consumers. The Company generally warrants its
roofing products for two years, for which the related costs are not significant.
In addition, the Company sells extended warranties on roofing products for ten
to twenty years. During the three-year period ended January 2, 1998, the Company
incurred insignificant warranty costs with respect to its roofing products.
 
                                       14
<PAGE>
EMPLOYEES
 
    The Company employed at January 2, 1998, 887 employees at its four
locations, including 780 involved in manufacturing and manufacturing support and
85 involved in product sales. Employees at the Company's four locations receive
comparable insurance and benefit programs. Burke's employees at the San Jose and
Taunton locations are represented by the International Association of Machinists
and Electrical Workers Unions, respectively. The collective bargaining agreement
for the Taunton location was renegotiated in June 1997 for a three-year term and
the agreement for the San Jose location was renegotiated in October 1997 for a
three-year term. The Company has not experienced a work stoppage due to a labor
dispute since 1975 and management believes that the Company's relationships with
its employees and unions are good.
 
PATENTS, TRADEMARKS, TRADE NAMES AND TRADE SECRETS
 
    The success of the Company's various businesses depends in part on the
Company's ability to exploit certain proprietary patents, trademarks, trade
names and trade secrets on an exclusive basis in reliance upon the protections
afforded by applicable copyright, patent and trademark laws and regulations. The
loss of certain of the Company's rights to such patents, trademarks, trade names
and trade secrets or the inability of the Company effectively to protect or
enforce such rights could adversely affect the Company. The duration of the
Company's intellectual property rights is as follows:
 
PATENTS
 
<TABLE>
<CAPTION>
                                                                  GATT
 PATENT NO.                        TITLE                         EXPIRY
------------  ------------------------------------------------  ---------
<S>           <C>                                               <C>
  4,608,792   Roof membrane holdown system                       11/12/08
  4,603,790   Tensioned reservoir cover, rainwater run-off        3/11/05
                enhancement system
</TABLE>
 
TRADEMARKS
 
<TABLE>
<CAPTION>
MARK                                                            EXPIRATION
--------------------------------------------------------------  -----------
<S>                                                             <C>
VAC-Q-ROOF....................................................     12/1/98
ROULEAU.......................................................    12/27/08
BURKEBASE.....................................................      6/4/05
SURETITE......................................................      7/4/01
BURKE INDUSTRIES..............................................     4/19/07
ARGONAUT......................................................      4/1/09
</TABLE>
 
ENVIRONMENTAL LIABILITY
 
    The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous and non-hazardous substances and wastes.
These laws and regulations provide for substantial fees and sanctions for
violations and, in many cases, could require the Company to remediate a site to
meet applicable legal requirements. In connection with the Recapitalization,
JFLEI conducted certain investigations (including, in some cases, reviewing
environmental reports prepared by others) of the Company's operations and its
compliance with applicable environmental laws. The investigations, which
included Phase I assessments (consisting generally of a site visit, records
review and non-intrusive investigation of conditions at the subject facility) by
independent consultants, found that certain facilities have had or may have had
releases of hazardous materials that
 
                                       15
<PAGE>
may require remediation. Pursuant to the Merger Agreement (as defined below),
the former shareholders of the Company have agreed, subject to certain
limitations as to survival and amount, to indemnify the Company against certain
environmental liabilities incurred prior to the consummation of the
Recapitalization. Based in part on the investigations conducted and the
indemnification provisions of the Agreement and Plan of Merger, dated as of
August 13, 1997 (the "Merger Agreement") among JFLEI, JFL Merger Co.
("MergerCo") and certain former shareholders of the Company (pursuant to which
the Company was recapitalized by means of a merger of MergerCo into the Company
(the "Merger") with the Company surviving the Merger) with respect to
environmental matters, the Company believes, although there can be no assurance,
that its liabilities relating to these environmental matters will not have a
material adverse effect on its future financial position or results of
operations. The Company does not maintain a reserve for environmental
liabilities.
 
SUBSEQUENT EVENTS
 
    On March 5, 1998, the Company entered into a Stock Purchase Agreement with
Sovereign Specialty Chemicals, Inc. ("Sovereign") and Mercer Products Company,
Inc. ("Mercer") pursuant to which the Company will acquire from Sovereign all of
the outstanding capital stock of Mercer for an aggregate price of $35,750,000,
subject to working capital and other adjustments (the "Mercer Acquisition").
 
    Founded in 1958, and headquartered in Eustis, Florida, Mercer is a leading
manufacturer of extruded plastic and vinyl products such as vinyl and rubber
cove base, transitional and finish moldings, corners, stair treads and other
accessories. Mercer also sells a range of related adhesive products. Mercer's
product and distribution lines strongly complement the Company's Flooring
Products business. While the Company is the dominant producer of rubber cove
base and floor covering accessories in the western United States, Mercer is a
leading supplier to the vinyl cove base and moulding products markets and has a
particularly strong presence in the eastern United States.
 
    Through the Mercer Acquisition the Company will significantly enhance its
already strong flooring product offerings, distribution channels and product
development capabilities. The Mercer Acquisition also presents the opportunity
for cost savings through economies of scale and shared resources.
 
    Mercer has experienced consistently profitable historical financial results,
with steady growth in sales and significant increases in EBITDA since 1995. Net
sales increased 7.2% and 1.4%, respectively, in 1996 and 1997, while EBITDA
increased 8.8% and 49.5%, respectively, over the same period.
 
    Under the Stock Purchase Agreement, the consummation of the Mercer
Acquisition is subject to customary conditions, including the expiration of any
applicable waiting periods under Hart-Scott-Rodino Antitrust Improvements Act of
1976. The Stock Purchase Agreement also contains customary representations and
warranties from Sovereign to the Company. Certain of these representations and
warranties, and related indemnification rights, will terminate after a limited
time following the effectiveness of the Mercer Acquisition.
 
    In order to finance the Mercer Acquisition, the Company will need to raise
additional funds, through an increase in its existing credit facility and/or the
issuance of floating rate debt or other securities, which may necessitate the
amendment of certain provisions of the indenture governing the Company's 10%
Senior Notes due 2007 (the "Senior Notes").
 
ITEM 2. PROPERTIES
 
FACILITIES
 
    San Jose, California serves as the corporate headquarters for Burke as well
as the manufacturing site for the Flooring Products business and the organic
rubber portion of the Commercial Products business. Santa Fe Springs, California
is the manufacturing headquarters for Burke's silicone production activities and
houses most of its Aerospace Products and all of its silicone Commercial
Products businesses. Along
 
                                       16
<PAGE>
with the industrial hose production, the Aerospace Products business classified
development and production areas are also located at the Santa Fe Springs
facility. The Taunton, Massachusetts facility is the manufacturing site for
Burke's Haskon aerospace operations. This location provides Burke with an
alternative eastern United States manufacturing presence for its aerospace
customers.
 
    As of February 28, 1998, Burke maintained operations at the following
locations:
 
<TABLE>
<CAPTION>
                                     SQUARE
LOCATION                             FOOTAGE    OWNERSHIP                          FUNCTION
----------------------------------  ---------  -----------  -------------------------------------------------------
<S>                                 <C>        <C>          <C>
San Jose, CA......................    123,000       Owned   Manufacturing, Engineering, Distribution, Offices
San Jose, CA......................     82,000      Leased   Manufacturing, Warehouse
Santa Fe Springs, CA..............     80,000      Leased   Manufacturing, Engineering, Distribution, Offices
Santa Fe Springs, CA..............     25,000      Leased   Mixing
Santa Fe Springs, CA..............     25,000      Leased   Distribution
Taunton, MA.......................     85,000      Leased   Manufacturing, Engineering, Distribution, Offices
Bensonville, IL...................     15,000      Leased   Distribution
</TABLE>
 
    These facilities produce molded, extruded and calendered forms of organic
rubber and silicone which are then fabricated by machine or by skilled labor
into finished products. The Company's engineering, design and research and
development departments play a significant role in the initial product design
and compound formulation used in the production process. Burke has sophisticated
laboratories in each of its manufacturing facilities which allow the Company to
perform most of its necessary testing in-house.
 
    In addition to the facilities identified above, the Company leases a 113,000
square foot facility in Modesto, California, which is subleased to the purchaser
of the Company's custom-molded products business in connection with the sale of
that business in 1996.
 
ITEM 3. LEGAL PROCEEDINGS
 
    The Company is routinely involved in legal proceedings related to the
ordinary course of its business. Management does not believe any such matters
will have a material adverse effect on the Company. The Company maintains
property, general liability and product liability insurance in amounts which it
believes are consistent with industry practices and adequate for its operations.
 
    On or about December 28, 1997, a former employee filed a complaint in the
California Superior Court for the County of Santa Clara against the Company and
certain of the Company's current and former officers and directors. On March 11,
1998, plaintiff filed an amended complaint against the same defendants. The
former employee alleges that he was induced to sell his Company stock to the
Company and/or to the officer and director defendants in August 1996 through the
use of allegedly false and/or misleading statements. The amended complaint
asserts claims for fraud and deceit, breach of fiduciary duty, violations of the
certain provisions of the California Corporations Code, negligent
misrepresentation, breach of contract, intentional infliction of emotional
distress, and for declaratory relief. The Company denies the allegations that
have been asserted by the former employee and intends vigorously to defend such
claims.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    None.
 
                                       17
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
COMMON EQUITY DIVIDENDS
 
    The Company's Common Stock is not listed or traded on any exchange. At
January 2, 1998, there were approximately 13 holders of the Company's Common
Stock.
 
    The Company has not paid any cash dividends on its Common Stock to date. The
Company intends to retain all future earnings for use in the development of its
business and does not anticipate paying cash dividends in the foreseeable
future. The payment of all dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, the general financial condition of the Company
and general business conditions. The ability of the Company and its subsidiaries
to pay dividends is restricted by the indentures governing the Senior Notes and,
with respect to the Common Stock, the Company's Articles of Incorporation.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
    On August 20, 1997, the Company issued $110,000,000 principal amount of 10%
Senior Notes due 2007 of the Company (the "Senior Notes") to NationsBanc Capital
Markets, Inc. (the "Initial Purchaser"). The aggregate price to the public of
the Senior Notes was $110,000,000 and the aggregate initial purchaser's
discounts and commissions were $3,300,000, resulting in aggregate proceeds to
the Company of $106,700,000. The Initial Purchaser subsequently resold the
Senior Notes in reliance on Rule 144A under the Securities Act of 1933, as
amended.
 
ITEM 6. SELECTED FINANCIAL DATA
 
                SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
    The selected consolidated financial data below for the Company for the three
years ended January 2, 1998 and as of January 3, 1997 and January 2, 1998 have
been derived from the Consolidated Financial Statements of the Company which
have been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Report. The selected consolidated financial data below for the
Company for the years ended December 31, 1993 and December 30, 1994 and as of
December 31, 1993, December 30, 1994 and December 29, 1995, have been derived
from the Consolidated Financial Statements of the Company which have also been
audited by Ernst & Young LLP, but which are not included elsewhere herein. The
information presented below is qualified in its entirety by, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements of
the Company and the related notes included elsewhere in this Report. The data
below reflect the acquisition by the Company of certain assets of Purosil in
March 1993; of Silicone Fabrication Specialists, Inc. ("SFS") in February 1995;
of Haskon Corporation ("Haskon") in
 
                                       18
<PAGE>
June 1995; of Kentile Corporation ("Kentile") in April 1996; and the effect of
the Recapitalization in August 1997.
 
<TABLE>
<CAPTION>
                                                                                  FISCAL YEAR
                                                             -----------------------------------------------------
                                                               1993       1994       1995       1996       1997
                                                             ---------  ---------  ---------  ---------  ---------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                                          <C>        <C>        <C>        <C>        <C>
OPERATING DATA:
Net sales..................................................  $  36,431  $  44,370  $  68,411  $  72,466  $  90,228
Cost of sales..............................................     25,355     29,998     49,226     49,689     62,917
                                                             ---------  ---------  ---------  ---------  ---------
Gross profit...............................................     11,076     14,372     19,185     22,777     27,311
Selling, general and administrative expenses(1)............      9,215      8,152     10,212     11,610     12,238
Transaction expenses(2)....................................     --         --         --         --          1,321
Stock option purchase(3)...................................     --         --         --         --         14,105
                                                             ---------  ---------  ---------  ---------  ---------
Income (loss) from operations..............................      1,861      6,220      8,973     11,167       (353)
Interest expense, net......................................      2,897      2,812      3,007      2,668      5,408
                                                             ---------  ---------  ---------  ---------  ---------
Income (loss) before income tax provision (benefit),
  cumulative effect of accounting change, extraordinary
  loss and discontinued operation(4).......................     (1,036)     3,408      5,966      8,499     (5,761)
Income tax provision (benefit).............................        146      1,395      3,393      3,466     (1,818)
                                                             ---------  ---------  ---------  ---------  ---------
Income (loss) from continuing operations before cumulative
  effect of accounting change, extraordinary loss and
  discontinued operation(4)................................  $  (1,182) $   2,013  $   2,573  $   5,033  $  (3,943)
                                                             ---------  ---------  ---------  ---------  ---------
                                                             ---------  ---------  ---------  ---------  ---------
Net income (loss)(4).......................................  $    (657) $   1,502  $   1,094  $   4,101  $  (3,943)
                                                             ---------  ---------  ---------  ---------  ---------
                                                             ---------  ---------  ---------  ---------  ---------
OTHER DATA:
EBITDA(5)..................................................  $   3,831  $   7,490  $  10,461  $  12,586  $  16,851(6)
EBITDA margin(5)...........................................       10.5%      16.9%      15.3%      17.4%      18.7%(6)
Depreciation and amortization..............................      1,970      1,270      1,488      1,419      1,499
Capital expenditures(7)....................................        530        335      3,647      1,684      1,454
Cash interest expense......................................      2,500      2,438      2,683      1,950      2,059
Ratio of earnings to fixed charges(8)......................     --            2.1x       2.8x       3.7x    --
</TABLE>
 
<TABLE>
<CAPTION>
                                                                            AS OF FISCAL YEAR END
                                                            ------------------------------------------------------
                                                              1993       1994       1995        1996       1997
                                                            ---------  ---------  ---------  ----------  ---------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                                         <C>        <C>        <C>        <C>         <C>
BALANCE SHEET DATA:
Working capital...........................................  $   4,932  $   4,766  $   5,402  $    5,328  $  21,678
Total assets..............................................     30,535     28,551     39,729      40,673     62,837
Long-term obligations, less current portion...............     20,011     16,937     21,803      18,126    110,000
Shareholders' equity (deficit)............................       (654)       849        340       4,283    (86,490)
</TABLE>
 
------------------------
 
(1) Selling, general and administrative expenses include amortization of
    acquisition costs of $850 in 1993.
 
(2) Reflects $1,321 of expenses associated with the Recapitalization in August
    1997.
 
(3) Reflects the Company's cost to purchase options issued and outstanding under
    the Company's stock option plan in connection with the Recapitalization in
    August 1997.
 
(4) Net income reflects (i) benefit of cumulative effect of change in accounting
    method for income taxes of $551 in 1993, (ii) extraordinary loss on debt
    settlement, net of income tax benefit, of $815 in 1995 and (iii) losses, net
    of income tax benefit, of $26, $511, $664 and $308 in 1993, 1994, 1995 and
    through June 28, 1996, respectively, incurred by the Company's custom-molded
    organic rubber products
 
                                       19
<PAGE>
    manufacturing operations, the assets of which were disposed of in June 1996,
    and loss, net of income tax benefit, of $624 in 1996 on disposal of those
    assets.
 
(5) EBITDA is the sum of income (loss) before cumulative effect of changes in
    accounting principles, extraordinary loss, discontinued operation, income
    tax provision (benefit) and interest, depreciation and amortization expense.
    EBITDA is presented because it is a widely accepted financial indicator of a
    company's ability to service indebtedness. However, EBITDA should not be
    considered as an alternative to income from operations or to cash flows from
    operating activities (as determined in accordance with generally accepted
    accounting principles) and should not be construed as an indication of a
    company's operating performance or as a measure of liquidity.
 
(6) Reflects EBITDA excluding costs of stock option purchase, transaction
    expenses related to the Recapitalization and management fees paid to a
    former controlling shareholder.
 
(7) Capital expenditures include the acquisition of assets of Purosil for $297
    in 1993; of SFS for $1,578 and Haskon for $2,081 in 1995 and of Kentile for
    $854 in 1996.
 
(8) In calculating the ratio of earnings to fixed charges, earnings consist of
    income (loss) before income tax provision (benefit), cumulative effect of
    accounting change, extraordinary loss and discontinued operation plus fixed
    charges (excluding capitalized interest). Fixed charges consist of interest
    incurred (which includes amortization of deferred financing costs) whether
    expensed or capitalized and a portion of rental expense estimated to be
    attributable to interest. Earnings were insufficient to cover fixed charges
    by $1.0 million and $5.8 million for fiscal years ended 1993 and 1997,
    respectively.
 
                                       20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS
 
    This Report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. The words
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company, with respect to future events and are subject to
certain risks, uncertainties and assumptions, that could cause actual results to
differ materially from those expressed in any forward-looking statement,
including, without limitation: competition from other manufacturers in the
Company's aerospace, flooring or commercial product lines, loss of key
employees, general economic conditions and adverse factors impacting the
aerospace industry such as changes in government procurement policies. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements.
 
  INTRODUCTION
 
    The following discussion and analysis should be read in conjunction with
"Selected Historical Consolidated Financial Data" and the audited Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Report.
 
    The Company operates within one industry segment, elastomer products, and is
organized into three product groups: Aerospace Products, which produces
precision silicone seals and other products used on commercial and military
aircraft; Flooring Products, which produces and distributes rubber and vinyl
cove base and other floor covering accessory products; and Commercial Products,
which produces various intermediate and finished silicone and organic rubber
products.
 
    Burke entered the Aerospace Products business through the acquisition of
Purosil's assets in 1993. The Company subsequently expanded its Aerospace
Products business by purchasing the assets of two of its largest competitors,
SFS and Haskon, in 1995. These acquisitions were completed in order to broaden
Burke's Aerospace Products line and to incorporate advanced military stealth
capability into this product group. Subsequent to these acquisitions, in
December 1995, the Company integrated all of its aerospace operations in
anticipation of increased demand as communicated by aircraft OEMs.
 
    In general, Aerospace Products revenues are driven by both the building of
new aircraft by OEM manufacturers and the repair and replacement of existing
aircraft ("aftermarkets"). OEMs typically depend on a select group of suppliers
to provide their seal requirements, working closely with them to design the
customized tooling necessary to satisfy the industry's rigorous product testing
standards. As a result of the Company's consolidation efforts throughout the
mid-'90s, Burke is now positioned as the leading seals supplier for the domestic
commercial aircraft industry and is OEM-specified on virtually every existing
commercial and military aircraft platform in production.
 
    Aircraft seal revenues for 1997 were comprised of approximately two-thirds
sales to OEM manufacturers and one-third sales to the aftermarket. In addition,
commercial aircraft manufacturing has resulted in 73% of 1997 seal revenues
being derived from the commercial market, compared with approximately 27% from
the U.S. military. Aerospace Products revenues in 1995 were approximately $3.0
million higher than might otherwise have been expected due to the significant
unfilled backlog created by the inability of SFS and Haskon to deliver product
prior to Burke's ownership.
 
    Sales of precision silicone seals comprised approximately 92.6% of 1997
revenues for the Aerospace Products business. The remaining 7.4% was derived
primarily from the sale of low-observable seals and tape to the military for use
on stealth aircraft, cruise missiles, and armored vehicles. Revenues of low-
observable seals and tape are derived from both the retrofit of existing
aircraft, such as the B-1 bomber
 
                                       21
<PAGE>
and the initial installation and replacement of existing low-observable material
on aircraft, such as the B-2 bomber.
 
    Historically, revenues in the Flooring Products business have been driven by
both new commercial construction and the continuous repair and remodeling of
existing commercial space. Until recently, operations have been concentrated in
the western United States and Burke has sold primarily rubber cove base
moulding. The Company has developed a well-known brand name (BurkeBase) in the
western United States by targeting the architectural community and installers of
commercial flooring. Growth in Flooring Products revenues was significant in
1997 due to improvement in the commercial construction market in the western
United States.
 
    The Commercial Products business is comprised of: (i) Purosil brand
high-performance silicone truck and bus engine hoses; (ii) roofing and other
fluid barrier membrane products; and (iii) various intermediate and end use
products based upon Burke's extensive elastomer manufacturing capabilities.
Revenues generated by silicone hose sales are driven by both new truck and bus
manufacturing as well as the replacement market. OEM and aftermarket customers
specify and prefer silicone hoses due to their high performance and relatively
minor absolute cost. In addition, silicone hoses are increasingly being
specified on trucks and buses due to the higher performance requirements of new
engine design. Burke roofing and fluid containment system sales have tended to
be relatively steady over time. Roofing and fluid barrier membranes are used in
numerous applications including new and replacement commercial roofs and
reservoirs. The Hypalon product provides significant wear and durability
advantages compared with less expensive products. Revenues from these products
can be materially affected on a quarter-to-quarter basis by the size and timing
of certain reservoir projects.
 
                                       22
<PAGE>
RESULTS OF OPERATIONS
 
    The following table sets forth certain income statement information for the
Company for the fiscal years ended December 29, 1995, January 3, 1997 and
January 2, 1998:
 
<TABLE>
<CAPTION>
                                                                      FISCAL YEAR ENDED
                                       --------------------------------------------------------------------------------
                                                    PERCENTAGE                  PERCENTAGE                 PERCENTAGE
                                                        OF                          OF                         OF
                                         1995        NET SALES       1996        NET SALES       1997       NET SALES
                                       ---------  ---------------  ---------  ---------------  ---------  -------------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                    <C>        <C>              <C>        <C>              <C>        <C>
Net sales:
  Aerospace Products.................  $  23,254          34.0%    $  24,622          34.0%    $  31,225         34.6%
  Flooring Products..................     19,693          28.8        20,546          28.4        23,475         26.0
  Commercial Products................     25,464          37.2        27,298          37.6        35,528         39.4
                                       ---------         -----     ---------         -----     ---------       ------
    Total net sales..................     68,411         100.0        72,466         100.0        90,228        100.0
Cost of sales........................     49,226          72.0        49,689          68.6        62,917         69.7
                                       ---------         -----     ---------         -----     ---------       ------
Gross profit.........................     19,185          28.0        22,777          31.4        27,311         30.3
Selling, general and administrative
  expenses...........................     10,212          14.9        11,610          16.0        12,238         13.6
Transaction costs....................     --            --            --            --             1,321          1.5
Stock option purchase................     --            --            --            --            14,105         15.6
                                       ---------         -----     ---------         -----     ---------       ------
Income (loss) from operations........      8,973          13.1        11,167          15.4          (353)        (0.4)
Interest expense, net................      3,007           4.4         2,668           3.7         5,408          6.0
                                       ---------         -----     ---------         -----     ---------       ------
Income before income tax provision
  (benefit), extraordinary loss and
  discontinued operation.............      5,966           8.7         8,499          11.7        (5,761)        (6.4)
Income tax (benefit) provision.......      3,393           5.0         3,466           4.8        (1,818)        (2.0)
                                       ---------         -----     ---------         -----     ---------       ------
Income from continuing operations
  before extraordinary loss and
  discontinued operation.............  $   2,573           3.7%    $   5,033           6.9%    $  (3,943)        (4.4)%
                                       ---------         -----     ---------         -----     ---------       ------
                                       ---------         -----     ---------         -----     ---------       ------
Net (loss) income....................  $   1,094           1.6%    $   4,101           5.7%    $  (3,943)        (4.4)%
                                       ---------         -----     ---------         -----     ---------       ------
                                       ---------         -----     ---------         -----     ---------       ------
</TABLE>
 
    YEAR ENDED JANUARY 2, 1998 VERSUS YEAR ENDED JANUARY 3, 1997
 
    NET SALES.  Total net sales increased 24.5%, from $72.5 million in 1996 to
$90.2 million in 1997. Aerospace Products sales grew 26.8%, due to strong
expansion of commercial aircraft build rates. Despite this overall performance,
revenue for low-observable materials decreased in the second half of the year
due to material product design changes by major customers, which delayed
shipments of these materials. Flooring Products sales grew 14.3% due to price
increases and generally stronger demand for construction products in California
and the introduction of vinyl cove base products. Commercial Products sales grew
30.1% due to a major sale of membrane products for a liner application and due
to orders from a new customer.
 
    COST OF SALES.  Cost of sales increased 26.6% from $49.7 million in 1996 to
$62.9 million in 1997. The increase was primarily due to the increase in net
sales over the same period. As a percentage of net sales, gross profit decreased
from 31.4% in 1996 to 30.3% in 1997. The decrease was due primarily to the fact
that membrane products, which have a lower gross profit margin than the
Company's other product lines, constituted a larger portion of total net sales
in 1997 compared with 1996.
 
                                       23
<PAGE>
    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased 5.4%, from $11.6 million in 1996 to $12.2
million in 1997. The increase included the addition of Flooring and Commercial
sales personnel. However, as a percentage of net sales, these costs declined
from 16.0% to 13.6% over the same period.
 
    TRANSACTION EXPENSES.  Transaction expenses were incurred in connection with
the Recapitalization.
 
    STOCK OPTION PURCHASE.  The stock option purchase charge in 1997 represents
the compensation component of payments made for the cancellation of stock
options in connection with the Recapitalization.
 
    INCOME FROM OPERATIONS.  As a result of the above factors, income from
operations decreased 103.2%, from $11.2 million in 1996 to a loss of $(0.4)
million in 1997.
 
    INTEREST EXPENSE.  Interest expense increased 102.7%, from $2.7 million in
1996 to $5.4 million in 1997. The increase was due to the issuance of the Senior
Notes on August 20, 1997.
 
    INCOME FROM CONTINUING OPERATIONS.  As a result of the above factors, income
from continuing operations decreased 178.3%, from $5.0 million in 1996 to a loss
of $(3.9) million in 1997.
 
    YEAR ENDED JANUARY 3, 1997 VERSUS YEAR ENDED DECEMBER 29, 1995
 
    NET SALES.  Total net sales increased 5.9%, from $68.4 million in 1995 to
$72.5 million in 1996. Aerospace Products sales grew 5.9%, reflecting the
positive effect of a full year of the deployment of the assets of Haskon
acquired in June 1995, which was partially offset by the expiration of a
significant supply contract in 1995. Flooring Products sales grew 4.3% as the
result of the introduction of new products, price increases of 2.6% and volume
increases of 1.0%. Commercial Products sales grew 7.2% due to orders from a new
customer and to increased sales of the Company's silicone Custom Products,
offset by a decrease in Membrane Products sales due to a customer's deferral of
a major liner project.
 
    COST OF SALES.  Cost of sales increased 0.9%, from $49.2 million in 1995 to
$49.7 million in 1996. The increase was primarily due to the increase in net
sales over the same period. As a percentage of net sales, gross profit increased
from 28.0% in 1995 to 31.4% in 1996. The increase of 3.4% was due to the full
integration of assets acquired from SFS and Haskon of 1.6%; to decreases in the
cost of raw materials used in the Company's Flooring Products of 0.9% and to
general pricing, operational, and overhead absorption improvements of 0.9%. The
Flooring Products raw material prices returned to normal levels.
 
    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased 13.7%, from $10.2 million in 1995 to $11.6
million in 1996. The increase was due to general cost increases to selling
expenses associated with expanding Flooring Products into markets in the eastern
United States and a full year of selling expenses associated with the assets of
Haskon acquired in 1995. As a percentage of sales, these costs increased from
14.9% in 1995 to 16.0% in 1996, because of the time lag between the Flooring
expansion spending and the realization of the resultant sales.
 
    INCOME FROM OPERATIONS.  As a result of the above factors, income from
operations increased 24.5%, from $9.0 million in 1995 to $11.2 million in 1996.
 
    INTEREST EXPENSE.  Interest expense decreased 11.3%, from $3.0 million in
1995 to $2.7 million in 1996. The decrease was due to lower total debt
outstanding.
 
    INCOME FROM CONTINUING OPERATIONS.  As a result of the above factors, income
from continuing operations increased 95.6%, from $2.6 million in 1995 to $5.0
million in 1996.
 
                                       24
<PAGE>
INCOME TAX PROVISION
 
    For 1996 and 1997, the Company recorded an income tax provision (benefit) of
40.8% and (31.6)%, respectively, which differs from the federal statutory rate
primarily due to state income taxes (net of federal benefit) and in 1997 due to
additional provision for federal and state audits. In 1996, the Company settled
with the Internal Revenue Service ("IRS") certain issues relating to the
Company's income tax returns for 1988 through 1990. As of January 3, 1997, the
Company had fully provided for the taxes and interest which are payable as a
result of the settlement.
 
    In addition to the above settlement, in 1997, the Company settled with the
IRS certain issues related to the Company's income tax returns for 1992 and
1993. The Company fully provided for the taxes and interest which are payable as
a result of the settlement.
 
    For 1995, the Company recorded an income tax provision of 56.9%, which
differed from the federal statutory rate primarily due to state income taxes
(net of federal benefit) and due to an additional provision for potential IRS
audit adjustments.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    CASH FLOW.  The Company's principal uses of cash are to finance working
capital and capital expenditures related to asset acquisitions and internal
growth. Burke's net cash used in operating activities was $8.5 million in 1997.
Excluding the charge related to the stock option purchase, Burke's net cash
provided by operating activities would have been $5.6 million in 1997.
 
    CAPITAL REQUIREMENTS.  The Company, including Mercer post-acquisition,
expects to spend approximately $2.0 million during 1998 on capital expenditures
not directly related to acquisitions. Cash flow from operations, to the extent
available, may also be used to fund a portion of any acquisition expenditures.
The Company is actively seeking acquisition opportunities. The Company intends
to seek additional capital as necessary to fund potential acquisitions through
one or more funding sources that may include borrowings under the Credit
Facility described below.
 
    SOURCES OF CAPITAL.  The Company currently has a $15.0 million senior
secured credit facility (the "Credit Facility"). The Credit Facility will mature
in August 2002. Interest on loans under the Credit Facility bear interest at
rates based upon either, at the Company's option, Eurodollar Rates plus a margin
of 2.50% or upon the Prime Rate plus a margin of .50%. Loans under the Credit
Facility are secured by security interests in substantially all of the assets of
the Company and are guaranteed by any and all current or future subsidiaries of
the Company, which guarantees are secured by substantially all of the assets of
the subsidiaries. The Credit Agreement contains customary covenants restricting
the Company's ability to, among other things, incur additional indebtedness,
create liens or other encumbrances, pay dividends or make other restricted
payments, make investments, loans and guarantees or sell or otherwise dispose of
a substantial portion of assets to, or merge or consolidate with, another
entity. The Credit Agreement also contains a number of financial covenants that
require the Company to meet certain financial ratios and tests and provides that
a "change of control" constitutes an event of default.
 
    The Company anticipates that its principal use of cash during 1998 will be
working capital requirements, debt service requirements and capital expenditures
as well as expenditures relating to acquisitions and integrating acquired
businesses. Based upon current and anticipated levels of operations, the Company
believes that its cash flow from operations, together with amounts available
under the Credit Facility, will be adequate to meet its anticipated requirements
for the foreseeable future for working capital, capital expenditures and
interest payments. In order to finance the Mercer Acquisition, the Company will
need to raise additional funds, through an increase in the Credit Facility
and/or the issuance of floating rate debt and/or other securities, which may
necessitate the amendment of certain provisions of the indenture governing the
Senior Notes.
 
                                       25
<PAGE>
    In June 1997, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"). FAS 130 establishes standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company believes that adoption of FAS 130 will not have a material
impact on the Company's consolidated financial statements.
 
    In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires companies to report
selected segment information in financial statements and selected segment
information in interim financial reports to stockholders. FAS 131 is effective
for fiscal years beginning after December 15, 1997. The Company is currently
evaluating the impact of application of the new rules on the Company's
consolidated financial statements.
 
    IMPACT OF THE YEAR 2000
 
    Based on a recent assessment, the Company determined that it will be
required to modify or replace significant portions of its software so that its
computer systems will function properly with respect to dates in the Year 2000
and thereafter. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems. The Company
anticipates completing the Year 2000 project within one year which is prior to
any anticipated impact on its operating systems.
 
    Although the Company is not aware of any material operational issues
associated with preparing its internal systems for the Year 2000, there can be
no assurance that the company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems, which include third party software and
hardware technology.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
    Not applicable.
 
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The Consolidated Financial Statements required in response to this Item are
listed under Item 14(a) of Part IV of this Report.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE
 
    None.
 
                                       26
<PAGE>
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The following table sets forth the name, age and position of each person who
is a director or executive officer of the Company as of March 15, 1998. Each
director will hold office until the next annual meeting of the shareholders or
until his successor has been elected and qualified. Officers will be elected by
the Board of Directors and will serve at the discretion of the Board.
 
<TABLE>
<CAPTION>
NAME                                     AGE                                  POSITIONS
------------------------------------  ---------  --------------------------------------------------------------------
<S>                                   <C>        <C>
Rocco C. Genovese...................     61      Vice Chairman of the Board, President and Chief Executive Officer
Reed C. Wolthausen..................     50      Director, Senior Vice President and General Manager-- Silicone
                                                   Products
David E. Worthington................     44      Treasurer, Vice President--Finance
Robert F. Pitman....................     43      Vice President and Technical Director--San Jose
Craig A. Carnes.....................     38      Vice President--Sales and Marketing--Flooring Products
Ronald A. Stieben...................     50      Vice President--Sales and Marketing--Silicone Products
Robert G. Engle.....................     56      Vice President--Operations--Santa Fe Springs
Hisham Alameddine...................     39      Vice President--Operations--San Jose
George Sawyer.......................     66      Chairman of the Board
Oliver C. Boileau, Jr...............     71      Director
Donald Glickman.....................     64      Director
Bruce D. Gorchow....................     44      Director
John F. Lehman......................     55      Director
Keith Oster.........................     36      Director
Thomas G. Pownall...................     76      Director
Joseph A. Stroud....................     42      Director
</TABLE>
 
    ROCCO C. GENOVESE, Vice Chairman, President and Chief Executive Officer, has
been with the Company for 42 years. Mr. Genovese joined Burke in 1955 and has
held a number of operations and sales positions within the Company since that
time. Mr. Genovese assumed his current role as Chairman, President and Chief
Executive Officer in 1989. He is active in all aspects of Burke's business and
is a participant in several industry associations.
 
    REED C. WOLTHAUSEN, Senior Vice President and General Manager--Silicone
Products, has been with the Company for nine years. Initially serving as the
Company's Chief Financial Officer, Mr. Wolthausen now manages Burke's silicone
businesses. Prior to joining Burke, he served as Chief Financial Officer for
Micronix Corp. and as Controller for Velo-Bind, Inc.
 
    DAVID E. WORTHINGTON, Treasurer and Vice President--Finance, has been with
the Company for seven years. Mr. Worthington joined Burke as Corporate
Controller in 1990 and served in that capacity until 1997 when he was promoted
to his current position. Prior to joining the Company, he served as Chief
Financial Officer for Electro-Technology Corporation.
 
    ROBERT F. PITMAN, Vice President and Technical Director--San Jose, has been
with the Company since 1979 and currently oversees all technical and product
development for the San Jose-based businesses as well as sales and marketing for
the San Jose portion of the Commercial Products business. During his tenure with
Burke, Mr. Pitman has held a number of positions including Director of Technical
Services and Material/Process Development Engineer. He has served in his current
position since 1994.
 
    CRAIG A. CARNES, Vice President--Sales and Marketing--Flooring Products,
joined the Company in 1996. Prior to joining the Company, Mr. Carnes was Vice
President of Sales and Marketing for Color Spot, Inc., a subsidiary of
Pacificorp and a consumer perishable product company that is the nation's
 
                                       27
<PAGE>
largest producer of garden bedding flowers. For five years prior to joining
Color Spot, Inc., Mr. Carnes held senior sales and marketing positions with
Levolor Corporation, an industry leader and manufacturer of hard window
coverings.
 
    RONALD A. STIEBEN, Vice President--Sales and Marketing--Silicone Products,
has worked for the Company for two years. Prior to joining Burke, Mr. Stieben
worked for 16 years at Kirkhill Rubber Company, one of Burke's competitors. He
served as Vice President of Sales for Kirkhill for five years before joining
Burke in 1995.
 
    ROBERT G. ENGLE, Vice President--Operations--Santa Fe Springs, joined Burke
as Industrial Engineering Manager in 1986 and has since held the positions of
Engineering Manager and Vice President of Manufacturing. Before joining Burke,
Mr. Engle served as Manager of Engineering Services and Chief Industrial
Engineer for Norton Company.
 
    HISHAM ALAMEDDINE, Vice President--Operations--San Jose, has been with the
Company for six years. Before serving in his current position, Mr. Alameddine
served as Director of Engineering Services for the Company. Prior to joining
Burke, Mr. Alameddine was the Vice President of Manufacturing for Sonfarrel,
Inc. and has held senior operations positions with two other companies.
 
    GEORGE SAWYER, Chairman of the Board of Directors of the Company and a
Managing Principal of Lehman, has been affiliated with Lehman for the past five
years. From 1993-1995, Mr. Sawyer served as the President and Chief Executive
Officer of Sperry Marine Inc. Prior to that, Mr. Sawyer held a number of
prominent positions in private industry and in the U.S. government, including
serving as the President of John J. McMullen Associates, the President and Chief
Operating Officer of TRE Corporation, the Vice President of International
Operations for Bechtel Corporation and the Assistant Secretary of the Navy for
Shipbuilding and Logistics under Mr. Lehman.
 
    OLIVER C. BOILEAU, JR., became a director of the Company upon consummation
of the Recapitalization. He joined The Boeing Company in 1953 as a research
engineer and progressed through several technical and management positions and
was named Vice President in 1968 and then President of Boeing Aerospace in 1973.
In 1980, he joined General Dynamics Corporation as President and a member of the
Board of Directors. In January 1988, Mr. Boileau was promoted to Vice Chairman
and then retired in May 1988. Mr. Boileau joined Northrop Grumman Corporation in
December 1989 as Vice President and President and General Manager of the B-2
Division. He also served as President and Chief Operating Officer of the Grumman
Corporation, a subsidiary of Northrop Grumman, and as a member of the Board of
Directors of Northrop Grumman. Mr. Boileau retired from Northrop Grumman in
1995. He is an Honorary Fellow of the American Institute of Aeronautics and
Astronautics, a member of the National Academy of Engineering, the Board of
Trustees of St. Louis University, and Chairman of the Massachusetts Institute of
Technology-Lincoln Laboratory Advisory Board.
 
    DONALD GLICKMAN, became a director of the Company upon consummation of the
Recapitalization and is a Managing Principal of Lehman. For the past five years,
Mr. Glickman has also been the President of Donald Glickman Company, Inc., which
together with Lehman, acquires as principal significant corporations in
aerospace, marine and defense industries. Prior to forming Donald Glickman
Company, Inc., Mr. Glickman was a principal of the Peter J. Solomon Company, a
Managing Director of Shearson Lehman Brothers Merchant Banking Group and Senior
Vice President and Regional Head of The First National Bank of Chicago. Mr.
Glickman served as an armored cavalry officer in the Seventh U.S. Army. Mr.
Glickman is currently a director of Cal-Tex Industries, Inc. and Monro Muffler
Brake, Inc. and is a trustee of MassMutual Corporate Investors, MassMutual
Participation Investors and Wolf Trap Foundation for the Performing Arts.
 
    BRUCE D. GORCHOW, became a director of the Company upon consummation of the
Recapitalization and is a member of the investment advisory board of Lehman.
Since 1991, Mr. Gorchow has been Executive Vice President and head of the
Private Finance Group of PPM America, Inc. Mr. Gorchow is
 
                                       28
<PAGE>
also a Director of Global Imaging Systems, Inc., Leiner Health Products, Inc.,
Tomah Products, Inc. and is an investment director of several investment limited
partnerships. Mr. Gorchow also represents PPM America, Inc. on the boards of ten
of its portfolio companies. Prior to his position at PPM America, Mr. Gorchow
was a Vice President at Equitable Capital Management, Inc.
 
    JOHN F. LEHMAN, became a director of the Company upon consummation of the
Recapitalization and is a Managing Principal of Lehman. Prior to founding Lehman
in 1990, Dr. Lehman was an investment banker with Paine Webber, Inc. from 1988
to 1990, and served as a Managing Director in Corporate Finance. Dr. Lehman
served for six years as Secretary of the Navy, was a member of the National
Security Council Staff, served as a delegate to the Mutual Balanced Force
Reductions negotiations and was the Deputy Director of the Arms Control and
Disarmament Agency. Dr. Lehman served as Chairman of the Board of Directors of
Sperry Marine, Inc., and is a member of the Board of Directors of Sedgwick Group
plc, Ball Corporation and ISO Inc., and is currently Vice Chairman of the
Princess Grace Foundation, a director of OpiSail Foundation and a trustee of
Spence School.
 
    KEITH OSTER, became a director of the Company upon consummation of the
Recapitalization and is a Principal of Lehman and has been affiliated with
Lehman for the past five years. Mr. Oster joined Lehman in 1992 and is
principally responsible for financial structuring and analysis. Prior to joining
Lehman, Mr. Oster was with the Carlyle Group, where he was responsible for
analyzing acquisition opportunities and arranging debt financing, and was a
Senior Financial Analyst with Prudential-Bache Capital Funding, working in the
Mergers, Acquisitions and Leveraged Buyout Department.
 
    THOMAS G. POWNALL, became a director of the Company upon consummation of the
Recapitalization and is a member of the investment advisory board of Lehman. Mr.
Pownall was Chairman of the Board of Directors from 1983 until 1992 and Chief
Executive Officer of Martin Marietta Corporation from 1982 until his retirement
in 1988. Mr. Pownall joined Martin Marietta Corporation in 1963 as President of
its Aerospace Advanced Planning unit, became President of Aerospace Operations
and, in succession, Vice President and President and Chief Operating Officer of
the corporation. Mr. Pownall is also a director of the Titan Corporation and
Director Emeritus of Sundstrand Corporation, serves as a member of the advisory
boards of Ferris, Baker Watts Incorporated and Sedgwich New York Metropolitan
and as a director of the U.S. Naval Academy Foundation and a trustee of
Salem-Teikyo University.
 
    JOSEPH STROUD, became a director of the Company in February 1998 and is a
Principal of Lehman. Mr. Stroud joined Lehman in 1996 and is responsible for
managing the financial and operational aspects of portfolio company
value-enhancement. Prior to joining Lehman, Mr. Stroud was the Chief Financial
Officer of Sperry Marine, Inc. from 1993 until the company was purchased by
Litton Industries, Inc. in 1996. From 1989 to 1993, Mr. Stroud was Chief
Financial Officer of the Accudyne and Kilgore Corporations.
 
CERTAIN RIGHTS OF HOLDERS OF REDEEMABLE PREFERRED STOCK
 
    Under certain circumstances, the holders of the Redeemable Preferred Stock
may have the right to elect a majority of the directors of Company.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
    The Board of Directors has established a Compensation Committee, consisting
of Messrs. Glickman, Oster and Pownall. The Compensation Committee makes
recommendations concerning the salaries and incentive compensation of employees
of, and consultants to, the Company, and oversees and administers the Company's
stock option plans.
 
                                       29
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
 
    The information set forth in this section relates to the Chief Executive
Officer of the Company and the four most highly compensated executive officers
of the Company as of January 2, 1998.
 
COMPENSATION SUMMARY
 
    The following summary compensation table sets forth for the fiscal years
ended January 2, 1998, January 3, 1997 and December 29, 1995, the historical
compensation for services to the Company of the Chief Executive Officer and the
four most highly compensated executive officers (the "Named Executive Officers")
as of January 2, 1998:
 
<TABLE>
<CAPTION>
                                                                                                           LONG-TERM
                                                                                                         COMPENSATION
                                                                            ANNUAL COMPENSATION(1)       -------------
                                                                       --------------------------------   SECURITIES
                                                                        SALARY      BONUS      OTHER      UNDERLYING
NAME AND PRINCIPAL POSITION                               FISCAL YEAR     ($)      ($)(2)      ($)(3)       OPTIONS
--------------------------------------------------------  -----------  ---------  ---------  ----------  -------------
<S>                                                       <C>          <C>        <C>        <C>         <C>
Rocco C. Genovese.......................................        1997     196,925    317,500   5,579,314      150,000
President and Chief                                             1996     180,050    150,000      --          336,000
Executive Officer                                               1995     189,614    120,000      --                0
 
Reed C. Wolthausen......................................        1997     148,800    237,000   3,201,004      100,000
Senior Vice President and                                       1996     141,378    100,000      --          224,000
General Manager--Silicone Products                              1995     133,664     60,000      --                0
 
Robert F. Pitman........................................        1997     103,808     77,500     584,815        7,500
Vice President and                                              1996      90,750     27,500      --                0
Technical Director--San Jose                                    1995      84,273     22,500      --                0
 
David E. Worthington....................................        1997      95,166    100,000     393,766       10,000
Vice President--Finance                                         1996      90,794     25,000      --                0
                                                                1995      87,791     20,000      --                0
 
Robert Engle............................................        1997      94,231     67,500     373,834        7,500
Vice President--Operations--Silicone                            1996      89,342     25,000      --                0
  Products                                                      1995      91,020     17,500      --                0
</TABLE>
 
------------------------
 
(1) Perquisites and other personal benefits paid in 1997 for the Named Executive
    Officers aggregated less than the lesser of $50,000 and 10% of the total
    annual salary and bonus set forth in the columns entitled "Salary" and
    "Bonus" for each named executive officer and, accordingly, are omitted from
    the table.
 
(2) Annual bonuses are indicated for the year in which they were earned and
    accrued. Annual bonuses for any year are generally paid in the following
    fiscal year.
 
(3) Represents the compensation component of the consideration paid to the
    executives for their stock options in the Company in connection with the
    Recapitalization.
 
                                       30
<PAGE>
    The following table summarizes options granted in 1997 to the Named
Executive Officers.
 
                            OPTIONS GRANTED IN 1997
 
<TABLE>
<CAPTION>
                                                                             INDIVIDUAL GRANTS(1)
                                                           ---------------------------------------------------------
                                                                        PERCENTAGE OF
                                                             SHARES     TOTAL OPTIONS
                                                           UNDERLYING    GRANTED TO    EXERCISE PRICE    EXPIRATION
NAME                                                         OPTIONS      EMPLOYEES       PER SHARE         DATE
---------------------------------------------------------  -----------  -------------  ---------------  ------------
<S>                                                        <C>          <C>            <C>              <C>
Rocco C. Genovese........................................     150,000         40.5%       $    6.50       12/19/2007
Reed C. Wolthausen.......................................     100,000         27.0%       $    6.50       12/19/2007
Robert F. Pitman.........................................       7,500          2.0%       $    6.50       12/19/2007
David E. Worthington.....................................      10,000          2.7%       $    6.50       12/19/2007
Robert G. Engle..........................................       7,500          2.0%       $    6.50       12/19/2007
</TABLE>
 
------------------------
 
 (1) All vested options outstanding immediately prior to the Recapitalization
     were cancelled and converted into the right to receive approximately $9.33
     per share (the "Recapitalization Consideration") less the applicable
     exercise price.
 
    The following table summarizes information with respect to the year-end
values of all options held by Named Executive Officers.
 
        AGGREGATE OPTION PURCHASES IN LAST FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                                  NUMBER OF SECURITIES
                                                                                 UNDERLYING UNEXERCISED        VALUE OF
                                                                                   OPTIONS AT FISCAL          UNEXERCISED
                                                                                      YEAR-END (#)           IN-THE-MONEY
                                             SHARES ACQUIRED   VALUE REALIZED         EXERCISABLE/         OPTIONS AT FISCAL
NAME                                           ON EXERCISE            $              UNEXERCISABLE          YEAR-END ($)(1)
------------------------------------------  -----------------  ---------------  ------------------------  -------------------
<S>                                         <C>                <C>              <C>                       <C>
Rocco C. Genovese.........................              0                 0              0/150,000            $         0
Reed C. Wolthausen........................              0                 0              0/100,000            $         0
Robert F. Pitman..........................              0                 0                0/7,500            $         0
David E. Worthington......................              0                 0               0/10,000            $         0
Robert G. Engle...........................              0                 0                0/7,500            $         0
</TABLE>
 
------------------------
 
(1) There is no public market for the Company's Common Stock. The Company
    estimates that the market value for its Common Stock is $6.50 per share.
 
                           COMPENSATION OF DIRECTORS
 
    None of the directors who are officers of the Company receives any
compensation directly for their service on the Company's Board of Directors. All
other directors receive customary directors' fees for their services. In
addition, the Company pays Lehman certain fees for various management,
consulting and financial planning services, including assistance in strategic
planning, providing market and financial analyses, negotiating and structuring
financing and exploring expansion opportunities. See "Certain Relationships and
Related Transactions."
 
                             EMPLOYMENT AGREEMENTS
 
    In connection with the Recapitalization, the Company entered into employment
agreements (each, an "Employment Agreement") with two key executives. Generally,
each Employment Agreement provides for the executive's continued employment with
the Company in his position prior to the execution of the Employment Agreement
for a period of two years from the date of the Employment Agreement, renewable
by mutual agreement for successive one-year terms, at an annual salary, bonus
and with such other employment-related benefits comparable to those received by
such executive immediately before the execution of the Employment Agreement.
 
                                       31
<PAGE>
    If the executive is terminated for Cause (as defined in the Employment
Agreement) or voluntarily terminates his employment prior to the expiration of
the then-current term, the executive will be entitled to receive unpaid
compensation through the date of his termination or the date that is 30 days
after notice of termination is given by the Company, whichever occurs later. If
the executive's employment is terminated by the Company for any reason other
than for Cause or the executive dies or is unable to perform his duties due to
disability for a period of 90 consecutive days, the executive will be entitled
to receive all compensation that would be due through the end of the
then-current term, to the extent unpaid on the date of termination.
 
    Each Employment Agreement contains provisions prohibiting the executive,
during the period of his employment with the Company and, for two years
thereafter, from owning, managing, operating, financing, joining or controlling,
directly or indirectly, any business entity that is, at the time of the
executive's initial involvement, in competition with the Company in any business
then or thereafter conducted by the Company. Each Employment Agreement also
contains provisions requiring the executive to maintain the confidentiality of
certain information related to the Company during the period of his employment
with the Company and, under certain circumstances, for two years thereafter.
Each Employment Agreement further provides that any proposals or ideas developed
by the executive or that are submitted by the executive to the Company during
the term of the Employment Agreement, whether or not exploited or accepted by
the Company, are the property of the Company and may not be exploited by the
executive except in compliance with the Company's policy on conflicts of
interest.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 15, 1998 by (i) each director, (ii)
each of the executive officers of the Company, (iii) all executive officers and
directors as a group and (iv) each person who is the beneficial owner of more
than 5% of the outstanding Common Stock of the Company.
 
<TABLE>
<CAPTION>
                                                                    NUMBER     PERCENTAGE OF
                                                                      OF           SHARES
NAME OF INDIVIDUAL OR ENTITY(1)                                    SHARES(2)   OUTSTANDING(3)
----------------------------------------------------------------  -----------  --------------
<S>                                                               <C>          <C>
JFLEI(4)........................................................   3,134,298         65.0%
John F. Lehman(5)...............................................   3,134,298         65.0
George Sawyer(5)................................................   3,134,298         65.0
Donald Glickman(5)..............................................   3,134,298         65.0
Keith Oster(5)..................................................   3,134,298         65.0
Joseph A. Stroud(5).............................................   3,134,298         65.0
Rocco C. Genovese...............................................     241,000          5.0
Reed C. Wolthausen..............................................     193,602          4.0
David E. Worthington............................................      14,500            *
Robert F. Pitman................................................       8,600            *
Craig A. Carnes.................................................       5,300            *
Ronald A. Stieben...............................................       1,100            *
Robert F. Engle.................................................       5,300            *
Hisham Alameddine...............................................       4,300            *
Oliver C. Boileau, Jr.(6).......................................      --               --
Thomas G. Pownall(7)............................................      --               --
Bruce D. Gorchow(8).............................................      --               --
Jackson National(9).............................................     428,444          8.9
MassMutual(9)...................................................     428,444          8.9
Paribas(9)......................................................     107,112          2.2
All directors and executive officers
  as a group (16 persons).......................................   3,608,000         74.9%
</TABLE>
 
------------------------
 
  * Less than 1%
 
                                       32
<PAGE>
 (1) The address of JFLEI and Messrs. Lehman, Sawyer, Glickman, Oster and Stroud
     is 2001 Jefferson Davis Highway, Suite 607, Arlington, Virginia 22202. The
     address of Jackson National and Mr. Gorchow is 225 West Wacker Drive,
     Chicago, Illinois 60606. The address of MassMutual is 1295 State Street,
     Springfield, Massachusetts 01111. The address of Paribas is 787 Seventh
     Avenue, New York, New York 10019.
 
 (2) As used in this table, beneficial ownership means the sole or shared power
     to vote, or to direct the voting of a security, or the sole or shared power
     to dispose, or direct the disposition of, a security.
 
 (3) Based on 3,857,000 shares of the Company's Common Stock outstanding and
     964,000 shares of the Company's Common Stock underlying options or warrants
     held by that person exercisable within 60 days after March 15, 1998. The
     calculations do not include shares issuable upon exercise of certain
     options granted to management of the Company that are not exercisable
     within 60 days after March 15, 1998.
 
 (4) JFLEI is a Delaware limited partnership managed by Lehman, which is an
     affiliate of the general partner of JFLEI. Each of Messrs. Lehman,
     Glickman, Sawyer, Oster and Stroud, either directly (whether through
     ownership interest or position) or through one or more intermediaries, may
     be deemed to control Lehman and such general partner. Lehman and such
     general partner may be deemed to control the voting and disposition of the
     shares of the Company Common Stock owned by JFLEI. Accordingly, for certain
     purposes, Messrs. Lehman, Glickman, Sawyer, Oster and Stroud may be deemed
     to be beneficial owners of the shares of the Company's Common Stock owned
     by JFLEI.
 
 (5) Includes the shares beneficially owned by JFLEI, of which Messrs. Lehman,
     Glickman, Sawyer, Oster and Stroud are affiliates.
 
 (6) Mr. Boileau is a limited partner of JFLEI.
 
 (7) Mr. Pownall is a limited partner of JFLEI and is on the investment advisory
     board of Lehman.
 
 (8) Mr. Gorchow is on the investment advisory board of Lehman.
 
 (9) All shares are obtainable upon the exercise of warrants.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
MANAGEMENT AGREEMENT
 
    Pursuant to the terms of the ten-year Management Agreement (the "Management
Agreement") entered into between Lehman and the Company, (i) upon consummation
of the Recapitalization, the Company paid Lehman fees in the amount of $1.5
million and (ii) the Company agreed to pay Lehman an annual management fee equal
to $500,000, as may be adjusted from time to time subject to necessary board
approval, that will commence accruing on October 1, 1998 and be payable in
arrears on a quarterly basis commencing on January 1, 1999.
 
SHAREHOLDERS AGREEMENT
 
    In connection with the Recapitalization, the Company, JFLEI, the Continuing
Shareholders and, in their capacity as holders of the Warrants, Jackson National
Life Insurance Company ("Jackson National"), Paribas North America, Inc.
("Paribas"), MassMutual Corporate Value Partners Limited, Massachusetts Mutual
Life Insurance Company, MassMutual High Yield Partners LLC (collectively,
"MassMutual") (collectively, the "Shareholders") entered into a Shareholders
Agreement (the "Shareholders Agreement"), the principal terms of which are
summarized below:
 
    CERTAIN VOTING RIGHTS OF HOLDERS OF REDEEMABLE PREFERRED STOCK.  If at any
time after October 15, 2000, any amount of cash dividends payable on the
Redeemable Preferred Stock shall have been in arrears and unpaid for four or
more successive Dividend Payment Dates, then the number of directors
constituting the
 
                                       33
<PAGE>
Board of Directors shall, without further action, be increased by the Dividend
Arrears Number (as defined below) and, in addition to any other rights to elect
directors which the holders of Redeemable Preferred Stock may have, the holders
of all outstanding shares of Redeemable Preferred Stock, voting separately as a
class and to the exclusion of the holders of all other classes and series of
stock of the Company, shall be entitled to elect the directors of the Company to
fill such newly created directorships.
 
    If the Company shall fail to redeem shares of Redeemable Preferred Stock in
accordance with the mandatory redemption provisions described above, then the
number of directors constituting the Board of Directors shall, without further
action, be increased by the Control Number (as defined below) and, in addition
to any other rights to elect directors which the holders of Redeemable Preferred
Stock may have, the holders of all outstanding shares of Redeemable Preferred
Stock, voting separately as a class and to the exclusion of the holders of all
other classes and series of stock of the Company, shall be entitled to elect the
directors of the Company to fill such newly created directorships.
 
    "Dividend Arrears Number" shall mean such number of additional directors of
the Company which, when added to the number of directors otherwise nominated by
the holders of Redeemable Preferred Stock, shall result in the number of
directors elected by or at the direction of the holders of Redeemable Preferred
Stock constituting one-third of the members of the Board of Directors of the
Company.
 
    "Control Number" shall mean such number of additional directors of the
Company which, when added to the number of directors otherwise nominated and
elected by the holders of Redeemable Preferred Stock, shall result in the number
of directors nominated and elected by or at the direction of the holders of
Redeemable Preferred Stock constituting a majority of the members of the Board
of Directors of the Company.
 
    Any additional directors elected by the Redeemable Preferred Stock pursuant
to the provisions described above shall remain in office until such time as (i)
all such dividends in arrears are paid in full or (ii) all shares of Redeemable
Preferred Stock shall have been redeemed pursuant to the mandatory redemption
provisions described above, as the case may be.
 
    RESTRICTIONS ON TRANSFER.  The shares of the Company's Common Stock held by
each of the parties to the Shareholders Agreement, and certain of their
transferees, are subject to restrictions on transfer. The shares of Common Stock
may be transferred only to certain related transferees, including, (i) in the
case of individual Shareholders, family members or their legal representatives
or guardians, heirs and legatees and trusts, partnerships and corporations the
sole beneficiaries, partners or shareholders, as the case may be, of which are
family members, (ii) in the case of partnership Shareholders, the partners of
such partnership, (iii) in the case of corporate Shareholders, affiliates of
such corporation and (iv) transferees of shares sold in transactions complying
with the applicable provisions of the Shareholder or Company Right of First
Refusal or the Tag-along or Drag-Along Rights (as each term is defined below.)
 
    RIGHTS OF FIRST OFFER.  If any Shareholder desires to transfer any shares of
the Company's Common Stock or Warrants (other than pursuant to certain permitted
transfers) and if such Shareholder has not received a bona fide offer from an
unrelated third-party that such shareholder wishes to accept (a "Third-Party
Offer"), all other Shareholders have a right of first offer (the "Right of First
Offer") to purchase the shares or warrants (the "Subject Shares") upon such
terms and subject to such conditions as are set forth in a notice (a "First
Offer Notice") sent by the selling Shareholder to such other Shareholders. If
the Shareholders elect to exercise their Rights of First Offer with respect to
less than all of the Subject Shares, the Company has a right to purchase all of
the Subject Shares that the Shareholders have not elected to purchase. If the
Shareholders receiving the First Offer Notice and the Company will exercise
their respective rights of first offer with respect to less than all of the
Subject Shares, the selling Shareholder may solicit Third-Party Offers to
purchase all (but not less than all) of the Subject Shares upon such terms and
subject to such conditions as are, in the aggregate, no less favorable to the
selling Shareholder than those set forth in the First Offer Notice.
 
                                       34
<PAGE>
    SUBSCRIPTION OFFER WITH RESPECT TO PRIMARY ISSUANCES.  The Company will not
be permitted to issue equity securities, or securities convertible into equity
securities to JFLEI or to any of its affiliates unless the Company has offered
to issue to each of the other Shareholders, on a pro rata basis, an opportunity
to purchase such securities on the same terms, including price, and subject to
the same conditions as those applicable to JFLEI and/or its affiliate.
 
    TAG-ALONG RIGHTS.  The Shareholders Agreement provides that, if the
Shareholders and the Company fail to exercise their respective rights of first
refusal with respect to all of the Subject Shares, the Shareholders have the
right to "tag along" (the "Tag-Along Right") upon the sale of the Company's
Common Stock by JFLEI pursuant to a Third-Party Offer.
 
    DRAG-ALONG RIGHTS.  The Shareholders Agreement provides that if one or more
Shareholders holding a majority of the Company's Common Stock (the "Majority
Shareholders") propose to sell all of the Common Stock owned by the Majority
Shareholders, the Majority Shareholders have the right (the "Drag-Along Right")
to compel the other Shareholders to sell all of the shares of Common Stock held
by such other Shareholders upon the same terms and subject to the same
conditions as the terms and conditions applicable to the sale by the Majority
Shareholders.
 
    MERGER.  The Shareholders Agreement provides that the Company may not enter
into any merger, consolidation or similar business combination unless the terms
of such merger provide for all Shareholders to receive the same consideration
for their shares of Common Stock.
 
    REGISTERED OFFERINGS.  The shares of Common Stock may be transferred in a
bona fide public offering for cash pursuant to an effective registration
statement (a "Registered Offering") without compliance with the provisions of
the Shareholders Agreement related to the Right of First Refusal or the
Tag-Along or Drag-Along Rights.
 
    LEGENDS.  The shares of Common Stock subject to the Shareholders Agreement
bear a legend related to the Right of First Refusal and the Tag-Along and
Drag-Along Rights, which legends will be removed when the shares of Common Stock
are, pursuant to the terms of the Shareholders Agreement, no longer subject to
the restrictions on transfer imposed by the Shareholders Agreement.
 
    REGISTRATION RIGHTS.  JFLEI and certain other shareholders are entitled to
one "demand" and unlimited piggyback registration rights, subject to additional
customary rights and limitations.
 
    The term of the Shareholders Agreement is the earlier of (i) August 20,
2007, (ii) the date on which none of the Shareholders nor any of their permitted
transferees are subject to the terms of the Shareholders Agreement, (iii) the
date on which none of the shares of Common Stock are subject to the restrictions
on transfer imposed by the Shareholders Agreement or (iv) the consummation of a
Registered Offering for an aggregate offering price of $25.0 million or more.
 
INDEMNIFICATION OF OFFICERS AND DIRECTORS
 
    The Articles of Incorporation of the Company contain provisions eliminating
the personal liability of directors for monetary damages for breaches of their
duty of care, except in certain prescribed circumstances. The Bylaws of the
Company also provide that directors and officers will be indemnified to the
fullest extent authorized by California law, as it now stands or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The Bylaws of the
Company provide that the rights of directors and officers to indemnification is
not exclusive of any other right now possessed or hereinafter acquired under any
statute, agreement or otherwise.
 
                                       35
<PAGE>
MANAGEMENT PARTICIPATION IN THE RECAPITALIZATION
 
    The executive officers and directors of the Company received a total of
approximately $13.8 million, representing the Recapitalization Consideration.
Certain executive officers and directors of the Company also retained shares of
the Company's common stock and did not convert such shares into the right to
receive the Recapitalization Consideration. Certain of the directors and
executive officers of the Company held options to purchase the Company's Common
Stock that were terminated upon the effectiveness of the Merger and, as to a
portion of which, such persons received cash pursuant to the terms of the Merger
Agreement. See "Executive Compensation" and "Security Ownership of Certain
Beneficial Owners and Management."
 
                                    PART IV
 
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
  FORM 8-K
 
(a)(1)  Consolidated Financial Statements:
 
    The following consolidated financial statements of the Company are included
in response to Item 8 of this report.
 
<TABLE>
<CAPTION>
                                                                                                    PAGE REFERENCE
                                                                                                      FORM 10-K
                                                                                                    --------------
<S>                                                                                                 <C>
Report of Ernst & Young LLP, Independent Auditors.................................................           F-2
 
Consolidated Statements of Operations for the three fiscal years ended January 2, 1998............           F-3
 
Consolidated Balance Sheets at January 3, 1997 and January 2, 1998................................           F-4
 
Consolidated Statements of Shareholders' Equity (Deficit) for the three fiscal years ended January
  2, 1998.........................................................................................           F-5
 
Consolidated Statements of Cash Flows for the three years ended January 2, 1998...................           F-6
 
Notes to Consolidated Financial Statements........................................................           F-7
 
(a)(2)  Consolidated Financial Statement Schedules:
 
Report of Ernst & Young LLP, Independent Auditors.................................................           S-2
 
Schedule II--Valuation and Qualifying Accounts....................................................           S-3
</TABLE>
 
    Schedules other than those listed above have been omitted since they are
either not required, not applicable or the information is otherwise included.
 
(b) Reports on Form 8-K.
 
    None.
 
(c) Exhibits
 
<TABLE>
<C>        <S>
      3.1  Articles of Incorporation of the Company (1)
 
      3.2  Bylaws of the Company (1)
 
      3.3  Articles of Incorporation of Burke Flooring Products, Inc. (1)
 
      3.4  Bylaws of Burke Flooring Products, Inc. (1)
 
      3.5  Articles of Incorporation of Burke Rubber Company, Inc. (1)
 
      3.6  Bylaws of Burke Rubber Company, Inc. (1)
 
      3.7  Articles of Incorporation of Burke Custom Processing, Inc. (1)
</TABLE>
 
                                       36
<PAGE>
<TABLE>
<C>        <S>
      3.8  Bylaws of Burke Custom Processing, Inc. (1)
 
      4.1  Indenture among the Company, the Subsidiary Guarantors and United States Trust
             Company of New York, dated as of August 20, 1997.
 
      4.2  Form of Note (included in Exhibit 4.1).
 
      4.3  Registration Rights Agreement among the Company and the Holders, dated as of August
             20, 1997.
 
     10.1  Loan and Security Agreement between the Company, the Lenders and NationsBank, N.A.,
             dated as of August 20, 1997.
 
     10.2  Revolving Notes from the Company to each of the Lenders.
 
     10.3  Subsidiary Guaranty between the Subsidiaries and NationsBank, N.A., dated as of
             August 20, 1997.
 
     10.4  Subsidiary Security Agreement between the Subsidiaries and NationsBank, N.A., dated
             as of August 20, 1997.
 
     10.5  Stock Pledge Agreement between the Company and NationsBank, N.A., dated as of August
             20, 1997.
 
     10.6  Investment Agreement among the Company and the preferred shareholders, dated as of
             August 20, 1997.
 
     10.7  Shareholders' Agreement among the Company, the warrantholders and the shareholders,
             dated as of August 20, 1997.
 
     10.8  Shareholders' Registration Rights Agreement among the Company and the shareholders,
             dated as of August 20, 1997. (1)
 
     10.9  Warrantholders' Registration Rights Agreement among the Company and the
             warrantholders dated as of August 20, 1997.
 
    10.10  Warrant Certificates between the Company and each of the warrantholders.
 
    10.11  Management Agreement between the Company and J.F. Lehman & Company.
 
    10.12  Lease Agreement between the Company and Senter Properties, LLC for the premises at
             2049 Senter Road, San Jose, California, dated April 30, 1997.
 
    10.13  Lease Agreement between the Company and SSMRT Bensenville Industrial Park (3), Inc.
             for the premises at 870 Thomas Drive, Bensenville, Illinois, dated May 1, 1996. (1)
 
    10.14  Lease Agreement between the Company and Lincoln Property Company for the premises at
             13767 Freeway Drive, Santa Fe Springs, California, dated October 20, 1995. (1)
 
    10.15  Lease Agreement between the Company and Donald M. Hypes for the premises at 14910
             Carmenita Boulevard, Norwalk, California, dated April 25, 1983. (1)
 
    10.16  Lease Agreement between S & M Development Co., a general partnership, for the
             premises at 13615 Excelsior Drive, Santa Fe Springs, California, dated March 29,
             1996. (1)
 
    10.17  Lease Agreement between the Company and Stephen S. Gray, the duly appointed Chapter 7
             trustee of the Estate of Haskon Corporation, for the premises at 336 Weir Street,
             Taunton, Massachusetts, dated June 5, 1995. (1)
 
    10.18  Sublease Agreement between Burke Rubber Company, Inc. and Westland Technologies, Inc.
             for the premises at 107 South Riverside Drive, Modesto, California, dated February
             20, 1992. (1)
 
    10.19  Service Agreement between the Company and Westland Technologies, Inc., dated June 27,
             1996.
 
    10.20  Stock Purchase Agreement between the Company, Mercer Products Company, Inc. and
             Sovereign Specialty Chemicals, Inc., dated March 5, 1998.
</TABLE>
 
                                       37
<PAGE>
<TABLE>
<C>        <S>
     12.1  Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and
             Preferred Stock Dividends.
 
     21.   Subsidiaries of the Company. (1)
 
     27.   Financial Data Schedules.
</TABLE>
 
------------------------
 
(1) Incorporated by reference to registrant's Registration Statement on Form
    S-4, File No. 333-36675.
 
    SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
 
    No annual report or proxy material covering the Company's last fiscal year
has been or will be sent to security holders of the Company.
 
                                       38
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                             ---------
<S>                                                                                                          <C>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
Report of Ernst & Young LLP, Independent Auditors..........................................................  F-2
 
Consolidated Statements of Operations for the three fiscal years ended January 2, 1998.....................  F-3
 
Consolidated Balance Sheets at January 3, 1997 and January 2, 1998.........................................  F-4
 
Consolidated Statements of Shareholders' Equity (Deficit) for the three fiscal years ended January 2,
  1998.....................................................................................................  F-5
 
Consolidated Statements of Cash Flows for the three fiscal years ended January 2, 1998.....................  F-6
 
Notes to Consolidated Financial Statements.................................................................  F-7
</TABLE>
 
                                      F-1
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Shareholders
 
Burke Industries, Inc. and Subsidiaries
 
    We have audited the accompanying consolidated balance sheets of Burke
Industries, Inc. and subsidiaries as of January 2, 1998 and January 3, 1997, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the three fiscal years in the period ended
January 2, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Burke
Industries, Inc. and subsidiaries at January 2, 1998 and January 3, 1997, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended January 2, 1998, in conformity with
generally accepted accounting principles.
 
San Jose, California                                           ERNST & YOUNG LLP
 
February 26, 1998
 
                                      F-2
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                         FISCAL YEARS ENDED
                                                                                   -------------------------------
                                                                                     1997       1996       1995
                                                                                   ---------  ---------  ---------
                                                                                           (IN THOUSANDS)
<S>                                                                                <C>        <C>        <C>
Net sales........................................................................  $  90,228  $  72,466  $  68,411
Costs and expenses:
  Cost of sales..................................................................     62,917     49,689     49,226
  Selling, general and administrative............................................     12,238     11,610     10,212
  Transaction expenses...........................................................      1,321     --         --
  Stock option purchase..........................................................     14,105     --         --
                                                                                   ---------  ---------  ---------
(Loss) income from operations....................................................       (353)    11,167      8,973
Interest expense, net............................................................      5,408      2,668      3,007
                                                                                   ---------  ---------  ---------
(Loss) income before income tax (benefit) provision, discontinued operation, and
  extraordinary loss.............................................................     (5,761)     8,499      5,966
Income tax (benefit) provision...................................................     (1,818)     3,466      3,393
                                                                                   ---------  ---------  ---------
(Loss) income from continuing operations before discontinued
  operation and extraordinary loss...............................................     (3,943)     5,033      2,573
Loss from discontinued operation, net of income tax benefit
  of $205 in 1996, and $443 in 1995..............................................     --           (308)      (664)
Loss on disposal of discontinued operation, net of income
  tax benefit of $356............................................................     --           (624)    --
Extraordinary loss on debt settlement, net of income
  tax benefit of $547............................................................     --         --           (815)
                                                                                   ---------  ---------  ---------
Net (loss) income................................................................  $  (3,943) $   4,101  $   1,094
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.
 
                                      F-3
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                                  FISCAL YEAR
                                                                                              --------------------
                                                                                                1997       1996
                                                                                              ---------  ---------
                                                                                                    (DOLLARS
                                                                                                 IN THOUSANDS)
<S>                                                                                           <C>        <C>
                                                      ASSETS
Current assets:
  Cash and cash equivalents.................................................................  $  11,563  $  --
  Restricted cash...........................................................................      1,070     --
  Trade accounts receivable, less allowance of $334 in 1997 and $189 in 1996................     11,186      9,155
  Inventories...............................................................................     11,187      8,616
  Prepaid expenses and other current assets.................................................      1,056        630
  Deferred income tax assets................................................................      2,845      1,014
  Refundable income taxes...................................................................      1,639     --
                                                                                              ---------  ---------
      Total current assets..................................................................     40,546     19,415
Property, plant, and equipment:
  Land and improvements.....................................................................      1,884      1,884
  Buildings and improvements................................................................      9,151      9,151
  Equipment.................................................................................     13,007     12,329
  Leasehold improvements....................................................................        606        555
                                                                                              ---------  ---------
                                                                                                 24,648     23,919
  Accumulated depreciation and amortization.................................................     10,536      9,101
                                                                                              ---------  ---------
                                                                                                 14,112     14,818
  Construction-in-process...................................................................        908        183
                                                                                              ---------  ---------
                                                                                                 15,020     15,001
Other assets:
  Prepaid pension cost......................................................................        501        542
  Goodwill, net.............................................................................      1,465      1,529
  Note receivable from an affiliate of the principal shareholders...........................     --          4,066
  Deferred financing costs, net.............................................................      5,210     --
  Other assets..............................................................................         95        120
                                                                                              ---------  ---------
                                                                                                  7,271      6,257
                                                                                              ---------  ---------
      Total assets..........................................................................  $  62,837  $  40,673
                                                                                              ---------  ---------
                                                                                              ---------  ---------
                                  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Checks outstanding in excess of funds deposited...........................................  $  --      $     828
  Trade accounts payable and accrued expenses...............................................      5,489      5,656
  Accrued compensation and related liabilities..............................................      2,086      1,937
  Accrued interest..........................................................................      4,347        798
  Payable to shareholders...................................................................      5,882     --
  Income taxes payable......................................................................      1,064      2,468
  Current portion of long-term obligations..................................................     --          2,400
                                                                                              ---------  ---------
      Total current liabilities.............................................................     18,868     14,087
Senior notes................................................................................    110,000     --
Long-term obligations, less current portion.................................................     --         16,469
Other noncurrent liabilities................................................................        420        720
Deferred income tax liabilities.............................................................      3,891      3,457
Subordinated debt...........................................................................     --          1,657
Preferred stock, no par value; 50,000 shares authorized; 30,000 Series A Redeemable shares
  designated; 16,000 Series A shares issued and outstanding; 5,000 Series B Redeemable
  shares designated; 2,000 Series B shares issued and outstanding...........................     16,148     --
Shareholders' equity (deficit):
  Class A common stock, no par value:
    Authorized shares--20,000,000
    Issued and outstanding shares--3,857,000 in 1997 and 9,377,000 in 1996..................     25,464      6,716
  Accumulated deficit.......................................................................   (111,954)    (2,433)
                                                                                              ---------  ---------
      Total shareholders' equity (deficit)..................................................    (86,490)     4,283
                                                                                              ---------  ---------
Total liabilities and shareholders' equity (deficit)........................................  $  62,837  $  40,673
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.
 
                                      F-4
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
 
<TABLE>
<CAPTION>
                                                                       CLASS A                            TOTAL
                                                                     COMMON STOCK                     SHAREHOLDERS'
                                                                ----------------------  ACCUMULATED      EQUITY
                                                                 SHARES      AMOUNT       DEFICIT       (DEFICIT)
                                                                ---------  -----------  ------------  -------------
                                                                                  (IN THOUSANDS)
<S>                                                             <C>        <C>          <C>           <C>
Balance at fiscal year end 1994...............................     10,019  $     6,649   $   (5,800)   $       849
  Net income..................................................     --          --             1,094          1,094
  Increase in value of shareholder warrants...................     --              587         (587)       --
  Repurchase of stock.........................................       (588)        (453)      --               (453)
  Repurchase of warrants......................................     --           (1,150)      --             (1,150)
                                                                ---------  -----------  ------------  -------------
Balance at fiscal year end 1995...............................      9,431        5,633       (5,293)           340
  Net income..................................................     --          --             4,101          4,101
  Proceeds from sales of shares through employee stock
    plans.....................................................        181           77       --                 77
  Increase in value of shareholder warrants...................     --            1,241       (1,241)       --
  Repurchase of stock.........................................       (235)        (235)      --               (235)
                                                                ---------  -----------  ------------  -------------
Balance at fiscal year end 1996...............................      9,377        6,716       (2,433)         4,283
  Net loss....................................................     --          --            (3,943)        (3,943)
  Proceeds from sales of shares through employee stock
    plans.....................................................         22           10       --                 10
  Increase in value of shareholder warrants...................     --            5,100       (5,100)       --
  Accretion of preferred stock discount.......................     --          --               (89)           (89)
  Preferred stock dividend in kind............................     --          --              (665)          (665)
  Common stock warrant issued on sale of preferred stock......     --          --             2,500          2,500
  Proceeds from sale of common stock, net of issuance costs...      3,134       18,724       --             18,724
  Recapitalization of company.................................     (8,676)      (5,086)    (102,224)      (107,310)
                                                                ---------  -----------  ------------  -------------
Balance at fiscal year end 1997...............................      3,857  $    25,464   $ (111,954)   $   (86,490)
                                                                ---------  -----------  ------------  -------------
                                                                ---------  -----------  ------------  -------------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.
 
                                      F-5
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                          FISCAL YEARS ENDED
                                                                                    -------------------------------
                                                                                      1997       1996       1995
                                                                                    ---------  ---------  ---------
                                                                                            (IN THOUSANDS)
<S>                                                                                 <C>        <C>        <C>
OPERATING ACTIVITIES
Net (loss) income.................................................................  $  (3,943) $   4,101  $   1,094
Adjustments to reconcile net (loss) income to net cash provided by (used in)
  operating activities:
  Depreciation and amortization:
    Property, plant, and equipment................................................      1,435      1,378      1,354
    Goodwill......................................................................         64         41        134
    Debt discounts arising from warrants..........................................         93         37        259
    Interest on shareholder note..................................................       (240)    --         --
    Deferred financing costs......................................................        229     --         --
  Loss on disposal of discontinued operation......................................     --            624     --
  Extraordinary loss on debt settlement, noncash portion..........................     --         --          1,362
  Changes in net assets of discontinued operation.................................     --          1,401       (680)
  Changes in operating assets and liabilities:
    Trade accounts receivable.....................................................     (2,031)       701     (4,326)
    Inventories...................................................................     (2,571)    (1,398)    (2,539)
    Prepaid expenses and other current assets.....................................       (436)       (78)       (68)
    Prepaid pension cost..........................................................         41         83         66
    Other assets..................................................................         25         12        (31)
    Trade accounts payable and accrued expenses...................................      3,382      1,940      1,853
    Accrued compensation and related liabilities..................................        149        124        536
    Deferred income taxes.........................................................     (1,397)       241       (462)
    Income taxes payable..........................................................     (3,043)      (103)     1,798
    Other noncurrent liabilities..................................................       (300)        36       (142)
                                                                                    ---------  ---------  ---------
Net cash (used in) provided by operating activities...............................     (8,543)     9,140        208
INVESTING ACTIVITIES
Purchases of property, plant, and equipment.......................................     (1,454)    (1,684)    (3,647)
Proceeds from disposal of discontinued operation..................................     --          1,818     --
Note receivable from affiliate of the principal shareholders......................     --         (4,066)    --
Repayment of note receivable from affiliate of the principal shareholders.........      4,306     --         --
Proceeds from sale of equipment...................................................     --         --            123
                                                                                    ---------  ---------  ---------
Net cash provided by (used in) investing activities...............................      2,852     (3,932)    (3,524)
FINANCING ACTIVITIES
Restricted cash...................................................................     (1,070)    --         --
Checks outstanding in excess of funds deposited...................................       (828)      (888)     1,228
Borrowings of long-term debt......................................................     --         79,516    101,393
Repayments and settlement of long-term debt and capital lease obligations.........    (18,869)   (83,678)   (97,702)
Payable to shareholders...........................................................      5,882     --         --
Repurchase of common stock and warrants...........................................     --           (235)    (1,603)
Proceeds from sales of shares through employee stock plans........................         10         77     --
Deferred financing costs..........................................................     (5,430)    --         --
Repayment of subordinated debt....................................................     (1,750)    --         --
Net recapitalization consideration................................................   (107,310)    --         --
Issuance of senior notes..........................................................    110,000     --         --
Issuance of preferred stock, net of issuance costs................................     17,895     --         --
Issuance of common stock, net of issuance costs...................................     18,724     --         --
                                                                                    ---------  ---------  ---------
Net cash provided by (used in) financing activities...............................     17,254     (5,208)     3,316
                                                                                    ---------  ---------  ---------
Change in cash....................................................................     11,563     --         --
Cash at beginning of year.........................................................     --         --         --
                                                                                    ---------  ---------  ---------
Cash at end of year...............................................................  $  11,563  $  --      $  --
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.
 
                                      F-6
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
    ORGANIZATION
 
    Burke Industries, Inc. and subsidiaries (the Company) develop, manufacture,
and market various elastomer products for use in commercial and military
applications.
 
    The Company operates within one industry segment, which includes the
developing, manufacturing, and marketing of various elastomer products for use
in commercial and military applications. The Company sells its products through
a network of distributors or directly to customers in the construction, defense,
and aerospace industries and other commercial markets, primarily in North
America. The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral.
 
    One customer accounted for approximately 13% of net sales in fiscal year
1997 and 11% of net sales in fiscal year 1996. No other customers constituted
10% or more of net sales in any of the three fiscal years ended in 1997.
 
    Substantially all of the Company's hourly workers in San Jose, California
are represented by the International Association of Machinists and Aerospace
Workers through a collective bargaining agreement that expires October 2, 2000.
 
    The Company has renewed its collective bargaining agreement with United
Electrical Radio and Machine Workers of America, who represent the Company's
hourly workers in Tanton, Massachusetts through June 5, 2000.
 
    RECAPITALIZATION
 
    In August 1997, the Company entered into an Agreement and Plan of Merger
(the Merger Agreement) pursuant to which the Company was recapitalized (the
Recapitalization). Pursuant to the Merger Agreement, all shares of the Company's
common stock, other than those retained by certain members of management and
certain other shareholders (Continuing Shareholders), were converted into the
right to receive cash based upon a formula. The Continuing Shareholders agreed
to retain approximately 15% of the common equity of the Company. In order to
finance the transactions contemplated by the Recapitalization, the Company (i)
issued $110 million of senior notes in a debt offering (NOTE 4); (ii) received
$20 million in cash from an investor group for common stock, and (iii) received
$18 million in cash for the issuance of redeemable preferred stock (the
Transactions). Pursuant to the terms of a ten-year Management Agreement entered
into between the Company and its principal shareholder after completion of the
Recapitalization transaction, the Company paid the shareholder a transaction fee
of $1.0 million and the Company agreed to pay an annual management fee equal to
$500,000 commencing October 1, 1997.
 
    The Company has four wholly owned subsidiaries, consisting of Burke Flooring
Products, Inc., Burke Rubber Company, Inc., Burke Custom Processing, Inc., (the
Guarantor Subsidiaries) and Burkeline Construction Company, Inc. (the
Non-Guarantor Subsidiary). Each of the Guarantor Subsidiaries' guarantees of the
Company's $110 million senior notes, is full, unconditional and joint and
several. The Company's subsidiaries have no operations or assets and liabilities
and therefore no separate financial statements of the Company's subsidiaries are
presented.
 
    In connection with the above August 1997 transactions, the tax benefit the
Company will receive associated with the cost to purchase options issued and
outstanding under the Company's stock option plan, in addition to other tax
savings associated with the transaction, will be distributed to the Company's
 
                                      F-7
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
continuing and former shareholders when realized by the Company. Accordingly, as
part of the recapitalization the Company recognized a liability of $5,882,000
for the total estimated benefit to be realized.
 
    A lawsuit was filed by a former shareholder against the Company and certain
of its current and former officers and directors. The former shareholder is
asserting various claims in connection with the Company's repurchase of the
former shareholders' shares prior to the Recapitalization. The Company believes
that such claims are without merit and intends to vigorously defend such claims.
Management believes the resolution of this matter will not have a material
adverse effect on the financial position of the Company.
 
    ACCOUNTING PERIODS
 
    The Company's fiscal year ends on the Friday closest to December 31. The
Company maintains a fifty-two/fifty-three week fiscal year cycle, which resulted
in a fifty-two week year in fiscal 1995, a fifty-three week year in fiscal 1996,
and a fifty-two week year in fiscal 1997. For convenience, the accompanying
financial statements have been referred to as fiscal years ended 1995, 1996, and
1997 for the periods ended December 29, 1995 and January 3, 1997 and January 2,
1998, respectively.
 
    CONSOLIDATION
 
    The accompanying consolidated financial statements include the accounts of
Burke Industries, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
 
    USE OF ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
 
    CASH AND CASH EQUIVALENTS
 
    Cash and cash equivalents consist of demand deposit accounts with five
banks. Restricted cash consists of a three month U.S. treasury bill held as
security for an outstanding letter of credit.
 
    REVENUE RECOGNITION
 
    Revenue from sales of products is generally recognized upon shipment to
customers. For contracts relating to certain products, a portion of the revenue
is recognized upon completion of a part of the manufacturing process and upon
customer acceptance. The remaining revenue is recognized upon completion of the
manufacturing process and shipment.
 
    WARRANTY
 
    The Company generally warrants its roofing products for two years, for which
the related costs are not significant. In addition, the Company sells extended
warranties for ten to twenty years. Revenues received for extended warranties
are deferred and amortized over the period in which warranty costs are expected
 
                                      F-8
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to be incurred. Warranty reserves and deferred warranty revenues are included in
accrued expenses and other noncurrent liabilities on the accompanying
consolidated balance sheets.
 
    INVENTORIES
 
    Inventories are stated at the lower of cost (first-in, first-out method) or
market.
 
    PROPERTY, PLANT, AND EQUIPMENT
 
    Property, plant, and equipment are stated at cost. Depreciation is computed
over the estimated useful lives (three to forty years) of the assets using the
straight-line method. Leasehold improvements are amortized by the straight-line
method over the shorter of the estimated useful life of the asset or the term of
the related lease. Amortization of assets under capital leases is included in
depreciation expense.
 
    FINANCIAL INSTRUMENTS
 
    The carrying value of accounts receivable and payable and accrued
liabilities approximates fair value due to the short-term maturities of these
assets and liabilities.
 
    RECLASSIFICATIONS
 
    Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform with the 1997 statement presentation.
 
    COMPREHENSIVE INCOME
 
    In June 1997, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (FAS 130). FAS 130 establishes standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997.
 
    SEGMENT INFORMATION
 
    In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(FAS 131). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
stockholders. FAS 131 is effective for fiscal years beginning after December 15,
1997. The Company is currently evaluating the impact of the application of the
new rules on the Company's consolidated financial statements.
 
                                      F-9
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. INVENTORIES
 
    Inventories consist of the following at the fiscal year ended:
 
<TABLE>
<CAPTION>
                                                                             1997       1996
                                                                           ---------  ---------
                                                                              (IN THOUSANDS)
<S>                                                                        <C>        <C>
Raw materials............................................................  $   4,626  $   3,260
Work-in-process..........................................................      1,593      1,433
Finished goods...........................................................      4,968      3,923
                                                                           ---------  ---------
                                                                           $  11,187  $   8,616
                                                                           ---------  ---------
                                                                           ---------  ---------
</TABLE>
 
3. GOODWILL AND LONG-LIVED ASSETS
 
    Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the tangible and specifically identified
intangible net assets acquired. In accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for the Long-Lived Assets to Be Disposed Of" (FAS 121), the carrying value
of long-lived assets and related goodwill is reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates that
the carrying value of these assets will not be recoverable, as determined based
on the undiscounted net cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value is reduced to its estimated
fair value (based on an estimate of discounted future net cash flows).
 
    Goodwill is being amortized on a straight-line basis over forty years.
Accumulated amortization totaled $367,000 and $303,000 at fiscal years ended
1997 and 1996, respectively.
 
4. LONG-TERM DEBT AND LEASE OBLIGATIONS
 
    In connection with the Recapitalization of the Company (NOTE 1), all
outstanding borrowings under the existing bank line of credit agreement, term
loans payable to bank, and subordinated notes were repaid and the Company issued
$110 million of Senior Notes and entered into a new credit facility with a bank.
 
    SENIOR NOTES DUE 2007
 
    The Senior Notes bear interest at a rate of 10% per annum. Interest on the
Senior Notes is payable semiannually, commencing February 15, 1998. The Senior
Notes mature on August 15, 2007.
 
    At any time on or before August 15, 2000, the Company may redeem up to 35%
in aggregate principal amount of (i) the initial aggregate principal amount of
the Senior Notes and (ii) the initial principal amount of any additional notes,
on one or more occasions, with the net cash proceeds of one or more public
equity offerings at a redemption price of 110% of the principal amount thereof,
plus accrued and unpaid interest thereon to the redemption date, provided that
at least 65% of the sum of (i) the initial aggregate principal amount of the
Senior Notes and (ii) the initial aggregate principal amount of additional notes
remain outstanding immediately after redemption. The Senior Notes are redeemable
by the Company at stated redemption prices beginning in August 2002.
 
    The Senior Notes are general unsecured obligations of the Company and senior
to all existing and future subordinated indebtedness of the Company. The
obligations of the Company under the bank credit
 
                                      F-10
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
facility are secured by substantially all of the assets of the Company.
Accordingly, such secured indebtedness will effectively rank senior to the
Senior Notes to the extent of such assets.
 
    The Senior Notes restrict, among other things, the Company's ability to
incur additional indebtedness, pay dividends or make certain other restricted
payments, incur liens, sell preferred stock of subsidiaries, apply net proceeds
from certain asset sales, merge or consolidate with any other person, sell,
assign, transfer, lease, convey or otherwise dispose of substantially all of the
assets of the Company or enter into certain transactions with affiliates.
 
    Since the Senior Notes were issued in August 1997, the Company believes the
fair value of the Senior Notes at fiscal year ended 1997 approximates the
carrying value of such debt at fiscal year ended 1997.
 
    BANK CREDIT FACILITY
 
    In connection with recapitalization, the Company entered into a Loan and
Security Agreement with a bank to provide the Company with a $15.0 million
revolving credit facility expiring August 20, 2002. No amounts are outstanding
at fiscal year end 1997.
 
    Indebtedness of the Company under the agreement is secured by a first
priority security interest in substantially all of the Company's assets.
 
    Indebtedness under the agreement bears interest at a floating rate of
interest equal to, at the Company's option, the eurodollar rate for one, two,
three or six months, plus 2.50% or the bank's prime rate.
 
    Advances under the agreement are limited to the lesser of (a) $15.0 million
and (b)(i) 85% of eligible accounts receivable plus (ii) 50% of eligible
inventory minus (iii) the aggregate amount of all undrawn letters of credit
issued plus the aggregate amount of any unreimbursed drawings under any
outstanding letters of credit. Letters of credit up to a maximum of $1.0 million
may be issued under the bank credit facility.
 
    The credit agreement contains restrictions on the incurrence of debt, the
sale of assets, mergers, acquisitions and other business combinations, voluntary
prepayment of other debt of the Company, transactions with affiliates,
investments, as well as prohibitions on the payment of dividends to, or the
repurchase or redemption of stock from, shareholders, and various financial
covenants, including covenants requiring the maintenance of fixed charge
coverage.
 
    INTEREST EXPENSE
 
    Interest expense consists of the following:
 
<TABLE>
<CAPTION>
                                                                          FISCAL YEAR ENDED
                                                                   -------------------------------
                                                                     1997       1996       1995
                                                                   ---------  ---------  ---------
                                                                           (IN THOUSANDS)
<S>                                                                <C>        <C>        <C>
Interest incurred................................................  $   5,900  $   2,771  $   3,039
Capitalized......................................................        (29)       (19)       (30)
Interest income..................................................       (463)       (84)        (2)
                                                                   ---------  ---------  ---------
Interest expense, net............................................  $   5,408  $   2,668  $   3,007
                                                                   ---------  ---------  ---------
                                                                   ---------  ---------  ---------
</TABLE>
 
                                      F-11
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
    Included in interest expense is $142,000, $212,000, and $1,108,000 of
interest incurred on subordinated shareholder notes in fiscal years 1997, 1996,
and 1995, respectively. There was no interest payable to these shareholders at
fiscal years ended 1997 and 1996, respectively, and such subordinated notes were
repaid in connection with the Recapitalization of the Company.
 
    DEFERRED FINANCING COSTS
 
    In connection with the issuance of the Senior Notes and bank credit facility
agreement, the Company incurred debt issuance costs of $5,429,000 that are being
amortized to interest expense over the term of the related debt. Accumulated
amortization at fiscal year end 1997 is $219,000.
 
    LEASE OBLIGATIONS
 
    The Company also leases certain manufacturing, warehousing, and
administrative space under noncancelable operating leases. At fiscal year ended
1997, future minimum payments under noncancelable operating leases are as
follows:
 
<TABLE>
<S>                                                                   <C>
1998................................................................  $   1,040
1999................................................................        937
2000................................................................        847
2001................................................................        387
2002................................................................        295
Beyond 2002.........................................................      1,771
                                                                      ---------
                                                                      $   5,277
                                                                      ---------
                                                                      ---------
</TABLE>
 
    Rental expense approximated $1,404,000, $1,143,000, and $1,006,000 in fiscal
years 1997, 1996, and 1995, respectively. Rental expense is before sublease
income of $316,000 in 1997 and $206,000 in 1996. Future sublease rental income
commitments aggregated $1,301,000 at fiscal year ended 1997.
 
    PURCHASE OBLIGATIONS
 
    As of year end 1997, the Company had an agreement with a vendor to purchase
inventory for approximately $900,000. The Company set up a letter of credit as
collateral for the purchase.
 
5. REDEEMABLE PREFERRED STOCK
 
    In connection with the Recapitalization transaction, the Company issued
16,000 shares of redeemable preferred stock designated as Series A 11.5%
Cumulative Redeemable Preferred Stock and 2,000 shares of redeemable preferred
stock designated as Series B 11.5% Cumulative Redeemable Preferred Stock for
cash proceeds of $18 million, less issuance costs of $106,000, less the $2.5
million value assigned to warrants to purchase common shares issued to holders
of preferred stock. The excess of redemption value over the carrying value is
being accreted by periodic charges to retained earnings (accumulated deficit)
through February 2008.
 
    Dividends will be payable to holders of the redeemable preferred stock, at
the annual rate per share of 11.5% times the sum of $1,000 and accrued but
unpaid dividends. Dividends shall be payable at the annual
 
                                      F-12
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
5. REDEEMABLE PREFERRED STOCK (CONTINUED)
rate per share of 0.115 shares of redeemable preferred stock through July 15,
2000, and in cash after July 15, 2000.
 
    Dividends will be payable quarterly on January 15, April 15, July 15, and
October 15 of each year, commencing October 15, 1997. Dividends shall be fully
cumulative and shall accrue on a quarterly basis.
 
    If at any time after July 15, 2000, the cash dividends payable on the
redeemable preferred stock shall have been in arrears and unpaid for four or
more successive dividend payment dates, then until the date on which all such
dividends in arrears are paid in full, dividends shall accrue and be payable to
the holders at the annual rate of 13.5% times the sum of $1,000 per share and
accrued but unpaid dividends thereon. Upon payment in full of all dividends in
arrears, cash dividends will thereafter be payable at the 11.5% annual rate set
forth above. There were no dividends in arrears as of fiscal year ended 1997.
 
    Holders of shares of redeemable preferred stock shall be entitled to receive
the stated liquidation value of $1,000 per share, plus an amount per share equal
to any dividends accrued but unpaid, in the event of any liquidation,
dissolution or winding up of the Company. After payment of the full amount of
the liquidation preference, holders of shares of redeemable preferred stock will
not be entitled to any further participation in any distribution of assets of
the Company.
 
    The Company may, at its option, redeem at any time, all or any portion of
the shares of the redeemable preferred stock, at a redemption price per share
equal to 100% of the liquidation preference on the date of redemption.
 
    On February 20, 2008, the Company shall redeem any and all outstanding
shares of redeemable preferred stock, at a redemption price per share equal to
100% of the liquidation preference.
 
    Upon the occurrence of a change of control (as defined), the redeemable
preferred stock shall be redeemable at the option of the holders, at a
redemption price per share equal to 100% of the liquidation preference.
 
    The holders of shares of redeemable preferred stock shall not be entitled to
any voting rights. However, without the consent of the holders of at least
two-thirds of the outstanding shares of redeemable preferred stock, the Company
may not change the powers or preferences of the redeemable preferred stock,
create, authorize or issue any shares of capital stock ranking senior or on a
parity with the redeemable preferred stock or create, authorize or issue any
shares of capital stock constituting junior securities, unless such junior
securities are subordinate in right of payment to the redeemable preferred
stock.
 
    If at any time after October 15, 2000, any amount of cash dividends payable
on the Series A Redeemable Preferred Stock shall have been in arrears and unpaid
for four or more successive dividend payment dates, then the holders of the
Series A Redeemable Preferred Stock, shall have the right to elect the smallest
number of directors constituting one-third of the authorized number of
directors, and the holders of the common stock shall have the right to elect the
remaining directors.
 
    If the Company fails to redeem shares of Series A Redeemable Preferred Stock
in accordance with the mandatory redemption provisions described above, then the
holders of the Series A Redeemable Preferred Stock shall have the right to elect
the smallest number of directors constituting a majority of the authorized
number of directors, and the holders of the common stock shall have the right to
elect the remaining directors.
 
                                      F-13
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
5. REDEEMABLE PREFERRED STOCK (CONTINUED)
    The right of the holders of Series A Redeemable Preferred Stock to elect
directors pursuant to the provisions described above shall continue until such
time as all such dividends in arrears are paid in full or all shares of Series A
Redeemable Preferred Stock shall have been redeemed pursuant to the mandatory
redemption provisions.
 
6. SHAREHOLDERS' EQUITY
 
    COMMON STOCK
 
    At fiscal year ended 1997 a total of 964,000 shares of Class A common stock
are reserved for the exercise of warrants and 500,000 shares are reserved under
the 1997 Stock Option Plan.
 
    On October 10, 1995, the Company and a bank owning the warrants entered into
a settlement agreement whereby the Company repurchased the outstanding warrants
and shares held by the bank and repaid the senior subordinated debt owed to the
bank. As a result of these transactions, an unamortized debt discount of
$950,000 and settlement fees of $412,000 have been expensed. These amounts are
shown as an extraordinary item in the 1995 income statement, net of tax.
 
    For shareholder warrants issued in connection with debt, the aggregate
increase in the difference between the fair value of the Class A common stock
and the exercise price of the shareholder warrants ($587,000 in 1995 and
$1,241,000 in 1996) has been charged to accumulated deficit. In connection with
the Recapitalization transaction, these shareholder warrants were repurchased
and the resulting $5,100,000 increase in value was charged to accumulated
deficit.
 
    On October 25, 1996, the Company loaned $4,000,000 to an affiliate of a then
principal shareholder and such amount was repaid in connection with the
Recapitalization transaction. The Company was charged an annual management fee
by an affiliate of the then principal shareholders of $250,000 in fiscal years
1995 and 1996.
 
                                      F-14
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
6. SHAREHOLDERS' EQUITY (CONTINUED)
 
    STOCK OPTIONS
 
    Prior to the Recapitalization, the Company maintained the 1989 Stock Option
Plan and granted nonqualified options not pursuant to a formal plan. In
connection with the Recapitalization, all vested option holders received cash
payment in cancellation of their options totalling $14.1 million and the Company
recorded $14.1 million in compensation expense. All unvested options were
canceled in connection with the Recapitalization.
 
    Under the 1997 Stock Option Plan (the Plan), incentive stock options to
purchase up to a total of 500,000 shares of common stock may be granted to
officers, directors, executives, and employees at the discretion of the Board of
Directors. Incentive stock options must be granted at not less than one hundred
percent of the fair market value of the shares of stock on the date of the
granting of the option if the optionee is not a ten percent shareholder, or one
hundred and ten percent of the fair market value of the shares of stock on the
date of the granting of the option if the optionee is a ten percent shareholder.
Options vest as determined by the Board of Directors.
 
    During December 1997, the Company granted incentive stock options to
purchase 370,000 shares of common stock at $6.50 per share. These options vest
over four years.
 
    A summary of all stock option activity is as follows:
 
<TABLE>
<CAPTION>
                                                                                        WEIGHTED
                                                                                         AVERAGE
                                                                           OPTIONS      PRICE PER
                                                                         OUTSTANDING      SHARE
                                                                        -------------  -----------
                                                                          (IN THOUSANDS, EXCEPT
                                                                             PER SHARE PRICE)
 
<S>                                                                     <C>            <C>
Balance at fiscal year ended 1994.....................................        1,378     $   0.425
  Granted.............................................................           25     $   0.425
  Exercised...........................................................       --         $  --
  Canceled............................................................         (144)    $   0.425
                                                                             ------
Balance at fiscal year ended 1995.....................................        1,259     $   0.425
  Granted.............................................................          618     $   1.500
  Exercised...........................................................         (181)    $   0.425
  Canceled............................................................          (96)    $   0.425
                                                                             ------
Balance at fiscal year ended 1996.....................................        1,600     $   0.840
  Granted.............................................................          370     $    6.50
  Exercised...........................................................          (22)    $   0.425
  Canceled............................................................       (1,578)    $   0.846
                                                                             ------
Balance at fiscal year ended 1997.....................................          370     $    6.50
                                                                             ------
                                                                             ------
</TABLE>
 
    The Company accounts for its stock option plan in accordance with the
provisions of the Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB Opinion No. 25). In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123), that provides an
alternative to APB Opinion No. 25. The Company will continue to account for its
employee stock plans in accordance with the
 
                                      F-15
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
6. SHAREHOLDERS' EQUITY (CONTINUED)
provisions of APB Opinion No. 25 with footnote disclosures of the material
impact of FAS 123. The number of shares granted in fiscal years ended 1997,
1996, and 1995 is not material, therefore, the effect of applying the FAS 123
minimum value method to the Company's stock option grants would not result in
pro forma net income materially different from historical amounts reported.
Therefore, such pro forma information and weighted average assumptions specified
in FAS 123 are not separately presented herein. Future pro forma net income
results may be materially different from actual amounts reported.
 
    WARRANTS
 
    Warrants to purchase 964,000 shares of common stock of the Company at the
initial exercise price of $4.67 per share were issued to the holders of the
preferred stock. The warrants are immediately exercisable until February 20,
2008. The exercise price and number of Warrant Shares are both subject to
adjustment in certain events.
 
7. DISCONTINUED OPERATION
 
    On June 28, 1996, the Company disposed of certain of the assets related to
its custom-molded organic rubber products manufacturing operation for cash and
future consideration. The assets were sold to a newly formed corporation that is
not related to the Company.
 
    The 1996 loss from the discontinued operation includes results through June
28, 1996. Net sales of the discontinued operation were $4,279,000 and $8,984,000
in 1996 and 1995, respectively.
 
8. PENSION AND RETIREMENT PLANS
 
    The Company maintains a defined benefit pension plan covering substantially
all of its hourly employees in San Jose, California. The benefits are based on
years of service and the benefit credit rates stated in the provisions of the
plan. The Company funds the plan at the minimum amount required to be paid under
the provisions of the Employee Retirement and Income Security Act of 1976
(ERISA). Contributions are intended to provide for benefits attributed to
service to date as well as for those expected to be earned in the future.
 
    The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at fiscal year end:
 
<TABLE>
<CAPTION>
                                                                               1997       1996
                                                                             ---------  ---------
                                                                                (IN THOUSANDS)
<S>                                                                          <C>        <C>
Actuarial present value of benefit obligations:
  Vested benefit obligation................................................  $   2,894  $   2,713
  Nonvested benefit obligation.............................................        124        183
                                                                             ---------  ---------
Accumulated benefit obligation.............................................  $   3,018  $   2,896
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
                                      F-16
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
8. PENSION AND RETIREMENT PLANS (CONTINUED)
<TABLE>
<CAPTION>
                                                                                   DECEMBER
                                                                             --------------------
                                                                               1997       1996
                                                                             ---------  ---------
                                                                                (IN THOUSANDS)
 
Plan assets at fair value, primarily listed stocks and U.S. bonds..........  $   3,066  $   2,920
<S>                                                                          <C>        <C>
Projected benefit obligation...............................................      3,018      2,896
                                                                             ---------  ---------
Plan assets in excess of projected benefit obligation......................         48         24
Unrecognized net loss from past experience different from that assumed and
  effects of changes in assumptions........................................        116        352
Prior service cost not yet recognized in net periodic pension cost.........        337        166
                                                                             ---------  ---------
Prepaid pension cost.......................................................  $     501  $     542
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
    Net periodic pension expense for the fiscal years ended 1997, 1996, and 1995
included the following components:
 
<TABLE>
<CAPTION>
                                                                        1997       1996       1995
                                                                      ---------  ---------  ---------
                                                                              (IN THOUSANDS)
 
<S>                                                                   <C>        <C>        <C>
Service cost--benefits earned during the year.......................  $      58  $      65  $      57
Interest cost on projected benefit obligation.......................        220        193        183
Actual return on plan assets........................................       (254)      (233)      (342)
Net amortization and deferral.......................................         44         58        168
                                                                      ---------  ---------  ---------
Net periodic pension cost...........................................  $      68  $      83  $      66
                                                                      ---------  ---------  ---------
                                                                      ---------  ---------  ---------
</TABLE>
 
    The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8.25% in 1997, 7.75% in 1996, and
7.00% in 1995. The expected long-term rate of return on plan assets was 9.0% for
1997, 8.5% for 1996, and 8.5% for 1995.
 
    The Company also maintains a defined contribution 401(k) plan covering
substantially all of its other regular employees. The employees become eligible
for participation after 1,000 hours of service. Participants may elect to
contribute up to 20% of their compensation to this plan, subject to Internal
Revenue Service (IRS) limits. The Company matches a portion of the employees'
contribution. The Company contributed approximately $156,000, $113,000, and
$105,000 to this plan in 1997, 1996, and 1995, respectively.
 
                                      F-17
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
9. INCOME TAXES
 
    The income tax provision (benefit) recognized in the consolidated statements
of operations consists of the following:
 
<TABLE>
<CAPTION>
                                                                    1997       1996       1995
                                                                  ---------  ---------  ---------
                                                                          (IN THOUSANDS)
<S>                                                               <C>        <C>        <C>
Current:
  Federal.......................................................  $    (383) $   2,171  $   2,527
  State.........................................................        (38)       493        338
                                                                  ---------  ---------  ---------
                                                                       (421)     2,664      2,865
Deferred:
  Federal.......................................................     (1,211)       150       (407)
  State.........................................................       (186)        91        (55)
                                                                  ---------  ---------  ---------
                                                                     (1,397)       241       (462)
                                                                  ---------  ---------  ---------
                                                                  $  (1,818) $   2,905  $   2,403
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------
</TABLE>
 
    In 1996 and 1997, the Company settled with the IRS certain issues relating
to the Company's income tax returns for 1988 through 1990 and 1992 through 1993,
respectively. As of fiscal year ended 1997, the Company had fully provided for
the taxes and interest which are payable as a result of the settlements.
 
    A reconciliation of the income tax (benefit) provision at the U. S. federal
statutory rate (34%) to the income tax (benefit) provision at the effective tax
rate is as follows:
 
<TABLE>
<CAPTION>
                                                                    1997       1996       1995
                                                                  ---------  ---------  ---------
                                                                          (IN THOUSANDS)
<S>                                                               <C>        <C>        <C>
Income taxes computed at the U.S. federal statutory rate........  $  (1,958) $   2,382  $   1,189
State taxes (net of federal effect).............................       (148)       385        187
Federal and state audit provision...............................        200     --          1,000
Other individually immaterial items.............................         88        138         27
                                                                  ---------  ---------  ---------
Income tax (benefit) provision..................................  $  (1,818) $   2,905  $   2,403
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------
</TABLE>
 
                                      F-18
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
9. INCOME TAXES (CONTINUED)
 
    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at fiscal years ended 1997 and
1996 are as follows:
 
<TABLE>
<CAPTION>
                                                                             1997       1996
                                                                           ---------  ---------
                                                                              (IN THOUSANDS)
<S>                                                                        <C>        <C>
Deferred tax liabilities:
  Increase in assets as a result of acquisition in 1988..................  $  (2,964) $  (3,064)
  Depreciation...........................................................       (900)      (380)
  Other..................................................................       (117)      (115)
                                                                           ---------  ---------
  Total deferred tax liabilities.........................................     (3,981)    (3,559)
Deferred tax assets:
  Net operating loss carryforwards.......................................      1,853     --
  Receivable allowances and inventory reserves...........................        433        387
  State taxes............................................................          1        199
  Warranty reserve.......................................................        166        196
  Accrued vacation.......................................................        291        255
  Other..................................................................        191         79
                                                                           ---------  ---------
Total deferred tax assets................................................      2,935      1,116
Valuation allowance......................................................     --         --
                                                                           ---------  ---------
Net deferred tax liability...............................................  $  (1,046) $  (2,443)
                                                                           ---------  ---------
                                                                           ---------  ---------
</TABLE>
 
    As of the end of fiscal 1997, the Company has federal and state net
operating loss carryforwards of approximately $5.1 million and $2.3 million,
respectively. The net operating loss carryforwards will expire in the years 2002
through 2012, if not utilized.
 
    Utilization of the net operating losses and credits may be subject to an
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
 
10. SUPPLEMENTAL CASH FLOW INFORMATION
 
<TABLE>
<CAPTION>
                                                                    1997       1996       1995
                                                                  ---------  ---------  ---------
                                                                          (IN THOUSANDS)
<S>                                                               <C>        <C>        <C>
Cash paid for interest..........................................  $   2,059  $   1,950  $   2,683
Cash paid for income taxes......................................  $   3,047  $   2,771  $   1,315
Note payable incurred in connection with asset acquisition......  $  --      $  --      $   1,000
</TABLE>
 
11. SUBSEQUENT EVENT (UNAUDITED)
 
    On March 5, 1998, the Company entered into a Stock Purchase Agreement with
Sovereign Specialty Chemicals, Inc. (Sovereign), pursuant to which the Company
will acquire from Sovereign all of the outstanding capital stock of its
subsidiary Mercer Products Company, Inc., for a purchase price of $35.75 million
to be paid in cash subject to working capital and other adjustments to exclude
certain assets not acquired and liabilities not assumed. This transaction is
expected to be accounted for under the purchase method of accounting.
 
    The expected sources of funds for this acquisition include the issuance of
$30 million in Senior Notes and the issuance of $3 million in Convertible
Preferred Stock, with the remainder of the funds from the Company's existing
cash on hand.
 
                                      F-19
<PAGE>
                     INDEX TO FINANCIAL STATEMENT SCHEDULES
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>                                                                                                          <C>
Report of Ernst & Young, LLP, Independent Auditors.........................................................         S-2
 
Schedule II--Valuation and Qualifying Accounts.............................................................         S-3
</TABLE>
 
                                      S-1
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
    We have audited the consolidated financial statements of Burke Industries,
Inc. as of January 2, 1998 and January 3, 1997, and for each of the three years
in the period ended January 2, 1998, and have issued our report thereon dated
February 26, 1998. Our audits also included the financial statement schedule
listed in the index at Item 14(a)(2). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
 
    In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
 
                                                               ERNST & YOUNG LLP
 
San Jose, California
 
February 26, 1998
 
                                      S-2
<PAGE>
                                  SCHEDULE II
                        VALUATION & QUALIFYING ACCOUNTS
 
                             BURKE INDUSTRIES INC.
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                 ADDITIONS
                                                                BALANCE AT      CHARGED TO
                                                               BEGINNING OF      COSTS AND         (A)         BALANCE AT
DESCRIPTION                                                       PERIOD         EXPENSES      DEDUCTIONS     END OF PERIOD
------------------------------------------------------------  ---------------  -------------  -------------  ---------------
<S>                                                           <C>              <C>            <C>            <C>
Allowance for doubtful accounts
  (deducted from accounts receivable)
  Year ended January 2, 1998................................     $     189       $     240      $      95       $     334
  Year ended January 3, 1997................................           336             225            372             189
  Year ended December 29, 1995..............................            95             367            126             336
</TABLE>
 
------------------------
 
(a) Includes write-offs and reversals.
 
                                      S-3
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<C>        <S>
      3.1  Articles of Incorporation of the Company (1)
 
      3.2  Bylaws of the Company (1)
 
      3.3  Articles of Incorporation of Burke Flooring Products, Inc. (1)
 
      3.4  Bylaws of Burke Flooring Products, Inc. (1)
 
      3.5  Articles of Incorporation of Burke Rubber Company, Inc. (1)
 
      3.6  Bylaws of Burke Rubber Company, Inc. (1)
 
      3.7  Articles of Incorporation of Burke Custom Processing, Inc. (1)
 
      3.8  Bylaws of Burke Custom Processing, Inc. (1)
 
      4.1  Indenture among the Company, the Subsidiary Guarantors and United States Trust
             Company of New York, dated as of August 20, 1997.
 
      4.2  Form of Note (included in Exhibit 4.1).
 
      4.3  Registration Rights Agreement among the Company and the Holders, dated as of August
             20, 1997.
 
     10.1  Loan and Security Agreement between the Company, the Lenders and NationsBank, N.A.,
             dated as of August 20, 1997.
 
     10.2  Revolving Notes from the Company to each of the Lenders.
 
     10.3  Subsidiary Guaranty between the Subsidiaries and NationsBank, N.A., dated as of
             August 20, 1997.
 
     10.4  Subsidiary Security Agreement between the Subsidiaries and NationsBank, N.A., dated
             as of August 20, 1997.
 
     10.5  Stock Pledge Agreement between the Company and NationsBank, N.A., dated as of August
             20, 1997.
 
     10.6  Investment Agreement among the Company and the preferred shareholders, dated as of
             August 20, 1997.
 
     10.7  Shareholders' Agreement among the Company, the warrantholders and the shareholders,
             dated as of August 20, 1997.
 
     10.8  Shareholders' Registration Rights Agreement among the Company and the shareholders,
             dated as of August 20, 1997. (1)
 
     10.9  Warrantholders' Registration Rights Agreement among the Company and the
             warrantholders dated as of August 20, 1997.
 
    10.10  Warrant Certificates between the Company and each of the warrantholders.
 
    10.11  Management Agreement between the Company and J.F. Lehman & Company.
 
    10.12  Lease Agreement between the Company and Senter Properties, LLC for the premises at
             2049 Senter Road, San Jose, California, dated April 30, 1997.
 
    10.13  Lease Agreement between the Company and SSMRT Bensenville Industrial Park (3), Inc.
             for the premises at 870 Thomas Drive, Bensenville, Illinois, dated May 1, 1996. (1)
 
    10.14  Lease Agreement between the Company and Lincoln Property Company for the premises at
             13767 Freeway Drive, Santa Fe Springs, California, dated October 20, 1995. (1)
 
    10.15  Lease Agreement between the Company and Donald M. Hypes for the premises at 14910
             Carmenita Boulevard, Norwalk, California, dated April 25, 1983. (1)
 
    10.16  Lease Agreement between S & M Development Co., a general partnership, for the
             premises at 13615 Excelsior Drive, Santa Fe Springs, California, dated March 29,
             1996. (1)
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<C>        <S>
    10.17  Lease Agreement between the Company and Stephen S. Gray, the duly appointed Chapter 7
             trustee of the Estate of Haskon Corporation, for the premises at 336 Weir Street,
             Taunton, Massachusetts, dated June 5, 1995. (1)
 
    10.18  Sublease Agreement between Burke Rubber Company, Inc. and Westland Technologies, Inc.
             for the premises at 107 South Riverside Drive, Modesto, California, dated February
             20, 1992. (1)
 
    10.19  Servicing Agreement between the Company and Westland Technologies, Inc., dated June
             27, 1996.
 
    10.20  Stock Purchase Agreement between the Company, Mercer Products Company, Inc. and
             Sovereign Specialty Chemicals, Inc., dated March 5, 1998.
 
     12.1  Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and
             Preferred Stock Dividends.
 
     21.   Subsidiaries of the Company. (1)
 
     27.   Financial Data Schedules.
</TABLE>
 
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(1) Incorporated by reference to registrant's Registration Statement on Form
    S-4, File No. 333-36675.