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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K

(MARK ONE)

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<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
                                       OR

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<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
           SECURITIES EXCHANGE ACT OF 1934
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        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                        COMMISSION FILE NUMBER 333-36675
                            ------------------------
                             BURKE INDUSTRIES, INC.

             (Exact name of Registrant as specified in its charter)

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<S>                                            <C>
              CALIFORNIA                                    94-3081144
    (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)
              13767 FREEWAY DRIVE, SANTA FE SPRINGS, CALIFORNIA 90670
(Address of principal executive office)                     (Zip Code)
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                                 (800) 221-0923
              (Registrant's telephone number, including area code)
                            ------------------------

          Securities registered pursuant to Section 12 (b) of the Act:
                                      None
                            ------------------------

          Securities registered pursuant to Section 12(g) of the Act:
                           10% Senior Notes Due 2007
                    Guarantees of 10% Senior Notes Due 2007
                          Floating-Rate Notes Due 2007
                   Guarantees of Floating-Rate Notes Due 2007
                             (Title of each 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 amendment to this
Form 10-K. /X/

As of March 15, 1999, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $4,154,668. The
aggregate market value has been calculated on a basis which excludes shares of
Common Stock which may be acquired through exercise of options or warrants. As
of March 15, 2000, the number of outstanding shares of the registrant's Common
Stock was 3,894,500.

                      DOCUMENTS INCORPORATED BY REFERENCE
                                     None.

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<PAGE>
                           TABLE OF OTHER REGISTRANTS

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<CAPTION>
                                                                                 ADDRESS INCLUDING ZIP CODE
                        JURISDICTION           PRIMARY           IRS EMPLOYER         AND AREA CODE AND
                             OF          STANDARD INDUSTRIAL    IDENTIFICATION       TELEPHONE NUMBER OF
NAME OF CORPORATION     INCORPORATION   CLASSIFICATION NUMBER       NUMBER       PRINCIPAL EXECUTIVE OFFICES
-------------------     -------------   ---------------------   --------------   ---------------------------
<S>                     <C>             <C>                     <C>              <C>
Burke Flooring
  Products, Inc.......   California              3069             94-2147284     13767 Freeway Drive
                                                                                 Santa Fe Springs, CA 90670
                                                                                 (800) 221-0923

Burke Rubber
  Company, Inc........   California              3069             94-2157283     13767 Freeway Drive
                                                                                 Santa Fe Springs, CA 90670
                                                                                 (800) 221-0923

Burke Custom
  Processing, Inc.....   California              3069             94-2157282     13767 Freeway Drive
                                                                                 Santa Fe Springs, CA 90670
                                                                                 (800) 221-0923
</TABLE>
<PAGE>
                             BURKE INDUSTRIES, INC.

                      INDEX TO ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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CAPTION                                                                                 PAGE
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                                            PART I

ITEM 1.                 BUSINESS....................................................      1

ITEM 2.                 PROPERTIES..................................................     10

ITEM 3.                 LEGAL PROCEEDINGS...........................................     11

ITEM 4.                 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........     11

                                           PART II

ITEM 5.                 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                        STOCKHOLDER MATTERS.........................................     11

ITEM 6.                 SELECTED FINANCIAL DATA.....................................     11

ITEM 7.                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                        AND RESULTS OF OPERATIONS...................................     13

ITEM 7A.                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                        RISK........................................................     19

ITEM 8.                 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
                        DATA........................................................     19

ITEM 9.                 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING
                        AND FINANCIAL DISCLOSURE....................................     19

                                           PART III

ITEM 10.                DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........     20

ITEM 11.                EXECUTIVE COMPENSATION......................................     25

ITEM 12.                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                        MANAGEMENT..................................................     28

ITEM 13.                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............     29

                                           PART IV

ITEM 14.                EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND
                        REPORTS ON FORM 8-K.........................................     33
</TABLE>
<PAGE>
                                     PART I

ITEM 1. BUSINESS

                                    OVERVIEW

    Burke Industries, Inc. (the "Company" or "Burke"), headquartered in Santa Fe
Springs, 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 leading domestic producer of
precision silicone seals for commercial and military aircraft ("Aerospace and
Defense 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, medical, marine, commercial building and fluid containment industries
("Commercial Products").

                                    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.

    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, Inc. ("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 aerospace industry.

    In April 1998, the Company acquired from Sovereign Specialty
Chemicals, Inc. ("Sovereign") all of the outstanding capital stock of Mercer
Products Company, Inc. ("Mercer"). For many years, Mercer has been a leading
manufacturer of plastic and vinyl flooring products such as vinyl cove base,
transitional and finish mouldings, corners, stair treads and other accessories.
Management believes that the highly successful vinyl cove base and moulding
product lines and the strong presence in the southeastern United States
developed by Mercer complement the Company's position as the market leading
producer of rubber cove base and floor covering accessories in the western
United States.

    Mercer was merged with and into the Company, effective August 12, 1998.
Burke has integrated Mercer's product lines into its own and now operates its
Flooring Products business throughout the nation under the name BurkeMercer
Flooring Products.

    Mercer represents the fifth acquisition completed by Burke over the last
seven years. Burke's integration of these acquisitions has led to market leading
positions in the aerospace seals market, opened new markets for its Flooring
Products business, improved operating efficiencies, consolidated overhead and
strengthened technical capabilities.

    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.

                                       1
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("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.

                               INDUSTRY OVERVIEW

    The Company operates within one industry segment, elastomer products.
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
in the markets in which it has chosen to compete 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. 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.

                              PRODUCTS AND MARKETS

    Within the elastomer products industry segment, the Company is organized
into two business segments: silicone and organic products. The Company's
products are further organized into three product groups: Aerospace and Defense
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 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.

AEROSPACE AND DEFENSE PRODUCTS

    Operating out of Santa Fe Springs, California and Taunton, Massachusetts,
Burke, through its Aerospace and Defense 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. Burke
first entered the aerospace market in 1993 with its purchase of Purosil.
Aerospace and Defense Products sales increased from $3.6 million in 1993 to
$28.9 million in 1999, and represented 27% of Burke's total net sales in 1999.

    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 less than $100, 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

                                       2
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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 and Haskon in 1995. 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, quality, engineering, technical and production
capabilities. The engineering staff at Burke works directly with Original
Equipment Manufacturers ("OEMs") to design custom silicone sealing applications.
Burke's Aerospace and Defense products are designed by Burke engineers in
accordance with precise OEM specifications and quality requirements. Products
are rigorously tested against OEM quality standards by Burke and its customers
before final approval. In 1999, the top five customers of the Aerospace and
Defense Products division accounted for $23.9 million in net sales, representing
22.3% and 82.9%, respectively, of the Company's total and the Aerospace and
Defense Products division's net sales in that year.

    Boeing is the single largest customer of Aerospace and Defense Products, and
management believes Burke is likewise the leading supplier of these products to
Boeing. 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 (now
Boeing), Lockheed Martin, Northrop Grumman, Airbus Industries, Pratt & Whitney,
General Electric, Gulfstream, Bombardier and B.F. Goodrich Aerostructures. 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, Boeing F-15 and F-18 fighters, the McDonnell Douglas DC
and MD series, the Northrop Grumman F-14 fighter and the Lockheed Martin F-16
fighter.

    Burke's advanced Aerospace and Defense 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 and other composite
materials utilized on the B-2 bomber, the F-22 fighter and naval surface ships.
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 and Defense Products business.

    The Northrop Grumman B-2 low-observable materials program provides a solid
base for Burke's defense business. Burke's revenues from this program are
generated by replacement materials 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. 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 and Defense Products business could be limited if either of
these programs were to be curtailed or eliminated.

    The Aerospace and Defense Products business has recently qualified for the
"over-wing-fairing" seal for the B-1 bomber and is now a second source for this
program. The Company has also bid on a contract to develop seals for the new
Joint Strike Fighter (JSF) 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.

                                       3
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    COMPETITION

    Burke is the leading domestic supplier of highly-engineered silicone seals
for the aerospace OEM market and aftermarket. Burke's domestic competitors are
primarily small, privately-held companies, or small divisions of larger
companies. These competitors include Kirkhill Rubber Company, which was
purchased by Esterline Technologies in 1998, Chase-Walton Elastomers, Inc. and
Elastomeric Silicone Products, which was purchased by Bestobell Aviation 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 product quality will continue to support its
position as a leading supplier of engineered silicone seals within this
fragmented market.

    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 and Defense Products are classified in nature, and in many cases
project leaders return to previous classified product suppliers for a
preliminary assessment of future development opportunities.

FLOORING PRODUCTS

    Burke is a leading producer and distributor of specialty rubber and vinyl
flooring accessory products for use in commercial markets. Flooring Products
sales were $45.4 million in 1999, comprising 42.2% of the Company's total net
sales.

    Burke's trademark BurkeBase has enjoyed the leading market share in the
western United States since the early 1950s and is well known throughout the
industry. Burke extended its Flooring Products lines beyond rubber products
through the Mercer acquisition. Founded in 1958, and headquartered in Eustis,
Florida, Mercer established itself as a leading manufacturer of plastic and
vinyl products such as vinyl and rubber wall base, transitional and finish
mouldings, stair treads and other accessories. Mercer also sold a range of
related adhesive products. The product and distribution lines developed by
Mercer strongly complement the Company's Flooring Products business. While the
Company has been the leading producer of rubber cove base and floor covering
accessories in the western United States, Mercer has been a leading supplier to
the vinyl wall base and moulding products markets and developed a particularly
strong sales presence in the southeastern United States.

    PRODUCTS

    The combined line of BurkeMercer Flooring Products consists of a full range
of commercial rubber and vinyl flooring products and accessories including
rubber and vinyl cove base, safety flooring tiles, stair treads, corners,
shapes, special application adhesives and newly developed luminescent emergency
lighting accessories sold under the BurkeEmerge trademark. BurkeMercer 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, BurkeMercer cove base is
utilized in most commercial applications using resilient tile flooring and
virtually all commercial applications involving carpeting. Other BurkeMercer
flooring products are employed in commercial and institutional settings where
durability, safety and resilience are of primary importance.

    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

                                       4
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product line creates a lower-cost, complementary offering targeted at less
demanding, more cost-sensitive applications.

    MARKETS AND CUSTOMERS

    BurkeMercer 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. In addition to the San Jose, California and
Eustis, Florida manufacturing facilities, the Company has distribution
facilities in Santa Fe Springs, California, Grand Prairie, Texas and South
Kearny, New Jersey. In 1999, the top five customers of the Flooring Products
division accounted for $11.1 million in net sales, representing 10.3% and 24.4%,
respectively, of Burke's total and the Flooring Products division's net sales in
that year.

    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. The Mercer
acquisition increases Burke's competitive advantage by adding several new
vinyl-based product lines that have significant brand awareness and customer
loyalty in the eastern United States. Burke's primary competitors in flooring
accessory products include Roppe Corporation, Johnsonite, Flexco and Vinyl
Plastics Incorporated.

COMMERCIAL PRODUCTS

    Burke's Commercial Products business serves end markets with both
intermediate and finished silicone and organic rubber-based compounds and
products. Commercial Products net sales increased from $14.8 million in 1993 to
$33.3 million in 1999, and represented 30.9% of the Company's total net sales in
1999.

    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 has also
become qualified 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
medical, marine, 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 have strengthened the silicone hose product line and
increased Burke's penetration of the OEM market.

    Burke leased an additional facility of approximately 56,000 square feet
beginning in mid 1998. This facility is devoted to the manufacture and
distribution of Purosil products and is expected to 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

                                       5
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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 manufactured from DuPont's
patented Hypalon polymer material and Theromoplastic Olefin ("TPO"). Hypalon,
which is an extremely durable and flexible material, is widely regarded as the
highest-quality single-ply product available in the commercial roofing and
membrane market. TPO products, which were added to the product line in 1999,
give Burke a lower cost, complementary product offering targeted to less
demanding more cost sensitive applications. Burke's membrane products typically
incorporate structural fabric laminated between thin layers of Hypalon or TPO.
Burkeline roofing systems are installed by Burke-approved contractors and
technical assistants and are fully warranted for up to 30 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 leading 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 1999, the top five
customers of the Commercial Products division accounted for $9.5 million in net
sales,

                                       6
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representing 8.8% and 28.6%, respectively, of the Company's total and the
Commercial Products division's net sales in that year.

    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 the 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.

                              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 and
Defense 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. Management believes the recently
consolidated BurkeMercer 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 19 direct sales representatives who manage direct sales and
orchestrate the Company's national marketing efforts through approximately 350
commercial flooring products distributor locations.

    Burke's Commercial Products businesses utilize several different sales and
marketing approaches due to the scope of their product offerings. Purosil's
high-performance silicone hoses are sold to OEMs in the heavy-duty truck and bus
market, either directly or through independent sales representatives. The
Company also manufactures a number of "standard" product hoses which are
marketed through independent 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.

                                 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

                                       7
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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.

                               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 thirty years. During the three-year period ended December 31, 1999, the
Company incurred insignificant warranty costs with respect to its roofing
products.

EMPLOYEES

    At December 31, 1999, the Company employed 975 employees at its various
locations, including 821 involved in manufacturing and manufacturing support and
74 involved in product sales. Employees at the Company's various 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 is currently being renegotiated for a new term and the
agreement for the San Jose location was renegotiated in October 1997 for a
three-year term. Burke's employees at the Eustis, Florida location are
represented by the Glass, Molders, Pottery, Plastics and Allied Workers
International Union. This collective bargaining agreement was renegotiated in
December 1998 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.

                                       8
<PAGE>
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>
PATENT NO.                           TITLE                           GATT EXPIRY
----------   ------------------------------------------------------  -----------
<C>          <S>                                                     <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..................................................    12/1/02
ROULEAU.....................................................    12/1/02
BURKEBASE...................................................     6/4/05
SURETITE....................................................     7/4/01
BURKE INDUSTRIES............................................    4/19/07
ARGONAUT....................................................     4/1/09
DOCKSIDERS & DESIGN.........................................   11/26/05
MAXXI-TREAD.................................................    8/20/05
MERCER FRICTION GRIP........................................   12/03/08
MERCER & DESIGN.............................................   12/14/03
MERCER......................................................    8/30/04
MIRROR-FINISH...............................................    7/20/03
RUBBERLYTE..................................................    2/14/09
RUBBERMYTE..................................................    7/23/01
UNICOLOR....................................................    4/05/04
</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 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

                                       9
<PAGE>
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 potential obligations relating to these environmental matters will not
have a material adverse effect on its future financial position or results of
operations.

    In connection with the Mercer acquisition, the Company conducted an
environmental review of Mercer's operations and its compliance with applicable
environmental laws. The review included a site visit to Mercer's manufacturing
facility in Eustis, Florida and interviews with facility personnel regarding
environmental matters. In addition, the Company reviewed existing environmental
reports that included Phase I assessments, audits and limited soil and ground
water sampling data. The environmental review revealed that Mercer's facilities
have had, or may have had, releases of hazardous substances that may require
remediation. Pursuant to the Stock Purchase Agreement, the former shareholders
of Mercer have agreed, subject to certain limitations as to survival and amount,
to indemnify the Company against certain environmental liabilities incurred
prior to the purchase. Based, in part, on the environmental review conducted by
the Company and the indemnification provisions of the Stock Purchase Agreement
with respect to environmental matters, the Company believes, although there can
be no assurance, that its potential obligations 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.

ITEM 2. PROPERTIES

FACILITIES

    Burke is transitioning its corporate headquarters from San Jose, California
to Santa Fe Springs, California, where it believes it can take advantage of a
labor market for professional and technical employees that is not as tight as
the Silicon Valley.

    Santa Fe Springs, California will serve as the corporate headquarters for
Burke and is the west coast manufacturing center for Aerospace and Defense
Products. The Company also operates two other facilities in Santa Fe Springs
dedicated to Purosil hose and specialty silicone product manufacturing. San
Jose, California is the manufacturing headquarters for Burke's Flooring organic
production activities and houses part of the Flooring Products business and all
of its organic Commercial Products businesses. 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.

    Burke's Flooring Products are produced in San Jose, California and Eustis,
Florida. In addition, the Company leases and operates distribution centers in
Santa Fe Springs, California, South Kearny, New Jersey and most recently, Grand
Prairie, Texas. Burke allowed the leases on its warehouse and distribution space
in Bensonville, Illinois and Rancho Cucamonga, California to expire and leased
new space in Grand Prairie, Texas as part of its final efforts to consolidate
Mercer's operations into Burke's.

    The Company believes that its facilities are in good condition and that the
facilities, together with anticipated capital improvements and additions, are
adequate for the Company's operating needs for the foreseeable future.

                                       10
<PAGE>
    As of March 15, 2000, 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...........   56,000    Leased      Manufacturing, Engineering, Distribution,
                                                        Offices
Santa Fe Springs, CA...........   25,000    Leased      Mixing
Santa Fe Springs, CA...........   25,000    Leased      Warehouse, Distribution
Taunton, MA....................   85,000    Leased      Manufacturing, Engineering, Distribution,
                                                        Offices
Eustis, FL.....................   96,500    Owned       Manufacturing, Engineering, Distribution,
                                                        Offices
Grand Prairie, Texas...........   24,450    Leased      Warehouse, Distribution
South Kearny, NJ...............   25,000    Leased      Warehouse, Distribution
</TABLE>

    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 not presently involved in any pending legal proceedings. 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.

                                    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
December 31, 1999, 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 Company's
$110,000,000 principal amount of Senior Notes Due 2007 (the "Senior Notes") and
the $30,000,000 principal amount of Floating-Rate Notes (the "Floating Rate
Notes"), and, with respect to the Common Stock, the Company's Articles of
Incorporation.

ITEM 6. SELECTED FINANCIAL DATA

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

    The selected consolidated financial data below for the Company for each of
the three years ended December 31, 1999 and as of December 31, 1999 and
January 1, 1999 have been derived from the Consolidated Financial Statements of
the Company which have been audited by Ernst & Young LLP,

                                       11
<PAGE>
independent auditors, and are included elsewhere in this Report. The selected
consolidated financial data below for the Company for the years ended
December 29, 1995 and January 3, 1997 and as of December 29, 1995, January 3,
1997 and January 2, 1998 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 June 1995; of Kentile Corporation ("Kentile") in
April 1996; of Mercer Products Company, Inc. ("Mercer") in April 1998, and the
effect of the Recapitalization in August 1997.

<TABLE>
<CAPTION>
                                                                      FISCAL YEAR
                                           -----------------------------------------------------------------
                                             1995          1996          1997           1998          1999
                                           --------      --------      --------       --------      --------
                                                                (DOLLARS IN THOUSANDS)
<S>                                        <C>           <C>           <C>            <C>           <C>
OPERATING DATA:
Net sales................................  $68,411       $72,466       $ 90,228       $107,019      $107,504
Cost of sales............................   49,226        49,689         62,917         76,145        78,288
                                           -------       -------       --------       --------      --------
Gross profit.............................   19,185        22,777         27,311         30,874        29,216
Selling, general and administrative
  expenses...............................   10,212        11,610         12,238         16,865        19,848
Transaction expenses(1)..................       --            --          1,321             --            --
Stock option purchase(2).................       --            --         14,105             --            --
                                           -------       -------       --------       --------      --------
Income (loss) from operations............    8,973        11,167           (353)        14,009         9,368
Interest expense, net....................    3,007         2,668          5,408         13,819        14,821
                                           -------       -------       --------       --------      --------
Income (loss) before income tax provision
  (benefit), cumulative effect of
  accounting change, extraordinary loss
  and discontinued operation(3)..........    5,966         8,499         (5,761)           190        (5,453)
Income tax provision (benefit)...........    3,393         3,466         (1,818)           160           921
                                           -------       -------       --------       --------      --------
Income (loss) from continuing operations
  before cumulative effect of accounting
  change, extraordinary loss and
  discontinued operation(3)..............  $ 2,573       $ 5,033       $ (3,943)      $     30      $ (6,374)
                                           -------       -------       --------       --------      --------
Net income (loss)(3).....................  $ 1,094       $ 4,101       $ (3,943)      $     30      $ (6,374)
                                           -------       -------       --------       --------      --------

OTHER DATA:
EBITDA(4)................................  $10,461       $12,586       $ 16,851(5)    $ 17,184      $ 13,549
EBITDA margin(4).........................     15.3%         17.4%          18.7%(5)       16.1%         12.6%
Depreciation and amortization............    1,488         1,419          1,499          3,175         4,181
Capital expenditures(6)..................    3,647         1,684          1,454          3,220         2,229
Cash interest expense....................    2,683         1,950          2,059         12,223        13,848
Ratio of earnings to fixed charges(7)....      2.8x          3.7x            --            1.0x           --

BALANCE SHEET DATA:
Working capital..........................  $ 5,402       $ 5,328       $ 21,678       $ 18,946      $ 14,348
Total assets.............................   39,729        40,673         62,837         93,945        87,034
Long-term obligations, less current
  portion................................   21,803        18,126        110,000        140,000       140,000
Redeemable preferred stock...............       --            --         16,148         18,160        20,536
Shareholders' equity.....................      340         4,283        (86,490)       (85,472)      (94,228)
</TABLE>

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

(1) Reflects $1,321 of expenses associated with the Recapitalization in
    August 1997.

                                       12
<PAGE>
(2) 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.

(3) Net income reflects (i) extraordinary loss on debt settlement, net of income
    tax benefit, of $815 in 1995 and (ii) losses, net of income tax benefit, of
    $664 and $308 in 1995 and through June 28, 1996, respectively, incurred by
    the Company's custom-molded organic rubber products 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.

(4) 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.

(5) Reflects EBITDA excluding costs of stock option purchase, transaction
    expenses related to the Recapitalization and management fees paid to a
    former controlling shareholder.

(6) Capital expenditures include the acquisition of assets of SFS for $1,578 and
    Haskon for $2,081 in 1995, and of Kentile for $854 in 1996. Capital
    expenditures include $1,408 in 1998 and $1,380 in 1999 for a replacement
    information technology system.

(7) 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 $5.8 million for fiscal year ended 1997 and $5.5 million for fiscal year
    ended 1999.

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 two business segments: silicone and organic products. The
Company's products are organized into three product groups: Aerospace and
Defense Products, which produces precision silicone seals and other

                                       13
<PAGE>
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 and Defense Products business through the
acquisition of Purosil's assets in 1993. The Company subsequently expanded its
Aerospace and Defense 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 and Defense 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 and Defense Products seals 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. Revenues
of low-observable seals and materials are derived from both the retrofit of
existing aircraft, such as the B-1 bomber 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
1998 due to improvement in the commercial construction market in the western
United States and the acquisition of Mercer.

    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.

                                       14
<PAGE>
RESULTS OF OPERATIONS

    The following table sets forth certain income statement information for the
Company for the fiscal years ended January 2, 1998, January 1, 1999, and
December 31, 1999:

<TABLE>
<CAPTION>
                                                                   FISCAL YEAR ENDED
                                     ------------------------------------------------------------------------------
                                                PERCENTAGE OF              PERCENTAGE OF              PERCENTAGE OF
                                       1997       NET SALES       1998       NET SALES       1999       NET SALES
                                     --------   -------------   --------   -------------   --------   -------------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                  <C>        <C>             <C>        <C>             <C>        <C>
Net sales:
Aerospace and Defense Products.....  $31,225         34.6%      $ 33,766        31.6%      $ 28,867        26.9%
Flooring Products..................   23,475         26.0         41,091        38.4         45,386        42.2
Commercial Products................   35,528         39.4         32,162        30.0         33,251        30.9
                                     -------        -----       --------       -----       --------       -----
Total net sales....................   90,228        100.0        107,019       100.0        107,504       100.0
Cost of sales......................   62,917         69.7         76,145        71.2         78,288        72.8
                                     -------        -----       --------       -----       --------       -----

Gross profit.......................   27,311         30.3         30,874        28.8         29,216        27.2
Selling, general and administrative
  expenses.........................   12,174         13.6         15,454        14.4         17,831        16.6
Transaction costs..................    1,321          1.5             --          --             --          --
Stock option purchase..............   14,105         15.6             --          --             --          --
Amortization of goodwill...........       64           --          1,411         1.3          2,017         1.9
                                     -------        -----       --------       -----       --------       -----
Income (loss) from operations......     (353)        (0.4)        14,009        13.1          9,368         8.7
Interest expense, net..............    5,408          6.0         13,819        12.9         14,821        13.8
                                     -------        -----       --------       -----       --------       -----
Income (loss) before income tax
  provision (benefit),
  extraordinary loss and
  discontinued operation...........   (5,761)        (6.4)           190         0.2         (5,453)       (5.1)
Income tax provision (benefit).....   (1,818)        (2.0)           160         0.1            921         0.8
                                     -------        -----       --------       -----       --------       -----
Income (loss) from continuing
  operations before extraordinary
  loss and discontinued
  operation........................  $(3,943)        (4.4)%     $     30          --       $ (6,374)       (5.9)%
                                     -------        -----       --------       -----       --------       -----
Net income (loss)..................  $(3,943)        (4.4)%     $     30           1%      $ (6,374)       (5.9)%
                                     =======        =====       ========       =====       ========       =====
</TABLE>

    YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED JANUARY 1, 1999

    NET SALES.  Total net sales increased 0.5%, from $107.0 million in 1998 to
$107.5 million in 1999. Aerospace and Defense Products sales decreased 14.5%,
from $33.8 million in 1998 to $28.9 million in 1999, due to decreases in demand
for civil aerospace products, which were partially offset by increases in demand
for military products. Flooring Products sales increased 10.5%, from
$41.1 million in 1998 to $45.4 million in 1999, due to the inclusion of Mercer
for a full 12 months in 1999. Commercial Products sales increased 3.4%, from
$32.2 million in 1998 to $33.3 million in 1999, because of increased demand for
the Company's organic custom-mixed products and volume associated with new
silicone hose products introduced late in the second quarter of 1998.

    COST OF SALES.  Cost of sales increased 2.8%, from $76.1 million in 1998 to
$78.3 million in 1999. As a percentage of net sales, gross profit decreased from
28.8% to 27.2%. The decrease in profit percentage was primarily due to the
decrease in sales volume of Aerospace and Defense Products beginning in the
third quarter of 1999.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased 15.4%, from $15.5 million in 1998 to
$17.8 million in 1999. As a percentage of net sales, selling, general

                                       15
<PAGE>
and administrative expenses increased from 14.4% to 16.6%. The increase in
spending was due to the inclusion of Mercer for a full 12 months in 1999, and
the costs associated with the implementation of a new information system.

    AMORTIZATION OF GOODWILL.  Amortization of goodwill increased from
$1.4 million in 1998 to $2.0 million in 1999. The increase was due to the
inclusion of Mercer for a full 12 months in 1999.

    INCOME FROM OPERATIONS.  As a result of the above factors, income from
operations decreased from $14.0 million in 1998 to $9.4 million in 1999.

    INTEREST EXPENSE.  Interest expense increased from $13.8 million in 1998 to
$14.8 million in 1999. The increase was due to the issuance of the Floating-Rate
Notes on April 21, 1998.

    NET INCOME.  As a result of the above factors, net income decreased from
less than $0.1 million in 1998 to a loss of $6.4 million in 1999.

    YEAR ENDED JANUARY 1, 1999 VERSUS YEAR ENDED JANUARY 2, 1998

    NET SALES.  Total net sales increased 18.6%, from $90.2 million in 1997 to
$107.0 million in 1998. Aerospace and Defense Products sales grew 8.1% from
$31.2 million in 1997 to $33.8 million in 1998, due primarily to increased
demand for military products. Flooring Products sales increased 75.0%, from
$23.5 million in 1997 to $41.1 million in 1998, due primarily to the acquisition
of Mercer. Commercial Products sales decreased 9.5%, from $35.5 million in 1997
to $32.2 million in 1998, primarily because 1997 included a liner project order
that favorably affected results for that period, partially offset by volume
associated with new products introduced during 1998 by the silicone hose portion
of this product group.

    COST OF SALES.  Cost of sales increased 21.0%, from $62.9 million in 1997 to
$76.1 million in 1998. As a percentage of net sales, gross profit decreased from
30.3% to 28.8%. The decrease in profit percentage was primarily due to temporary
operating inefficiencies, both in connection with new product ramp-up, and also
in connection with the silicone products' facility expansion which occurred in
July, 1998.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased 26.9%, from $12.2 million in 1997 to
$15.5 million in 1998. The increase in spending was primarily due to the
acquisition of Mercer. As a percentage of net sales, selling, general and
administrative expenses increased from 13.6% to 14.4%.

    TRANSACTION EXPENSES AND STOCK OPTION PURCHASE.  Transaction expenses and
stock option purchase were one-time expenses associated with the leveraged
recapitalization in August, 1997. The stock options purchase charge in 1997
represents the compensation component of payments made for the cancellation of
stock options in connection with the recapitalization.

    AMORTIZATION OF GOODWILL.  Amortization of goodwill increased to
$1.4 million in 1998. The increase was due to the acquisition of Mercer.

    INCOME FROM OPERATIONS.  As a result of the above factors, income from
operations increased from a loss of $0.4 million in 1997 to income of
$14.0 million in 1998.

    INTEREST EXPENSE.  Interest expense increased from $5.4 million in 1997 to
$13.8 million in 1998. The increase was due to the issuance of the Senior Fixed
Rate Notes on August 20, 1997 and the Floating-Rate Notes on April 21, 1998.

    INCOME FROM CONTINUING OPERATIONS.  As a result of the above factors, income
from continuing operations increased from a loss of $3.9 million in 1997 to
income of less than $0.1 million in 1998.

                                       16
<PAGE>
    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 and Defense 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.

    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 AND STOCK OPTION PURCHASE.  Transaction expenses were
incurred in connection with the Recapitalization. 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.

INCOME TAX PROVISION

    In 1999, the Company recorded a tax provision of $921,000 which differed
from the federal statutory rate primarily due to a valuation allowance
established against deferred tax assets. This valuation allowance is the result
of changes in management's assessment of the realization of these deferred tax
assets based on operating losses.

    For 1998, the Company recorded an income tax provision of $160,000 which
differed from the federal statutory rate primarily due to filing requirements in
certain states as a result of the Mercer acquisition.

    For 1997, the Company recorded an income tax benefit of $1.8 million, which
differed from the federal statutory rate primarily due to state income taxes
(net of federal benefit) and additional provision for federal and state audits.

    In 1997, the Company settled with the Internal Revenue Service 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.

                                       17
<PAGE>
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 $(1.4) million in
1999. Burke's net cash provided by operating activities was $6.0 million in
1998.

    CAPITAL REQUIREMENTS.  The Company expects to spend approximately
$2.0 million during 2000 on capital expenditures not directly related to
acquisitions. In 1999, $2.2 million was spent on capital expenditures not
directly related to acquisitions, including $1.4 million for a replacement
information technology system that was completed in 1999 and financed under
capital leases. Cash flow from operations, to the extent available, may also be
used to fund a portion of any acquisition expenditures.

    SOURCES OF CAPITAL.  On April 21, 1998, the Company acquired all of the
issued and outstanding capital stock of Mercer, from Sovereign, for an aggregate
purchase price of $38,474,000 (including acquisition costs of $2,280,000).

    Financing for this acquisition and related expenses was provided, in large
part, from the sale of (the "Offering") $30 million principal amount of
Floating-Rate Notes Due 2007. The balance of the financing was provided with
$3.0 million from the sale of 3,000 shares of the Company's 6% Series C
Cumulative Convertible Preferred Stock (the "Series C Convertible Preferred
Stock") and cash on hand.

    The Floating-Rate Notes mature on August 15, 2007, with interest on the
notes payable semi-annually on February 15 and August 15, commencing August 15,
1998. The Floating-Rate Notes bear interest at a rate per annum equal to LIBOR
plus 400 basis points, with the interest rate reset semiannually. The
Floating-Rate Notes are unconditionally guaranteed on a joint and several basis
by each of the Company's subsidiaries. Upon a change of control of the Company,
the Company will be required to make an offer to repurchase all outstanding
Floating-Rate Notes at 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon at the date of repurchase.

    Contemporaneously with the Mercer acquisition, the Company amended its
existing Loan and Security Agreement, as amended from time to time, with
NationsBank, N.A., as administrative agent, and other lending institutions party
thereto (the "Credit Agreement") to, among other things, (i) increase the
Company's borrowing capacity from $15.0 million to $25.0 million (as amended,
the "Credit Facility"), (ii) add Mercer as a borrowing subsidiary (as defined in
the Credit Agreement), (iii) increase certain of the baskets contained in the
restrictive covenants to reflect the increased size of the Company after the
closing of the Mercer acquisition and (iv) waive any default or event of default
that may otherwise have resulted from the consummation of the Offering and the
Mercer acquisition. Following the merger of Mercer with and into Burke, which
occurred in August 1998, Mercer was no longer a borrowing subsidiary under the
Credit Agreement.

    The Credit Facility matures in August 2002. Interest on loans under the
Credit Facility bear interest at rates based upon either, at the Company's
options, Eurodollar Rates plus a margin of 2.5% or upon the Prime Rate. 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 such subsidiaries. The Credit Facility 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 Facility also contains a number of
financial covenants that will require the Company to meet certain ratios and
tests and provide that a change of control of the Company (as defined in the
Credit Facility) will constitute an event of default. At fiscal year end 1999,
the Company was not in compliance with certain of these covenants. The Company
obtained a waiver from the bank and future covenants have been amended.

                                       18
<PAGE>
    The Company anticipates that its principal use of cash during 2000 will be
working capital requirements, debt service requirements and capital
expenditures. 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.

YEAR 2000 ISSUE

    The Year 2000 issue ("Year 2000 Issue") is the result of computer programs
being written using two digit rather than four to define the applicable year
such that computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
Year 2000.

    Over the past two years, the Company spent $2.8 million on an information
technology systems re-engineering effort, approximately 50% of the cost of which
is estimated to have been related to modifying or replacing significant portions
of the Company's software and certain of its hardware so that those systems
would properly utilize dates beyond December 31, 1999.

    The Company completed its information technology re-engineering effort prior
to December 31, 1999 and experienced no material adverse effects related to the
Year 2000 Issue, including no material adverse effects related to third party
vendors' failure to be prepared. The Company does not possess any information
that would lead it to believe that the Year 2000 Issue will have a material
adverse effect on its business, financial condition or results of operations in
the future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company is exposed to market risks related to fluctuations in interest
rates on its Senior Notes and Floating-Rate Notes. The Company does not
currently use interest rate swaps or other types of derivative financial
instruments.

    For fixed rate debt such as the Senior Notes, changes in interest rates
generally affect the fair value of the debt instrument. For variable rate debt
such as the Floating-Rate Notes, changes in interest rates generally do not
affect the fair value of the debt instrument, but do affect earnings and cash
flows. The Company does not have an obligation to repay its Senior Notes prior
to maturity in 2007 and, as a result, interest rate risk and changes in fair
value should not have a significant impact on the Company. Management believes
that the interest rate on the Senior Notes approximates the current rates
available for similar types of financing and as a result the carrying amount of
the Senior Notes approximates fair value. The carrying value of the
Floating-Rate Notes approximates fair value as the interest rate is variable and
resets frequently. The Floating-Rate Notes bear interest at a rate per annum
equal to LIBOR plus 400 basis points and each one percentage point increase in
interest rates would result in an increase in interest expense of $300,000 per
year.

    Management does not believe that the future market rate risk related to the
Senior Notes and Floating-Rate Notes will have a material impact on the
Company's financial position, results of operations or liquidity.

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.

                                       19
<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, 2000. 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>
Theodore M. Clark..............     46      Director, President and Chief Executive Officer

Elliot S. Stein................     51      Chief Operating Officer

Stephen G. Geane...............     38      Chief Financial Officer

David E. Worthington...........     46      Treasurer, Vice President--Finance

Robert F. Pitman...............     45      Senior Vice President and General Manager--San Jose

Thomas G. Keup.................     52      Vice President--Operations--Eustis, Florida

Craig A. Carnes................     40      Vice President--Sales and Marketing--Flooring Products

Martin J. Suydam, Jr...........     56      President--Silicone Products Group

David P. Palermo...............     38      Vice President and General Manager--Commercial Silicone
                                            Products

Anthony E. Lawson..............     45      Vice President and Operations Manager--Silicone Products
                                            Group--Santa Fe Springs

Robert P. Harrison.............     64      Vice President and Site Manager--Aerospace and
                                            Defense--Haskon Operations

George Sawyer..................     68      Chairman of the Board

Rocco C. Genovese..............     63      Vice Chairman of the Board

Oliver C. Boileau, Jr..........     73      Director

Donald Glickman................     66      Director

Bruce D. Gorchow...............     46      Director

John F. Lehman.................     57      Director

Keith Oster....................     38      Director

Thomas G. Pownall..............     78      Director

Joseph A. Stroud...............     44      Director

Sherman Baldwin................     35      Secretary
</TABLE>

    THEODORE M. CLARK, President and Chief Executive Officer, has been with the
Company since November 1999. Prior to joining the Company, Mr. Clark spent
25 years with PRC-DeSoto International, a global manufacturer and distributor of
coatings to the aerospace industry and sealants to the aerospace and insulating
glass industries. Mr. Clark held a number of key sales, marketing and operating
senior management positions during his tenure with PRC-DeSoto International,
most recently as President and CEO from 1994 until his departure in
November 1999. Mr. Clark is actively involved in all aspects of Burke's business
operations.

    ELLIOT S. STEIN, Chief Operating Officer, has been with the Company since
February 2000. Prior to joining the Company, Mr. Stein spent nine years with
PRC-DeSoto International, most recently as Vice President and Worldwide
Operations Director from July 1997 to February 2000. In this position,
Mr. Stein

                                       20
<PAGE>
was responsible for PRC-DeSoto International's worldwide manufacturing,
engineering quality control, and health and safety operations. Prior to assuming
worldwide responsibilities for PRC-DeSoto International, Mr. Stein was its Vice
President and Director of Operations for North America Aerospace Coatings and
Sealants. Mr. Stein has also held operations management positions with
Sherwin-Williams and Arco.

    STEPHEN G. GEANE, Chief Financial Officer, has been with the Company since
March 2000. Prior to joining the Company, Mr. Geane was Vice President and Chief
Financial Officer of PRC-DeSoto International, serving in that role from
September 1997 to February 2000. Mr. Geane was responsible for PRC-DeSoto
International's worldwide financial operations and business planning. Mr. Geane
was the Vice President and Senior Financial Officer of Bristol Farms from
August 1996 to September 1997 having responsibility for all financial
operations. Mr. Geane also held the position of Vice President and Controller of
Bristol Farms from November 1995 to August 1996. Prior to his tenure with
Bristol Farms, Mr. Geane held financial management positions with Nestle USA,
most recently serving as Division Controller for the food and beverage business
units of Nestle Brands Foodservice Company. Mr. Geane is a Certified Public
Accountant in the state of California.

    DAVID E. WORTHINGTON, Treasurer and Vice President--Finance, has been with
the Company for nine 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, Senior Vice President and General Manager--San Jose, has
been with the Company since 1979 and currently oversees all operations 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 Vice President and Director
of Technical Services and Material/Process Development Engineer. He has served
in his current position since January 2000.

    THOMAS G. KEUP, Vice President--Operations--Eustis, Florida, joined the
Company in April 1998 when Burke purchased Mercer. Mr. Keup joined Mercer in
1991 as Operations Manager and became Director of Operations in 1993. Prior to
joining Mercer, Mr. Keup was Director of Technology for Chelsea Building
Products from 1989 to 1991. Mr. Keup is a member of the Society of Plastic
Engineers.

    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
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.

    MARTIN J. SUYDAM, JR., President--Silicone Products Group, joined the
Company in November 1998. For five years prior to joining the Company,
Mr. Suydam was the President and a Senior Consultant of FOCUS Consulting Inc.,
an independent consulting firm in Virginia which specializes in Business
Management and Business Development services. Prior to founding FOCUS,
Mr. Suydam was Vice President of Business Development for the BMY Defense Group
where his responsibilities included overall Washington operations for the
Group's tracked and wheeled vehicle product lines. Prior to joining BMY,
Mr. Suydam also served as Vice President and General Manager of West Coast
Operations for John J. McMullen Associates, an engineering firm specializing in
naval architecture and marine engineering. Mr. Suydam also held positions as
Corporate Vice President of Business Development and Planning for ALCOA/TRE (now
Alcoa Composites), a wholly owned subsidiary of the Aluminum Company of America
(ALCOA) and Vice President of Marketing (domestic and international) for General
Dynamics Land Systems Division. Mr. Suydam has held senior executive positions
with the U.S. government, including Director of Resources & Policy Evaluation
for the Assistant Secretary of the Navy (Shipbuilding and Logistics) and as a
policy analyst in the Office of the Secretary of Defense. Mr. Suydam retired
from the Army Reserves as a Colonel after 31 years of military service.

                                       21
<PAGE>
    DAVID P. PALERMO, Vice President and General Manager--Commercial Silicone
Products, has been with the Company since January 2000. Prior to joining the
Company, Mr. Palermo spent almost three years with PRC-DeSoto International,
most recently as Global Marketing Manager of military aerospace coatings.
Mr. Palermo served in that role from January 1999 to December 1999. Prior to
that, Mr. Palermo was the Global Technology Manager of aerospace topcoats for
PRC-DeSoto International from April 1997 to December 1998. Mr. Palermo also
worked for Cytec Industries from April 1994 to April 1997 as a New Product
Specialist, focusing on raw materials for the coatings industry. Previous
experience includes senior management positions with Coatings Resource
Corporation, an industrial coatings manufacturer.

    ANTHONY E. LAWSON, Vice President and Operations Manager--Silicone Products
Group--Santa Fe Springs, joined the Company in May 1998. Prior to joining the
Company, Mr. Lawson worked for Northrop Grumman from 1985 to September 1997
where he most recently held the position of Vice President and B-2 Deputy
Program Manager responsible for 6,000 employees and daily program activities
including engineering, business management, business development and
manufacturing. Mr. Lawson also held positions at Northrop Grumman as Vice
President of Pico Rivera Operations and Composites in the Military Aircraft
Systems Division, Vice President of the Pico Rivera Operations in the B-2
Division, Vice President of Production in the B-2 Division, Final Inspection
Operations Manager, Product Inspections Manager and Quality Assurance Manager.
From 1980 through 1983, Mr. Lawson held various positions at Rockwell
International, including Supervisor, Quality Assurance in the NAOO Division,
Supervisor, Quality and Reliability Assurance in the Space Division and Test
Quality Engineer in the Space Division.

    ROBERT P. HARRISON, Vice President and Site Manager--Aerospace and
Defense--Haskon Operations, joined the Company with the acquisition of Purosil
in March 1993. Prior to Purosil, Mr. Harrison worked for Haskon Corporation
("Haskon") where he was a Vice President of Sales and Engineering, responsible
for all of Haskon's sales and product engineering efforts in the aerospace
industry in North America and Europe. From January 1972 to September 1981,
Mr. Harrison was Superintendent of the Injection and Mechanical Molding
Departments and the Urethane Coating Department of Beebe Rubber Company, a
manufacturer of automobile and industrial molding goods. From September 1962
through December 1971, Mr. Harrison held positions as a Manufacturing Manager of
Chomerics, Inc., a manufacturer of shielding products and components for the
electronics industry, a Production Manager for Bond Rubber Company and a General
Foreman of the compounding, extrusion and molding departments of Haskon.

    GEORGE SAWYER, Chairman of the Board of Directors of the Company and a
Managing General Partner of Lehman, has been affiliated with J.F. Lehman &
Company for the past ten 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
United States government, including serving as the President of John J. McMullen
Associates, the President and Chief Operating Officer of TRE Corporation, the
Executive Vice President and Director of General Dynamics, the Vice President of
International Operations for Bechtel Corporation and the Assistant Secretary of
the Navy for Shipbuilding and Logistics under Dr. Lehman. Mr. Sawyer is director
of Special Devices, Inc. and a director of Elgar Holdings, Inc., a director of
McCormick Selph Holdings, Inc. and also serves on the Board of Trustees of Webb
Institute and is on the Board of Managers of the American Bureau of Shipping.

    ROCCO C. GENOVESE, Vice Chairman has been with the Company for 44 years.
Mr. Genovese joined Burke in 1955 and held a number of operations and sales
positions within the Company before being appointed President and Chief
Executive Officer in 1989. Mr. Genovese recently retired and will be acting as a
consultant to the Company during the next year.

    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.
He retired in May 1988.

                                       22
<PAGE>
Mr. Boileau joined Northrop Grumman Corporation ("Northrop Grumman") in
December 1989 as 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, the Massachusetts Institute of Technology-Lincoln Laboratory
Advisory Board, a fellow of the Royal Aeronautical Society, a Senior Member of
the Institute of Electrical and Electronic Engineers and a Trustee of the
University of Wyoming foundation. Mr. Boileau is also a director of Elgar
Holdings, Inc. and Special Devices, Inc.

    DONALD GLICKMAN, became a director of the Company upon consummation of the
Recapitalization and is a Managing General Partner of J.F. Lehman & Company.
Prior to joining J.F. Lehman & Company, 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 Chairman of Elgar
Holdings, Inc. and a director of the McNeal-Schwendler Corporation, General
Aluminum Corporation, Special Devices, Inc., McCormick Selph Holdings, Inc. and
Monroe Muffler Brake, Inc. He is also a Trustee of MassMutual Participation
Investors, MassMutual Corporate 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 J.F.
Lehman & Company. In 1999, Mr. Gorchow became the President of PPM America
Capital Partners, LLC. Prior to assuming this position, Mr. Gorchow had been
Executive Vice President of PPM America, Inc since 1991. Mr. Gorchow is also a
director of Global Imaging Systems, Inc., Leiner Health Products, Inc.,
Examination Management Services, Inc., Applied Process Solutions, Inc., and
Elgar Holdings, Inc. and is an investment advisor for several investment limited
partnerships. 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 General Partner of J.F. Lehman & Company.
Prior to founding J.F. Lehman & Company 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 Chairman of the
Board of Directors of Special Devices Incorporated. He is also a member of the
Board of Directors of Elgar Holdings, Inc., McCormick Selph Holdings Inc., Ball
Corporation and ISO Inc. and is Chairman of the Princess Grace Foundation, a
director of OpiSail Foundation and a Trustee of LaSalle College High School.

    KEITH OSTER, became a director of the Company upon consummation of the
Recapitalization and is a General Partner of J.F. Lehman & Company. Mr. Oster
joined J.F. Lehman & Company in 1992 and is principally responsible for
financial structuring and analysis. Prior to joining J.F. Lehman & Company,
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. Mr. Oster is also a director of
Elgar Holdings, Inc., Special Devices, Inc. and McCormick Selph Holdings, Inc.

    THOMAS G. POWNALL, became a director of the Company upon consummation of the
Recapitalization and is a member of the investment advisory board of J.F.
Lehman & Company. Mr. Pownall was Chairman of the Board of Directors from 1983
until 1992 and Chief Executive Officer of Martin Marietta Corporation ("Martin
Marietta") from 1982 until 1988. Mr. Pownall joined Martin Marietta Corporation
in 1963 as

                                       23
<PAGE>
Vice President of its Aerospace Advanced Planning Unit, became President of
Aerospace Operations and, in succession, Vice President, then President and
Chief Operating Officer of Martin Marietta. Mr. Pownall is also a director of
the Titan Corporation, Elgar Holdings, Inc. and Special Devices, Inc., Director
Emeritus of Sundstrand Corporation, serves on the advisory boards of Ferris,
Baker Watts Incorporated. He is also a director of the U.S. Naval Academy
Foundation and the Naval Academy Endowment Trust and a trustee of Salem-Teikyo
University.

    JOSEPH A. STROUD, became a director of the Company in February 1998 and is a
General Partner of J.F. Lehman & Company. Mr. Stroud has been affiliated with
J.F. Lehman & Company since 1992 and formally joined the firm in 1996. He is
responsible for managing the financial and operational aspects of portfolio
company value-enhancement. Prior to joining J.F. Lehman & Company, 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.
Mr. Stroud is also a director of Elgar Holdings, Inc., Special Devices, Inc. and
McCormick Selph Holdings, Inc.

    SHERMAN BALDWIN, Corporate Secretary, is a Vice President of J.F. Lehman &
Company. Mr. Baldwin joined J.F. Lehman & Company in 1999. Prior to joining the
firm, Mr. Baldwin was an Engagement Manager at McKinsey & Company from 1997 to
1999, where he developed growth strategies and improved operational efficiencies
for companies in the telecommunications and aerospace industries. From 1987 to
1995, Mr. Baldwin served in the U.S. Navy as an aviator. Between 1993 and 1995,
he served in the Strategy and Policy Directorate of the Joint Chiefs of Staff
and as a Special Assistant to the Secretary of the Navy. Mr. Baldwin is a
trustee of the Children's Pompe Foundation, and a term Member of the Council on
Foreign Relations.

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. See "Certain
Relationships and Related Transactions--Shareholders Agreement."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    The Board of Directors has established a Human Resources and Compensation
Committee, consisting of Messrs. Lehman, Sawyer, Genovese, Glickman, and Stroud.
The Compensation Committee assists the Board of Directors in its
responsibilities for corporate governance relating to recruiting, appointing and
compensating officers and directors and with respect to human resources policies
and issues. From January 1, 1999 through October 31, 1999, Mr. Genovese served
as the Company's President and from January 1, 1999 through February 16, 2000,
Mr. Genovese served as the Company's Chief Executive Officer.

    Mr. Lehman is a Managing General Partner of J.F. Lehman & Company. J.F.
Lehman & Company is an affiliate of the general partner JFLEI, which is a
Delaware limited partnership which owns Common Stock of the Company equal to an
approximately 80.9% beneficial ownership interest and an approximately 63.2%
fully-diluted ownership interest in the Company. Mr. Lehman, either directly
(whether through ownership interest or position) or through one or more
intermediaries, may be deemed to control J.F. Lehman & Company and such general
partner. J.F. Lehman & Company and such general partner, in turn, may be deemed
to control the voting and disposition of the shares of the Company Common Stock
owned by JFLEI. Accordingly, for certain purposes, Mr. Lehman may be deemed to
be the beneficial owner of the shares of the Company's Common Stock owned by
JFLEI.

    Pursuant to the terms of a ten-year Management Agreement (the "Management
Agreement") entered into between J.F. Lehman & Company and the Company,
(i) upon consummation of the Recapitalization, the Company paid J.F. Lehman &
Company certain transaction fees and (ii) the

                                       24
<PAGE>
Company agreed to pay J.F. Lehman & Company an annual management fee equal to
$500,000, as may be adjusted from time to time subject to necessary board
approval, that commenced accruing on October 1, 1998 and which was to be payable
on a quarterly basis in arrears commencing on January 1, 1999. During 1998, the
Board of Directors approved an amendment to the Management Agreement and the
Company concurrently entered into a Management Services Agreement with J.F.
Lehman & Company, the combined effect of which was to further delineate the
management services to be provided by J.F. Lehman & Company and to provide that
J.F. Lehman & Company's management fee would be paid in advance on a quarterly
basis commencing October 1, 1998.

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 December 31, 1999.

COMPENSATION SUMMARY

    The following summary compensation table sets forth for the fiscal years
ended December 31, 1999, January 1, 1999 and January 2, 1998, 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 December 31, 1999:

<TABLE>
<CAPTION>
                                                                                               LONG-TERM
                                                             ANNUAL COMPENSATION(1)           COMPENSATION
                                                      -------------------------------------   ------------
                                                                                               SECURITIES
                                            FISCAL                                             UNDERLYING
NAME AND PRINCIPAL POSITION                  YEAR     SALARY($)   BONUS($)(2)   OTHER($)(3)     OPTIONS
---------------------------                --------   ---------   -----------   -----------   ------------
<S>                                        <C>        <C>         <C>           <C>           <C>
Rocco C. Genovese(4).....................    1999     $224,738      $     --    $       --       150,000
  President and Chief Executive Officer      1998      233,651            --            --       150,000
                                             1997      196,925       317,500     5,579,314       150,000

Martin J. Suydam, Jr.....................    1999      185,800            --            --        40,000
  President--Silicone Products Group         1998       17,192            --
                                             1997           --            --            --

Anthony E. Lawson........................    1999      138,700            --            --        20,000
  Vice President and Operations              1998       85,093        25,200            --            --
  Manager--Silicone Products                 1997           --            --            --            --
  Group--Santa Fe Springs

Craig A. Carnes..........................    1999      126,911            --            --         7,500
  Vice President--Sales and                  1998      114,575        20,000            --         7,500
  Marketing--Flooring Products               1997       94,231        25,000       161,710         7,500

Robert F. Pitman.........................    1999      116,442            --            --        20,000
  Senior Vice President and General          1998      117,329        27,500            --        20,000
  Manager--San Jose                          1997      111,596        77,500       584,815            --
</TABLE>

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

(1) Perquisites and other personal benefits paid in 1999 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.

                                       25
<PAGE>
(3) Represents the compensation component of the consideration paid to the
    executive for his stock options in the Company in connection with the
    Recapitalization.

(4) Mr. Genovese resigned his position as President of the Company effective
    November 1, 1999 and he resigned his position as Chief Executive Officer of
    the Company effective February 1, 2000. Theodore M. Clark was appointed
    President and Chief Executive Officer of the Company effective as of those
    dates.

AGGREGATE OPTION PURCHASES IN LAST FISCAL YEAR-END AND FISCAL YEAR END OPTION
  VALUES

    The following table summarizes information with respect to the year-end
values of all options held by Named Executive Officers.

<TABLE>
<CAPTION>
                                                                  NUMBER OF SECURITIES
                                                                       UNDERLYING
                                                                  UNEXERCISED OPTIONS     VALUE OF UNEXERCISED
                                    SHARES                       AT FISCAL YEAR-END (#)       IN-THE-MONEY
                                  ACQUIRED ON                         EXERCISABLE/         OPTIONS AT FISCAL
NAME                               EXERCISE     VALUE REALIZED       UNEXERCISABLE           YEAR-END($)(1)
----                              -----------   --------------   ----------------------   --------------------
<S>                               <C>           <C>              <C>                      <C>
Rocco C. Genovese...............     37,500           0                37,500/75,000(2)            $0
Martin J. Suydam, Jr............          0           0                10,000/30,000               $0
Anthony E. Lawson...............          0           0                 5,000/15,000               $0
Craig A. Carnes.................          0           0                  3,750/3,750               $0
Robert F. Pitman................          0           0                  3,750/3,750               $0
</TABLE>

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

(1) There is no public market for the Company's Common Stock. The Company
    estimates that the per share market value for its Common Stock is nominal.

(2) Mr. Genovese's unexercisable shares were cancelled as of the date of his
    resignation effective February 17, 2000.

                              EMPLOYMENT AGREEMENT

    In connection with the Recapitalization, the Company entered into an
employment agreement with Rocco C. Genovese. The employment agreement provided
for Mr. Genovese'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 Mr. Genovese
immediately before the execution of the Employment agreement.

    The employment agreement provides that if Mr. Genovese was terminated for
Cause (as defined in the employment agreement) or voluntarily terminated his
employment prior to the expiration of the then-current term, he would 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 occurred later. If Mr. Genovese's employment was terminated by the
Company for any reason other than for Cause or if Mr. Genovese died or was
unable to perform his duties due to disability for a period of 90 consecutive
days, he would 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.

    The employment agreement contains provisions prohibiting Mr. Genovese,
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
Mr. Genovese's initial involvement, in competition with the Company in any
business then or thereafter conducted by the Company. The employment agreement
also contains provisions requiring Mr. Genovese to maintain the confidentiality
of certain information related to the Company during the period of his
employment with

                                       26
<PAGE>
the Company and, under certain circumstances, for two years thereafter. The
employment agreement further provides that any proposals or ideas developed by
Mr. Genovese or that are submitted by him 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 Mr. Genovese except in
compliance with the Company's policy on conflicts of interest.

    Mr. Genovese resigned his position as President of the Company effective
November 1, 1999 and he resigned his position as Chief Executive Officer
effective February 1, 2000. Mr. Genovese's employment agreement with the Company
terminated effective February 17, 2000 and he has entered into a one year
consulting agreement with the Company. In addition, Mr. Genovese remains a
director and Vice Chairman of the Board of Directors of the Company.

                   EXECUTIVE DEFERRED COMPENSATION AGREEMENT

    The Company has established an Executive Deferred Compensation Agreement
which is a deferred compensation plan for certain executive officers and other
highly compensated officers of the Company. Commencing on December 1, 1995 and
continuing through the date on which the participant's employment with the
Company terminates as a result of death, retirement, disability or any other
cause, the participant is entitled to defer to an account an amount set forth in
an annual election form, which the participant would otherwise be entitled to
receive as compensation. Each participant's account accrues investment income
based upon the investment election of the participant. Such deferred amounts are
fully vested and are payable upon termination of employment, death, retirement
or disability. The accumulated amount deferred in this plan as of fiscal year
end 1999 was $0.6 million.

                               STOCK OPTION PLAN

    The Board of Directors of the Company has adopted the 1997 Stock Option
Plan, amended and restated as of November 30, 1999 (the "Plan"), pursuant to
which officers, directors and key employees of the Company and its parents and
subsidiaries are eligible to receive options to purchase the Company's Common
Stock. The Plan is administered by the Board of Directors. The aggregate number
of shares which may be issued under options shall not exceed 705,000 shares,
subject to adjustment under certain circumstances provided for in the Plan. Any
stock option granted under the Plan may be an Incentive Stock Option (as defined
in the Plan) or a non-qualified stock option. The price of Incentive Stock
Options shall range from one hundred to one hundred and ten percent of the fair
market value of the shares depending upon whether or not the optionee is a ten
percent holder. The fair market value shall be determined by reference to market
prices if the stock is publicly traded or shall be determined in good faith by
the Board in the absence of a public market. Options granted under the Plan vest
as determined by the Board. No option may be granted under the Plan more than
ten years from the date of its adoption.

                                  401(K) PLANS

    The Company maintains two defined contribution 401(k) plans. The first plan
covers substantially all of the Company's non-hourly employees who are not
employed in the Mercer business. The employees become eligible to participate
after 1,000 hours of service and participants may elect to contribute up to 20%
of their compensation to this plan, subject to Internal Revenue Service limits.
The Company matches a portion of the employees' contribution. The Company also
maintains a defined contribution plan for salaried and hourly employees who were
formerly employed by Mercer. Participating employees contribute to this 401(k)
plan based on a percentage of their compensation, which is matched by the
Company based on a percentage of employee contributions.

                                       27
<PAGE>
                           COMPENSATION OF DIRECTORS

    None of the directors who are officers of the Company receives compensation
directly for their service on the Company's Board of Directors. All other
directors receive a monthly retainer fee of $1,250 for their service. The
Company also pays non-employee directors $1,500 per meeting for board and
committee meetings attended by the non-employee directors. In addition, the
Company pays J.F. Lehman & Company 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."

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, 2000 by (i) each director,
(ii) each of the Named 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>
                                                                                 PERCENTAGE OF SHARES
NAME OF INDIVIDUAL OR ENTITY(1)                            NUMBER OF SHARES(2)      OUTSTANDING(3)
-------------------------------                            -------------------   --------------------
<S>                                                        <C>                   <C>
JFLEI(4).................................................       3,134,298                80.5%
John F. Lehman(5)........................................       3,134,298                80.5
George Sawyer(5).........................................       3,134,298                80.5
Donald Glickman(5).......................................       3,134,298                80.5
Keith Oster(5)...........................................       3,134,298                80.5
Joseph A. Stroud(5)......................................       3,134,298                80.5
Rocco C. Genovese(6).....................................         316,000                 8.0
Robert F. Pitman(7)......................................          12,350                   *
Martin J. Suydam, Jr.(8).................................          10,000                   *
Craig A. Carnes(9).......................................           9,050                   *
Anthony E. Lawson(10)....................................           5,000                   *
Oliver C. Boileau, Jr.(11)...............................              --                  --
Thomas G. Pownall(12)....................................              --                  --
Bruce D. Gorchow(13).....................................              --                  --
Jackson National(14).....................................         428,444                 9.9
MassMutual(14)...........................................         428,444                 9.9
All directors and executive officers as a group
  (21 persons)...........................................       3,517,023                88.6%
</TABLE>

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

  *  Less than 1%

 (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.

 (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) Computed based upon the total number of shares of the Company's Common
     Stock outstanding and the number of shares of the Company's Common Stock
     underlying the options or warrants held by that person exercisable within
     60 days of March 15, 2000. In accordance with Rule 13(d)-3 of the Exchange
     Act, any Common Stock that will not be outstanding as of March 15, 2000,
     which is subject to options or warrants exercisable within 60 days, is
     deemed to be outstanding for the purpose of computing the percentage of
     outstanding shares of the Company's Common Stock owned by the person
     holding such options or warrants, but is not deemed to be outstanding for
     the purpose of

                                       28
<PAGE>
     computing the percentage of outstanding shares of the Company's Common
     Stock owned by any other person. On a fully diluted basis, as of March 15,
     2000, JFLEI and its affiliates would own approximately 63.2% of the
     Company's Common Stock, the executive officers and directors as a group
     would own approximately 71.0% of the Company's Common Stock and the
     warrantholders (including Jackson National, MassMutual) would have the
     right to purchase approximately 17.3% of the Company's Common Stock.

 (4) JFLEI is a Delaware limited partnership managed by J.F. Lehman & Company,
     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 J.F. Lehman & Company and such
     general partner. J.F. Lehman & Company 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) Includes options to purchase 37,500 shares of Common Stock issued under the
     Company's 1997 Stock Option Plan, which are currently exercisable, and
     37,500 shares of Common Stock issued under the Company's 1997 Stock Option
     Plan.

 (7) Includes options to purchase 3,750 shares of Common Stock issued under the
     Company's 1997 Stock Option Plan, which are currently exercisable.

 (8) Includes options to purchase 10,000 shares of Common Stock issued under the
     Company's 1997 Stock Option Plan, which are currently exercisable.

 (9) Includes options to purchase 3,750 shares of Common Stock issued under the
     Company's 1997 Stock Option Plan, which are currently exercisable.

 (10) Includes options to purchase 5,000 shares of Common Stock issued under the
      Company's 1997 Stock Option Plan, which are currently exercisable.

 (11) Mr. Boileau is a limited partner of JFLEI.

 (12) Mr. Pownall is a limited partner of JFLEI and is on the investment
      advisory board of J.F. Lehman & Company.

 (13) Mr. Gorchow is on the investment advisory board of J.F. Lehman & Company.

 (14) All shares are obtainable upon the exercise of warrants, which are
      immediately exercisable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

MANAGEMENT AGREEMENT

    Pursuant to the terms of the ten-year Management Agreement entered into
between J.F. Lehman & Company and the Company, (i) upon consummation of the
Recapitalization, the Company paid J.F. Lehman & Company certain transaction
fees and (ii) the Company agreed to pay J.F. Lehman & Company an annual
management fee equal to $500,000, as may be adjusted from time to time subject
to necessary board approval, that commenced accruing on October 1, 1998 and
which was to be payable on a quarterly basis in arrears commencing on
January 1, 1999. During 1998, the Board of Directors approved an amendment to
the Management Agreement and the Company concurrently entered into a Management
Services Agreement with J.F. Lehman & Company, the combined effect of which was
to further delineate

                                       29
<PAGE>
the management services to be provided by J.F. Lehman & Company and to provide
that J.F. Lehman & Company's management fee would be paid in advance on a
quarterly basis commencing October 1, 1998.

SHAREHOLDERS AGREEMENT

    In connection with the Recapitalization, the Company, JFLEI, the Continuing
Shareholders (as defined in the Shareholders Agreement) and, in their capacity
as holders of the Warrants (as defined in the Shareholders Agreement), 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
Series A and Series B 11 1/2% Cumulative Redeemable Stock (collectively, the
"Redeemable Preferred Stock"), which was issued on the closing date of the
Recapitalization, shall have been in arrears and unpaid for four or more
successive Dividend Payment Dates, then the number of directors constituting the
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,

                                       30
<PAGE>
(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.

    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.

                                       31
<PAGE>
    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.

                                       32
<PAGE>
                                    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 December 31, 1999.............................       F-3

Consolidated Balance Sheets at January 1, 1999 and December
  31, 1999..................................................       F-4

Consolidated Statements of Shareholders' Equity (Deficit)
  for the three fiscal years ended December 31, 1999........       F-5

Consolidated Statements of Cash Flows for the three years
  ended December 31, 1999...................................       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>
 1.1   Purchase Agreement, dated April 17, 1998 between the Company
         and the Initial Purchaser.(1)

 2.1   Stock Purchase Agreement, dated as of March 5, 1998 among
         Burke, Sovereign and Mercer.(2)

 3.1   Articles of Incorporation of the Company.(3)

 3.2   Amended and Restated Articles of Incorporation of the
         Company.

 3.3   Certificate of Determination of Series C Cumulative
         Convertible Preferred Stock of the Company. (4)

 3.4   Bylaws of the Company.(3)

 3.5   Articles of Incorporation of Burke Flooring Products,
         Inc.(3)

 3.6   Bylaws of Burke Flooring Products, Inc.(3)

 3.7   Articles of Incorporation of Burke Rubber Company, Inc.(3)

 3.8   Bylaws of Burke Rubber Company, Inc.(3)

 3.9   Articles of Incorporation of Burke Custom Processing,
         Inc.(3)

 3.10  Bylaws of Burke Custom Processing, Inc.(3)
</TABLE>

                                       33
<PAGE>
<TABLE>
<C>    <S>
 4.1   Indenture among the Company, the Subsidiary Guarantors and
         United States Trust Company of New York, relating to the
         Floating-Rate Notes, dated as of April 21, 1998.(1)

 4.2   First Supplemental Indenture, dated April 21, 1998, between
         the Company, the Subsidiary Guarantors and United States
         Trust Company of New York.(1)

 4.3   Form of Note (included in Exhibit 4.1).(1)

 4.4   Registration Rights Agreement, dated April 21, 1998, between
         the Company and the Holders.(1)

10.1   Purchase Agreement, dated August 14, 1997, between the
         Company and the Initial Purchaser.(3)

10.2   Agreement and Plan of Merger, dated as of August 13, 1997,
         by and among the Company, the Company Shareholders, JFLEI
         and MergerCo.(3)

10.3   Indenture among the Company, the Subsidiary Guarantors and
         United States Trust Company of New York, relating to the
         Fixed Rate Notes, dated as of August 20, 1997.(3)

10.4   Registration Rights Agreement, dated August 20, 1997,
         between the Company and the Fixed Rate Note Holders.(3)

10.5   Loan and Security Agreement, dated as of August 20, 1997,
         between the Company, the Lenders and NationsBank, N.A.(3)

10.6   Amendment No. 1, Waiver Joinder Agreement to Loan Security
         Agreement, dated April 21, 1998, between the Company,
         Mercer and NationsBank, N.A. (1)

10.7   Form of Revolving Notes (included in Exhibit 10.6). (1)

10.8   Subsidiary Guaranty, dated August 20, 1997, between the
         Company and the Subsidiaries.(3)

10.9   Subsidiary Security Agreement, dated as of August 20, 1997,
         between the Company and the Subsidiaries.(3)

10.10  Assignment for Security, dated April 21, 1998, by Mercer.(1)

10.11  First Amendment to Deed of Trust with Absolute Assignment of
         Leases and Rents, Security Agreement and Fixture Filing,
         dated April 21, 1998, between the Company and NationsBank,
         N.A.(1)

10.12  Florida Mortgage, Security Agreement and Assignment of
         Leases and Rents, dated April 21, 1998, between Mercer and
         NationsBank, N.A. (unrecorded)(1)

10.13  Stock Pledge Agreement, dated August 20, 1997.(3)

10.14  Pledge Agreement, dated April 21, 1998, between the Company
         and NationsBank, N.A.(1)

10.15  Consent Solicitation Statement dated March 30, 1998.(1)

10.16  Form of Consent to Amendments to Indenture.(1)

10.17  Investment Agreement, dated as of August 20, 1997, between
         the Company and preferred shareholders.(3)

10.18  Shareholders' Agreement, dated as of August 20, 1997,
         between the Company and the shareholders.(3)

10.19  Shareholders' Registration Rights Agreement, dated as of
         August 20, 1997, between the Company and the
         shareholders.(3)

10.20  Warrantholders' Registration Rights Agreement dated as of
         August 20, 1997, between the Company and the
         warrantholders.(3)

10.21  Form of Warrant Certificate.(3)

10.22  Form of Election Form for Series C Preferred Stock.(1)
</TABLE>

                                       34
<PAGE>
<TABLE>
<C>    <S>
10.23  Management Agreement, dated August 20, 1997, between the
         Company and J.F. Lehman & Company.(3)

10.24  Lease Agreement, dated April 30, 1997, between the Company
         and Senter Properties, LLC for the premises at 2049 Senter
         Road, San Jose, CA.(3)

10.25  Lease Agreement, dated October 20, 1995, between the Company
         and Lincoln Property Company for the premises at 13767
         Freeway Drive, Santa Fe Springs, CA.(3)

10.26  Lease Agreement, dated April 25, 1983, between the Company
         and Donald M. Hypes for the premises at 14910 Carmenita
         Boulevard, Norwalk, CA.(3)

10.27  Lease Agreement, dated March 29, 1996, between S & M
         Development Co., a general partnership, for the premises
         at 13615 Excelsior Drive, Santa Fe Springs, CA.(3)

10.28  Lease Agreement, dated June 5, 1995, 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, MA.(3)

10.29  Consent to sale of all of the outstanding shares of Mercer
         Products Company, Inc. to Burke Industries, Inc., dated
         March 20, 1998 by Land Co. Leasing & New Development Co.
         and related Standard/Industrial Commercial Single-Tenant
         Lease-Gross, dated June 22, 1994, as amended, between The
         Childs Family Trust u/t/a of April 30, 1981 and The A.G.
         Gardner Trust u/t/a of March 5, 1981 dba Landco and
         Mercer.(1)

10.30  Consent of Lessor dated April 21, 1998 and related Agreement
         of Lease dated December 1, 1998, as amended, between RTC
         Properties, Inc. and Mercer.(1)

10.31  Sublease Agreement, dated February 20, 1992, between Burke
         Rubber Company for the premises at 107 South Riverside
         Drive, Modesto, CA.(3)

10.32  Servicing Agreement, dated April 26, 1996, between the
         Company and Westland Technologies.(3)

10.33  Amendment No. 1 to the Stock Purchase Agreement, dated April
         21, 1998, among Burke, Sovereign and Mercer.(5)

10.34  Lease Agreement, dated April 15, 1998, between Robert
         Steele, et al and the Company, for the premises at 10039
         Norwalk Boulevard, Santa Fe Springs, CA.(5)

10.35  Management Services Agreement, dated as of June 18, 1998,
         between the Company and J.F. Lehman & Company.(5)

10.36  Amendment No. 1 to Management Agreement between the Company
         and J.F. Lehman & Company, dated as of June 18, 1998.(5)

10.37  Burke Industries, Inc. Executive Deferred Compensation
         Agreement.(5)

10.38  Burke Industries, Inc. 1997 Stock Option Plan.(5)

10.39  Form of Incentive Stock Option Agreement under the Burke
         Industries, Inc. 1997 Stock Option Plan

10.40  Burke Industries, Inc. 1997 Stock Option Plan Amended and
         Restated as of November 30, 1999.

10.41  Form of Incentive Stock Option Agreement under the Burke
         Industries, Inc. Amended and Restated 1997 Stock Option
         Plan.

10.42  Employment Agreement, dated as of September 16, 1999, by and
         between Theodore M. Clark and Burke Industries, Inc.
</TABLE>

                                       35
<PAGE>
<TABLE>
<C>    <S>
10.43  Letter Agreement, dated February 4, 2000, by and between
         Burke Industries, Inc. and Theodore M. Clark, amending Mr.
         Clark's employment agreement dated as of September 16,
         1999.

10.44  Extension and First Amendment of Lease, dated as of January
         13, 1994, by and between RTC Properties, Inc. and Mercer
         Products Company, Inc.

10.45  Extension and Second Amendment of Lease, dated as of January
         23, 1995, by and between RTC Properties, Inc. and Mercer
         Products Company, Inc.

10.46  Third Amendment and Extension of Agreement of Lease, dated
         as of March 26, 1997, by and between RTC Properties, Inc.
         and Mercer Products Company, Inc.

10.47  Fourth Amendment of Lease, dated as of April 21, 1998, by
         and between RTC Properties, Inc. and Mercer Products Co.,
         Inc.

10.48  Lease Agreement, dated June 22, 1999, by and between
         ProLogis Trust and Burke Industries, Inc.

12.1   Computation of Ratios of Earnings to Fixed Charges and
         Combined Fixed Charges and Preferred Stock Dividends.

21.1   Subsidiaries of the Company.

27.    Financial Data Schedule.
</TABLE>

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

(1) Incorporated by reference to the registrant's Registration Statement on
    Form S-4, File No. 333-36675, as filed with the Securities and Exchange
    Commission on June 19, 1998.

(2) Incorporated by reference to the Company's 1997 annual report on Form 10-K,
    File No. 333-36675, as filed with the Securities and Exchange Commission on
    April 2, 1998.

(3) Incorporated by reference to the registrant's Registration Statement on
    Form S-4, File No. 333-36675, as filed with the Securities and Exchange
    Commission on September 29, 1997, as amended.

(4) Incorporated by reference to the Company's current report on Form 8-K, File
    No. 333-36675, as filed with the Securities and Exchange Commission on
    May 5, 1998.

(5) Incorporated by reference to the Company's 1998 annual report on Form 10-K,
    File No. 333-36675, as filed with the Securities and Exchange Commission on
    March 31, 1999.

    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.

                                       36
<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 December 31, 1999.............................    F-3

Consolidated Balance Sheets at January 1, 1999 and
  December 31, 1999.........................................    F-4

Consolidated Statements of Shareholders' Equity (Deficit)
  for the three fiscal years ended December 31, 1999........    F-5

Consolidated Statements of Cash Flows for the three fiscal
  years ended December 31, 1999.............................    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 December 31, 1999 and January 1, 1999,
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the three fiscal years in the period ended
December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Burke Industries, Inc. and subsidiaries at December 31, 1999 and January 1,
1999, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

San Jose, California
March 10, 2000

                                      F-2
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    FISCAL YEARS ENDED
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Net sales...................................................  $107,504   $107,019   $90,228
Costs and expenses:
  Cost of sales.............................................    78,288     76,145    62,917
  Selling, general and administrative.......................    17,831     15,454    12,174
  Amortization of goodwill..................................     2,017      1,411        64
  Transaction expenses......................................        --         --     1,321
  Stock option purchase.....................................        --         --    14,105
                                                              --------   --------   -------
Income (loss) from operations...............................     9,368     14,009      (353)
Interest expense, net.......................................    14,821     13,819     5,408
                                                              --------   --------   -------
Income (loss) before income tax provision (benefit).........    (5,453)       190    (5,761)
Income tax provision (benefit)..............................       921        160    (1,818)
                                                              --------   --------   -------
Net income (loss)...........................................  $ (6,374)  $     30   $(3,943)
                                                              ========   ========   =======
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               FISCAL YEARS ENDED
                                                              ---------------------
                                                                1999        1998
                                                              ---------   ---------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
                                ASSETS

Current assets:
  Cash and cash equivalents.................................  $     348   $   2,981
  Trade accounts receivable, less allowance of $658 in 1999
    and $812 in 1998........................................     13,627      13,109
  Inventories...............................................     15,585      14,574
  Prepaid expenses and other current assets.................      1,510       1,731
  Deferred income tax assets................................        503       3,108
  Refundable income taxes...................................         --         174
                                                              ---------   ---------
    Total current assets....................................     31,573      35,677

Property, plant, and equipment:
  Land and improvements.....................................      2,107       2,107
  Buildings and improvements................................     11,210      11,210
  Equipment.................................................     19,543      17,277
  Leasehold improvements....................................      1,040         721
  Assets under capital leases...............................      1,589          --
                                                              ---------   ---------
                                                                 35,489      31,315
  Accumulated depreciation and amortization.................     14,464      12,300
                                                              ---------   ---------
                                                                 21,025      19,015
  Construction in process...................................        419       2,364
                                                              ---------   ---------
                                                                 21,444      21,379

Other Assets:
  Prepaid pension cost......................................        442         498
  Goodwill, net.............................................     27,718      29,735
  Deferred financing costs, net.............................      5,718       6,542
  Other assets..............................................        139         114
                                                              ---------   ---------
                                                                 34,017      36,889
                                                              ---------   ---------
                                                              $  87,034   $  93,945
                                                              =========   =========

                  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Trade accounts payable and accrued expenses...............  $   8,174   $   6,934
  Accrued compensation and related liabilities..............      1,743       2,715
  Accrued interest..........................................      5,528       5,434
  Payable to shareholders...................................        785         953
  Capital lease obligations, current........................        514          --
  Income taxes payable......................................        481         695
                                                              ---------   ---------
    Total current liabilities...............................     17,225      16,731
Senior notes................................................    110,000     110,000
Floating rate notes.........................................     30,000      30,000
Other noncurrent liabilities................................        444         444
Capital lease obligations, non-current......................        669          --
Deferred income tax liabilities.............................      2,388       4,082
Preferred stock, no par value; 50,000 shares authorized;
  30,000 Series A Redeemable shares designated; 18,611
  Series A shares issued and outstanding; 5,000 Series B
  Redeemable shares designated; 2,326 Series B shares issued
  and outstanding (aggregate liquidation and redemption
  preference $18,000).......................................     20,536      18,160
Shareholders' equity (deficit):
  Convertible preferred stock, no par value: 3,000 Series C
    shares designated, issued and outstanding (liquidation
    preference $3,000)......................................      3,000       3,000
  Class A common stock, no par value: Authorized
    shares--20,000,000 Issued and outstanding shares--
    3,895,000 in 1999 and 3,857,000 in 1998.................     25,708      25,464
  Accumulated deficit.......................................   (122,936)   (113,936)
                                                              ---------   ---------
    Total shareholders' equity (deficit)....................    (94,228)    (85,472)
                                                              ---------   ---------
                                                              $  87,034   $  93,945
                                                              =========   =========
</TABLE>

                            See accompanying notes.

                                      F-4
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                         CONVERTIBLE
                                          PREFERRED          CLASS A COMMON
                                            STOCK                 STOCK                             TOTAL
                                     -------------------   -------------------   ACCUMULATED    SHAREHOLDERS'
                                      SHARES     AMOUNT     SHARES     AMOUNT      DEFICIT     EQUITY (DEFICIT)
                                     --------   --------   --------   --------   -----------   ----------------
                                                                   (IN THOUSANDS)
<S>                                  <C>        <C>        <C>        <C>        <C>           <C>
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)
Net income.........................      --          --         --         --            30               30
Proceeds from sale of preferred
  stock............................   3,000      $3,000         --         --            --            3,000
Accretion of preferred stock
  discount.........................      --          --         --         --          (242)            (242)
Preferred stock dividend in kind...      --          --         --         --        (1,770)          (1,770)
                                      -----      ------     ------    -------     ---------         --------
Balance at fiscal year end 1998....   3,000       3,000      3,857     25,464      (113,936)         (85,472)
Net loss...........................      --          --         --         --        (6,374)          (6,374)
Exercise of stock options..........      --          --         38        244            --              244
Additional shareholder payment
  related to recapitalization of
  company..........................      --          --         --         --          (250)            (250)
Accretion of preferred stock
  discount.........................      --          --         --         --          (241)            (241)
Preferred stock dividend in kind...      --          --         --         --        (2,135)          (2,135)
                                      -----      ------     ------    -------     ---------         --------
Balance at fiscal year end 1999....   3,000      $3,000      3,895    $25,708     $(122,936)        $(94,228)
                                      =====      ======     ======    =======     =========         ========
</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    FISCAL YEARS ENDED
                                                              -------------------------------
                                                                1999       1998       1997
                                                              --------   --------   ---------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
Net income (loss)...........................................  $(6,374)   $     30   $  (3,943)
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
Depreciation and amortization:
  Property, plant, and equipment............................    2,164       1,764       1,435
  Goodwill..................................................    2,017       1,411          64
Debt discounts arising from warrants........................       --          --          93
Interest on shareholder note................................       --          --        (240)
Deferred financing costs....................................      824         752         229
Changes in operating assets and liabilities:
  Trade accounts receivable.................................     (518)        408      (2,031)
  Inventories...............................................   (1,011)       (506)     (2,571)
  Prepaid expenses and other current assets.................      221        (619)       (436)
  Refundable income taxes...................................      174       1,465          --
  Prepaid pension cost......................................       56           3          41
  Other assets..............................................      (25)        (52)         25
  Trade accounts payable and accrued expenses...............    1,334       1,559       3,382
  Accrued compensation and related liabilities..............     (972)        223         149
  Deferred income taxes.....................................      911         (72)     (1,397)
  Income taxes payable......................................     (214)       (369)     (3,043)
  Other noncurrent liabilities..............................       --          24        (300)
                                                              -------    --------   ---------
Net cash provided by (used in) operating activities.........   (1,413)      6,021      (8,543)

INVESTING ACTIVITIES
Acquisition of Mercer Products Company; net of cash
  acquired..................................................       --     (38,440)         --
Purchases of property, plant, and equipment.................     (639)     (3,220)     (1,454)
Repayment of note receivable from affiliate of the principal
  shareholders..............................................       --          --       4,306
                                                              -------    --------   ---------
Net cash (used in) provided by investing activities.........     (639)    (41,660)      2,852

FINANCING ACTIVITIES
Restricted cash.............................................       --       1,070      (1,070)
Checks outstanding in excess of funds deposited.............       --          --        (828)
Repayments and settlement of long-term debt and capital
  lease obligations.........................................     (407)         --     (18,869)
Payments to shareholders....................................     (418)     (4,929)      5,882
Exercise of stock options...................................      244          --          --
Proceeds from sales of shares through employee stock
  plans.....................................................       --          --          10
Deferred financing costs....................................       --      (2,084)     (5,430)
Repayment of subordinated debt..............................       --          --      (1,750)
Net recapitalization consideration..........................       --          --    (107,310)
Issuance of notes payable...................................       --      30,000     110,000
Issuance of preferred stock, net of issuance costs..........       --       3,000      17,895
Issuance of common stock, net of issuance costs.............       --          --      18,724
                                                              -------    --------   ---------
Net cash provided by (used in) financing activities.........     (581)     27,057      17,254
                                                              -------    --------   ---------
Net increase (decrease) in cash and cash equivalents........   (2,633)     (8,582)     11,563
Cash and cash equivalents at beginning of year..............    2,981      11,563          --
                                                              -------    --------   ---------
Cash and cash equivalents at end of year....................  $   348    $  2,981   $  11,563
                                                              =======    ========   =========
</TABLE>

                            See accompanying notes.

                                      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 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.

    There were no customers that accounted for more than 10% of net sales in
fiscal year 1999. One customer accounted for approximately 10% of net sales in
fiscal year 1998 and 13% of net sales in fiscal year 1997. No other customers
constituted 10% or more of net sales in any of the three fiscal years ended in
1999.

    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 Taunton, Massachusetts through June 5, 2000.

    Burke's employees at the Eustis, Florida location are represented by the
Glass, Molders, Pottery, Plastics and Allied Workers International Union. This
collective bargaining agreement was renegotiated in December 1998 for a
three-year term.

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 5);
(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 and $30 million floating-rate 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

                                      F-7
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
plan, in addition to other tax savings associated with the transaction, will be
distributed to the Company's 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 of
which $785,000 remains at fiscal year end 1999.

    In 1999, the Company made additional payments related to the repurchase of a
former shareholder's shares prior to the Recapitalization and these additional
payments represent the amount received by other shareholders at the time of the
Recapitalization. Accordingly, the Company has recorded these payments as
additional consideration for the Recapitalization in the accompanying
consolidated statement of shareholders' equity (deficit).

    The Company is subject to various federal, state and local environmental
laws and regulations. The former shareholders of the Company have agreed,
subject to certain limitations, to indemnify the Company against certain
environmental liabilities incurred prior to Recapitalization. In addition, the
former shareholders of Mercer Products Company, Inc. (Note 2) have agreed,
subject to certain limitations, to indemnify the Company against environmental
liabilities incurred prior to the acquisition of Mercer Products Company, Inc.
Based upon environmental reviews and the indemnification provisions discussed
above, management believes the potential obligations relating to environmental
matters 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 1997, 1998 and 1999. For convenience, the
accompanying financial statements have been referred to as fiscal years ended
1997, 1998, and 1999 for the periods ended January 2, 1998, January 1, 1999 and
December 31, 1999, 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 bank demand deposit accounts.

                                      F-8
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

    Revenue from sales of products is recognized upon shipment to customers.

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
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. Accumulated amortization at December 31, 1999 for assets
under capital leases is $79,000.

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.

INCOME TAXES

    The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109") which requires the use of the liability method in accounting
for income taxes. Under this method, deferred tax liabilities and assets are
measured based upon differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes using expected tax rates and laws that will be in effect when the
differences are expected to reverse

RECENT PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133"). FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and, if so, the type of hedge transaction.

    In June 1999, the FASB issued FAS 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" (FAS 137"), which amends

                                      F-9
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAS 133 to be effective for all fiscal quarters or all fiscal years beginning
after June 15, 2000 or January 1, 2001 for the Company. Management does not
currently expect that adoption of FAS 137 will have a material impact on the
Company's financial position or results of operations.

RECLASSIFICATIONS

    Certain prior year reclassifications have been made in order to conform to
current year presentation.

SEGMENT INFORMATION

    The Company operates in two reportable segments--organic products and
silicone products, under FASB Statement No. 131 "Disclosure About Segments of an
Enterprise and Related Information" ("FASB 131"). The Company's management has
determined the operating segments based upon how the business is managed and
operated. The reportable segments are each managed separately as they
manufacture and distribute distinct products with different production
processes.

2. ACQUISITION OF MERCER PRODUCTS COMPANY, INC.

    On April 21, 1998, the Company acquired all of the issued and outstanding
capital stock of Mercer Products Company, Inc. ("Mercer"), from Sovereign
Specialty Chemicals, Inc., for an aggregate purchase price of $38,474,000
(including acquisition costs of $2,280,000). The acquisition was accounted for
under the purchase method of accounting. The Company's consolidated results of
operations include Mercer's results from the date of acquisition.

    The total purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as follows:

<TABLE>
<CAPTION>
                                                              (IN THOUSANDS)
<S>                                                           <C>
Current assets..............................................     $ 5,269
Plant and equipment.........................................       4,903
Excess of purchase price over net assets acquired...........      29,681
Amounts payable and accrued expenses........................      (1,379)
                                                                 -------
  Total purchase price......................................     $38,474
                                                                 =======
</TABLE>

    Financing for the Mercer Acquisition and related expenses was provided, in
large part, from the sale of $30 million principal amount of Floating Interest
Rate Senior Notes Due 2007 (the "Floating-Rate Notes"). The balance of the
financing was provided with $3.0 million from the sale of 3,000 shares of the
Company's 6% Series C Convertible Preferred Stock and cash on hand.

                                      F-10
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITION OF MERCER PRODUCTS COMPANY, INC. (CONTINUED)
    The following pro forma data was prepared to illustrate the estimated effect
of the Mercer acquisition and the financing related thereto, as if the Mercer
acquisition had occurred as of the beginning of each period presented:

<TABLE>
<CAPTION>
                                                           FISCAL YEAR ENDED
                                                          -------------------
                                                            1998       1997
                                                          --------   --------
                                                            (IN THOUSANDS)
<S>                                                       <C>        <C>
Net Sales...............................................  $113,223   $115,127
Net income (loss).......................................       (12)    (3,973)
</TABLE>

    The pro forma results of operations have been prepared for comparison
purposes only, and do not purport to be indicative of what the results would
have been had the Mercer acquisition occurred at the beginning of each period
presented. The pro forma results for fiscal year ended 1997 include certain
charges related to the Recapitalization (Note 1).

3. INVENTORIES

    Inventories consist of the following at the fiscal year ended:

<TABLE>
<CAPTION>
                                                              1999       1998
                                                            --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
Raw materials.............................................  $ 5,540    $ 5,123
Work-in-process...........................................    1,861      2,085
Finished goods............................................    8,184      7,366
                                                            -------    -------
                                                            $15,585    $14,574
                                                            =======    =======
</TABLE>

4. 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 related to the Mercer acquisition is being amortized on a
straight-line basis over 15 years. Goodwill related to prior transactions is
being amortized on a straight-line basis over forty years. Accumulated
amortization totaled $3,796,000 and $1,779,000 at fiscal years ended 1999 and
1998, respectively.

                                      F-11
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT AND LEASE OBLIGATIONS

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 facility are secured by
substantially all of the assets of the Company. Accordingly, such secured
indebtedness ranks senior to the Senior Notes.

    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.

    The Company believes the fair value of the Senior Notes at fiscal year end
1999 approximates the carrying value of such indebtedness issued based upon the
incremental borrowing rate for similar types of instruments.

FLOATING-RATE NOTES

    The Floating-Rate Notes issued in connection with the Mercer acquisition
mature on August 15, 2007, with interest on the notes payable semiannually on
February 15 and August 15, commencing on August 15, 1998. The Floating-Rate
Notes bear interest at a rate per annum equal to LIBOR plus 400 basis points,
with the interest rate set semiannually (9.8% at fiscal year end 1999). The
Floating-Rate Notes are unconditionally guaranteed on a joint and several basis
by each of the Company's subsidiaries. Upon a change of control of the Company,
the Company will be required to make an offer to repurchase all outstanding
Floating-Rate Notes at 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon at the date of repurchase.

    The Company believes the fair value of the Floating-Rate Notes at fiscal
year end 1999 approximates the carrying value of such indebtedness as the
interest rate is variable and resets frequently.

BANK CREDIT FACILITY

    In fiscal year 1998, the Company revised its Loan and Security Agreement
with a bank to provide the Company with a $25.0 million revolving credit
facility expiring August 20, 2002. No amounts are outstanding at fiscal year end
1999 or 1998.

                                      F-12
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
    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) $25.0 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
$3.0 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.

    During 1999, the Company was in default of certain financial covenants and
other provisions of the loan agreement. As of November 11, 1999 the lender
waived the existing defaults, modified certain financial covenants and amended
certain other provisions of the loan agreement such that, at December 31, 1999,
the Company is in compliance with the amended covenants.

INTEREST EXPENSE, NET

    Interest expense, net consists of the following:

<TABLE>
<CAPTION>
                                                          FISCAL YEAR ENDED
                                                    ------------------------------
                                                      1999       1998       1997
                                                    --------   --------   --------
                                                            (IN THOUSANDS)
<S>                                                 <C>        <C>        <C>
Interest incurred.................................  $14,888    $14,062     $5,900
Capitalized interest..............................       (2)       (13)       (29)
Interest income...................................      (65)      (230)      (463)
                                                    -------    -------     ------
Interest expense, net.............................  $14,821    $13,819     $5,408
                                                    =======    =======     ======
</TABLE>

    Included in interest expense is $142,000 of interest incurred on
subordinated shareholder notes in fiscal year 1997. There was no such interest
expense in fiscal years ended 1998 and 1999. There was no interest payable to
these shareholders at fiscal year ended 1997, and such subordinated notes were
repaid in connection with the Recapitalization of the Company.

DEFERRED FINANCING COSTS

    In connection with the issuance of the Floating-Rate Notes, Senior Notes and
bank credit facility agreement, the Company incurred debt issuance costs of
$7,513,000 that are being amortized to interest expense over the terms of the
related debt. Accumulated amortization at fiscal year end 1999 and 1998 was
$1,795,000 and $971,000, respectively.

                                      F-13
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
LEASE OBLIGATIONS

    At fiscal year ended 1999, minimum payments under all noncancelable lease
agreements were as follows:

<TABLE>
<CAPTION>
                                                  CAPITAL LEASES   OPERATING LEASES
                                                  --------------   ----------------
<S>                                               <C>              <C>
2000............................................      $  669            $2,202
2001............................................         568             1,450
2002............................................          50             1,199
2003............................................          --               936
2004............................................          --               743
Beyond 2004.....................................          --             2,803
                                                      ------            ------
Total minimum lease payments....................       1,287            $9,333
                                                                        ======
  Less amount representing interest.............        (104)
                                                      ------
Present value of minimum lease payments.........       1,183
  Less current portion..........................        (514)
                                                      ------
Long-term capital lease obligations.............      $  669
                                                      ======
</TABLE>

    Rental expense was $2,739,000, $2,082,000, and $1,404,000 in fiscal years
1999, 1998, and 1997, respectively. Rental expense is before sublease income of
$335,000 in 1999, $325,000 in 1998 and $316,000 in 1997. Future sublease rental
income commitments aggregated $640,000 at fiscal year ended 1999.

6. 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 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 1999.

                                      F-14
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. REDEEMABLE PREFERRED STOCK (CONTINUED)

    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.

    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.

7. SHAREHOLDERS' EQUITY

    CONVERTIBLE PREFERRED STOCK

    In connection with the Mercer acquisition, the Company issued $3 million in
Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock
ranks junior to the Redeemable Preferred Stock and when declared, dividends
accrue at an annual rate per share of 6% times the sum of $1,000 and accrued but
unpaid dividends. The holders of Series C Convertible Preferred Stock are
entitled to receive a

                                      F-15
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (CONTINUED)
stated liquidation value of $1,000 per share plus accrued but unpaid dividends
in the event of any liquidation, dissolution or winding up of the Company. After
payment of the liquidation preference, the holders of the Series C Convertible
Preferred Stock are not entitled to further participation in any distribution of
assets of the Company. The holders of Series C Convertible Preferred Stock are
not entitled to any voting rights; however, without the consent of 51% of the
holders of Series C Convertible Preferred Stock, the Company may not adversely
alter the rights and preferences of the Series C Convertible Preferred Stock.

    Upon the occurrence of a triggering event, the holders of Series C
Convertible Preferred Stock have the option to convert such shares into common
stock at a conversion price of $10 per share, subject to anti-dilution
provisions. A triggering event includes a change of control, an initial public
offering, notice by the Company of an intent to redeem the Convertible Preferred
Stock or the fifth anniversary of the issuance of the Convertible Preferred
Stock.

    COMMON STOCK

    At fiscal year ended 1999 a total of 964,000 shares of Class A common stock
are reserved for the exercise of warrants and 705,000 shares are reserved under
the 1997 Stock Option Plan.

    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 totaling $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 as amended and restated as of
November 30, 1999), incentive stock options to purchase up to a total of 705,000
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.

                                      F-16
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (CONTINUED)
    A summary of all stock option activity is as follows:

<TABLE>
<CAPTION>
                                                      OPTIONS     WEIGHTED AVERAGE
                                                    OUTSTANDING   PRICE PER SHARE
                                                    -----------   ----------------
                                                            (IN THOUSANDS,
                                                       EXCEPT PRICE PER SHARE)
<S>                                                 <C>           <C>
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
Granted...........................................         68             $10.00
Exercised.........................................         --                 --
Canceled..........................................         --                 --
                                                       ------

Balance at fiscal year ended 1998.................        438              $7.04
Granted...........................................        222              $6.69
Exercised.........................................        (38)             $6.50
Canceled..........................................       (117)             $6.50
                                                       ------
Balance at fiscal year ended 1999.................        505              $7.05
                                                       ======
</TABLE>

    At fiscal year end 1999, options to purchase 105,625 shares of common stock
are exercisable and the weighted average remaining contractual life is 9 years
(1998 - 9 years).

    The Company has elected to follow Accounting Principal Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25) and
related Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under the
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (FAS 123), requires use of options valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

    Pro forma information regarding net income (loss) has been determined as if
the Company had accounted for its employee stock options under the fair value
method of FAS 123. The fair value for all options granted was estimated at the
date of grant using the minimum value options pricing model with the following
weighted average assumptions: a risk-free interest rate of 6.34%; no dividend
yield; and a weighted average expected life of the option of five years. The
weighted average fair value of these options granted was $1.78 per share for
1999. Outstanding options have exercise prices that range from $6.50 to $12.00
per share.

    The Minimum Value option valuation method may be used by companies without
publicly traded equity securities to value an award. Option valuation models
require the input of highly subjective assumptions, including expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the

                                      F-17
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (CONTINUED)
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.

    Had compensation costs for the Company's stock option plan been determined
on the fair value at the grant dates for awards under those plans consistent
with the method of FAS 123, the Company's pro forma net loss would have been
$6.5 million for the fiscal year end 1999 (1998 $64,000 proforma net loss).

    The effect of applying the FAS 123 minimum value method to the stock options
granted in fiscal year ended 1997 would not have resulted in a pro forma net
loss materially different from historical amounts reported. Therefore, such pro
forma information and weighted average assumptions specified in FAS 123 are not
separately presented herein for fiscal year end 1997. 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.

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.

                                      F-18
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. PENSION AND RETIREMENT PLANS (CONTINUED)
    The following tables set forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at fiscal year end:

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
CHANGE IN BENEFIT OBLIGATION
  Benefit obligation at beginning of year...................   $3,400     $3,018
  Service cost..............................................       75         67
  Interest cost.............................................      265        252
  Actuarial loss............................................        5        204
  Benefits paid.............................................     (160)      (141)
                                                               ------     ------
  Benefit obligation at end of year.........................   $3,585     $3,400
                                                               ======     ======

CHANGE IN PLAN ASSETS
  Fair value of plan assets at beginning of year............   $3,491     $3,066
  Actual return on plan assets..............................      736        463
  Employer contribution.....................................       35        103
  Benefits paid.............................................     (160)      (141)
                                                               ------     ------
  Fair value of plan assets at end of year..................   $4,102     $3,491
                                                               ======     ======

  Funded status.............................................   $  517     $   91
  Unrecognized net actuarial loss (gain)....................     (288)       132
  Unrecognized prior service cost...........................      213        275
                                                               ------     ------
  Prepaid benefit cost......................................   $  442     $  498
                                                               ======     ======

WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
  Discount Rate.............................................     8.00%      8.00%
  Expected return on plan assets............................     9.00%      9.00%
</TABLE>

    Net periodic pension expense for the fiscal years ended 1999, 1998, and 1997
included the following components:

<TABLE>
<CAPTION>
                                                          1999       1998       1997
                                                        --------   --------   --------
                                                                (IN THOUSANDS)
<S>                                                     <C>        <C>        <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:

Service cost--benefits earned during the year.........   $  75      $  67      $  58
Interest cost on projected benefit obligation.........     265        252        220
Expected return on plan assets........................    (311)      (275)      (254)
Amortization of prior service cost....................      62         62         44
                                                         -----      -----      -----

Net periodic pension cost.............................   $  91      $ 106      $  68
                                                         =====      =====      =====
</TABLE>

    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

                                      F-19
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. PENSION AND RETIREMENT PLANS (CONTINUED)
Service (IRS) limits. The Company matches a portion of the employees'
contribution. The Company contributed approximately $178,000, $164,000, and
$156,000, to this plan in 1999, 1998, and 1997, respectively.

    The Company also sponsors a defined contribution plan (an IRS qualified
401(k) plan) for the employees in the Mercer business. Participation in this
plan is available to all salaried and hourly employees of the Company who work
in the Mercer business. Participating employees contribute to the 401(k) plan
based on a percentage of their compensation which is matched, based on a
percentage of employee contributions, by the Company. The Company contributed
approximately $81,000, to this plan in 1999 and $93,000 to the plan subsequent
to the Mercer acquisition in 1998.

9. INCOME TAXES

    The income tax provision (benefit) recognized in the consolidated statements
of operations consists of the following:

<TABLE>
<CAPTION>
                                                         1999       1998       1997
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Current:
Federal..............................................   $   --      $ 38     $  (383)
State................................................       10       194         (38)
                                                        ------      ----     -------
                                                            10       232        (421)

Deferred:
Federal..............................................   (1,467)       26      (1,211)
State................................................     (510)      (98)       (186)
Valuation allowance..................................    2,888        --          --
                                                        ------      ----     -------
                                                           911       (72)     (1,397)
                                                        ------      ----     -------
                                                        $  921      $160     $(1,818)
                                                        ======      ====     =======
</TABLE>

    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>
                                                        1999       1998       1997
                                                      --------   --------   --------
                                                              (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>
Income taxes computed at the U.S. federal statutory
  rate..............................................  $(1,854)     $ 65     $(1,958)
State taxes (net of federal effect).................     (315)      110        (148)
Tax benefit from state credit utilization...........       --       (47)         --
Federal and state audit provision...................       --        --         200
Valuation allowance.................................    2,888        --          --
Other individually immaterial items.................      202        32          88
                                                      -------      ----     -------
Income tax provision (benefit)......................  $   921      $160     $(1,818)
                                                      =======      ====     =======
</TABLE>

    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

                                      F-20
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES (CONTINUED)
purposes. Significant components of the Company's deferred tax assets and
liabilities at fiscal years ended 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                              1999       1998
                                                            --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
Deferred tax liabilities:
Basis differences between financial reporting and tax
  basis...................................................  $(3,035)   $(3,108)
Depreciation..............................................     (919)      (958)
Other.....................................................     (151)      (122)
                                                            -------    -------
Total deferred tax liabilities............................   (4,105)    (4,188)
Deferred tax assets:
Net operating loss carryforwards and credit
  carryforwards...........................................    3,616        888
Receivable allowances and inventory reserves..............      766      1,064
State taxes...............................................        3        188
Warranty reserve and other accruals.......................      290        585
Accrued vacation and employee benefits....................      351        373
Other.....................................................       82        116
                                                            -------    -------
Total deferred tax assets.................................    5,108      3,214
Valuation Allowance.......................................   (2,888)        --
                                                            -------    -------
Net deferred tax liability................................  $(1,885)   $  (974)
                                                            =======    =======
</TABLE>

    As of the end of fiscal 1999, the Company has federal and state net
operating loss carryforwards of approximately $8 million and $5 million,
respectively. The net operating loss carryforwards will expire in the years 2002
through 2019, if not utilized.

    Due to the "change of ownership" provisions of the Tax Return Act of 1986,
the availability of the Company's net operating loss and credit carryforwards
will be subject to an annual limitation in future periods if a change of
ownership of more than 50% should occur over a three year period. Such a change
could substantially limit the eventual tax utilization of these carryforwards.

    During the fiscal year ended 1999, a valuation allowance of $2,888,000 has
been established for these deferred tax assets which may not be realized due to
the Company's operating losses. The Company will continue to evaluate the
realizability of the deferred tax assets on a quarterly basis.

10. SEGMENT INFORMATION

    The Company has two reportable segments: organic products and silicone
products. The organic products group produces and distributes rubber and vinyl
wall base, other floor covering accessory products, flexible membranes and other
organic rubber products. The silicone products group produces and distributes
precision silicone seals and other products used on commercial and military
aircraft as well as high performance silicone truck and bus engine hoses and
other silicone rubber products.

    The Company evaluates performance and allocates resources based on the
operating income or loss before taxes, interest, corporate general and
administrative expenses and amortization expense related to goodwill from the
Mercer Acquisition. The accounting policies of the reportable segments are the
same as

                                      F-21
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SEGMENT INFORMATION (CONTINUED)
those described in the summary of significant accounting policies. There are no
intersegment sales or transfers.

    The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because they
manufacture and distribute distinct products with different production
processes.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED 1999                ORGANIC PRODUCTS   SILICONE PRODUCTS    TOTAL
----------------------                ----------------   -----------------   --------
                                                      (IN THOUSANDS)
<S>                                   <C>                <C>                 <C>
Revenues from external customers....      $61,447             $46,057        $107,504
Depreciation expense................        1,321                 704           2,025
Segment profit......................       10,476               2,993          13,469
Segment assets......................       31,612              18,418          50,030
Expenditures for long-lived
  assets............................          261                 589             850

Profit
Total profit for reportable
  segments..........................                                         $ 13,469
Unallocated items:
  Corporate general and
    administrative expenses.........                                            2,084
  Amortization of goodwill related
    to the Mercer acquisition.......                                            2,017
  Interest expense, net.............                                           14,821
                                                                             --------
Loss before income taxes............                                         $ (5,453)
                                                                             --------

ASSETS
Total assets for reportable
  segments..........................                                         $ 50,030
Other assets, primarily goodwill and
  other intangibles.................                                           37,004
                                                                             --------
Total consolidated assets...........                                         $ 87,034
                                                                             ========
</TABLE>

OTHER SIGNIFICANT ITEMS

<TABLE>
<CAPTION>
                                    SEGMENT TOTALS   ADJUSTMENTS      CONSOLIDATED TOTALS
                                    --------------   -----------      -------------------
<S>                                 <C>              <C>              <C>
Expenditures for long-lived
  assets..........................      $ 850          $  1,379(1)          $2,229
Depreciation expense..............      2,025               139(1)           2,164
</TABLE>

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

(1) Consists of expenditures for long lived assets not directly related to
    either segment.

MAJOR CUSTOMER

    Revenue from one customer of the silicone products segment represents
approximately $10 million of the Company's consolidated revenue.

                                      F-22
<PAGE>
                    BURKE INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                          FISCAL YEARS ENDED
                                                    ------------------------------
                                                      1999       1998       1997
                                                    --------   --------   --------
                                                            (IN THOUSANDS)
<S>                                                 <C>        <C>        <C>
Cash paid for interest............................  $13,848    $12,223     $2,059
Cash paid for income taxes........................      530        484      3,047
Equipment financed under capital lease
  obligations.....................................    1,590         --         --
</TABLE>

                                      F-23
<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 December 31, 1999 and January 1, 1999 and for each of the
three years in the period ended December 31, 1999, and have issued our report
thereon dated March 10, 2000. 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.

                                          /s/ ERNST & YOUNG LLP

San Jose, Californiae
March 10, 2000

                                      S-2
<PAGE>
                                  SCHEDULE II

                        VALUATION & QUALIFYING ACCOUNTS

                             BURKE INDUSTRIES INC.

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              ADDITIONS
                                                       ------------------------
                                          BALANCE AT   CHARGED TO   ACQUISITION                BALANCE AT
                                          BEGINNING    COSTS AND     OF MERCER       (A)         END OF
DESCRIPTION                               OF PERIOD     EXPENSES     PRODUCTS     DEDUCTIONS     PERIOD
-----------                               ----------   ----------   -----------   ----------   ----------
<S>                                       <C>          <C>          <C>           <C>          <C>
Allowance for doubtful accounts
  (deducted from accounts receivable)
  Year ended December 31, 1999..........     $812         $232           --          $386         $658
  Year ended January 1, 1999............      334          196         $300            18          812
  Year ended January 2, 1998............      189          240           --            95          334
  Year ended January 3, 1997............      336          225           --           372          189
</TABLE>

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

(a) Includes write-offs and reversals.

                                      S-3
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of San
Jose, State of California on the 30th day of March, 2000.

<TABLE>
<S>                                                    <C>  <C>
                                                       BURKE INDUSTRIES, INC.,
                                                       A CALIFORNIA CORPORATION

                                                       By:            /s/ THEODORE M. CLARK
                                                            -----------------------------------------
                                                                        Theodore M. Clark
                                                              DIRECTOR, CHIEF EXECUTIVE OFFICER AND
                                                                            PRESIDENT
</TABLE>

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                                                       Director, Chief Executive
                /s/ THEODORE M. CLARK                    Officer and President
     -------------------------------------------         (Principal Executive         March 30, 2000
                  Theodore M. Clark                      Officer)

                /s/ STEPHEN G. GEANE
     -------------------------------------------       Chief Financial Officer        March 30, 2000
                  Stephen G. Geane

                 /s/ JOHN F. LEHMAN
     -------------------------------------------       Director                       March 30, 2000
                   John F. Lehman

                /s/ ROCCO C. GENOVESE
     -------------------------------------------       Director                       March 30, 2000
                  Rocco C. Genovese

                 /s/ DONALD GLICKMAN
     -------------------------------------------       Director                       March 30, 2000
                   Donald Glickman

                  /s/ GEORGE SAWYER
     -------------------------------------------       Chairman of the Board          March 30, 2000
                    George Sawyer

                   /s/ KEITH OSTER
     -------------------------------------------       Director                       March 30, 2000
                     Keith Oster

                /s/ OLIVER C. BOILEAU
     -------------------------------------------       Director                       March 30, 2000
                  Oliver C. Boileau
</TABLE>

                                      II-1
<PAGE>

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                /s/ THOMAS G. POWNALL
     -------------------------------------------       Director                       March 30, 2000
                  Thomas G. Pownall

                /s/ BRUCE D. GORCHOW
     -------------------------------------------       Director                       March 30, 2000
                  Bruce D. Gorchow

                /s/ JOSEPH A. STROUD
     -------------------------------------------       Director                       March 30, 2000
                  Joseph A. Stroud
</TABLE>

                                      II-2
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of San
Jose, State of California on the 30th day of March, 2000.

<TABLE>
<S>                                                    <C>  <C>
                                                       BURKE FLOORING PRODUCTS, INC.,
                                                       A CALIFORNIA CORPORATION

                                                       By:            /s/ THEODORE M. CLARK
                                                            -----------------------------------------
                                                                        Theodore M. Clark
                                                                            PRESIDENT
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                /s/ THEODORE M. CLARK
     -------------------------------------------       President (Principal           March 30, 2000
                  Theodore M. Clark                      Executive Officer)

                /s/ STEPHEN G. GEANE                   Chief Financial Officer
     -------------------------------------------         (Principal Financial and     March 30, 2000
                  Stephen G. Geane                       Accounting Officer)

                   /s/ KEITH OSTER
     -------------------------------------------       Director                       March 30, 2000
                     Keith Oster
</TABLE>

                                      II-3
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of San
Jose, State of California on the 30th day of March, 2000.

<TABLE>
<S>                                                    <C>  <C>
                                                       BURKE RUBBER COMPANY, INC.,
                                                       A CALIFORNIA CORPORATION

                                                       By:            /s/ THEODORE M. CLARK
                                                            -----------------------------------------
                                                                        Theodore M. Clark
                                                                            PRESIDENT
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                /s/ THEODORE M. CLARK
     -------------------------------------------       President (Principal           March 30, 2000
                  Theodore M. Clark                      Executive Officer)

                /s/ STEPHEN G. GEANE                   Chief Financial Officer
     -------------------------------------------         (Principal Financial and     March 30, 2000
                  Stephen G. Geane                       Accounting Officer)

                   /s/ KEITH OSTER
     -------------------------------------------       Director                       March 30, 2000
                     Keith Oster
</TABLE>

                                      II-4
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of San
Jose, State of California on the 30th day of March, 2000.

<TABLE>
<S>                                                    <C>  <C>
                                                       BURKE CUSTOM PROCESSING, INC.,
                                                       A CALIFORNIA CORPORATION

                                                       By:            /s/ THEODORE M. CLARK
                                                            -----------------------------------------
                                                                        Theodore M. Clark
                                                                            PRESIDENT
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                /s/ THEODORE M. CLARK
     -------------------------------------------       President (Principal           March 30, 2000
                  Theodore M. Clark                      Executive Officer)

                /s/ STEPHEN G. GEANE                   Chief Financial Officer
     -------------------------------------------         (Principal Financial and     March 30, 2000
                  Stephen G. Geane                       Accounting Officer)

                   /s/ KEITH OSTER
     -------------------------------------------       Director                       March 30, 2000
                     Keith Oster
</TABLE>

                                      II-5
<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<C>     <S>
 1.1    Purchase Agreement, dated April 17, 1998 between the Company
          and the Initial Purchaser.(1)

 2.1    Stock Purchase Agreement, dated as of March 5, 1998 among
          Burke, Sovereign and Mercer.(2)

 3.1    Articles of Incorporation of the Company.(3)

 3.2    Amended and Restated Articles of Incorporation of the
          Company.

 3.3    Certificate of Determination of Series C Cumulative
          Convertible Preferred Stock of the Company.(4)

 3.4    Bylaws of the Company.(3)

 3.5    Articles of Incorporation of Burke Flooring Products,
          Inc.(3)

 3.6    Bylaws of Burke Flooring Products, Inc.(3)

 3.7    Articles of Incorporation of Burke Rubber Company, Inc.(3)

 3.8    Bylaws of Burke Rubber Company, Inc.(3)

 3.9    Articles of Incorporation of Burke Custom Processing,
          Inc.(3)

 3.10   Bylaws of Burke Custom Processing, Inc.(3)

 4.1    Indenture among the Company, the Subsidiary Guarantors and
          United States Trust Company of New York, relating to the
          Floating-Rate Notes, dated as of April 21, 1998.(1)

 4.2    First Supplemental Indenture, dated April 21, 1998, between
          the Company, the Subsidiary Guarantors and United States
          Trust Company of New York.(1)

 4.3    Form of Note (included in Exhibit 4.1).(1)

 4.4    Registration Rights Agreement, dated April 21, 1998, between
          the Company and the Holders.(1)

10.1    Purchase Agreement, dated August 14, 1997, between the
          Company and the Initial Purchaser.(3)

10.2    Agreement and Plan of Merger, dated as of August 13, 1997,
          by and among the Company, the Company Shareholders, JFLEI
          and MergerCo.(3)

10.3    Indenture among the Company, the Subsidiary Guarantors and
          United States Trust Company of New York, relating to the
          Fixed Rate Notes, dated as of August 20, 1997.(3)

10.4    Registration Rights Agreement, dated August 20, 1997,
          between the Company and the Fixed Rate Note Holders.(3)

10.5    Loan and Security Agreement, dated as of August 20, 1997,
          between the Company, the Lenders and NationsBank, N.A.(3)

10.6    Amendment No. 1, Waiver Joinder Agreement to Loan Security
          Agreement, dated April 21, 1998, between the Company,
          Mercer and NationsBank, N.A.(1)

10.7    Form of Revolving Notes (included in Exhibit 10.6).(1)

10.8    Subsidiary Guaranty, dated August 20, 1997, between the
          Company and the Subsidiaries.(3)

10.9    Subsidiary Security Agreement, dated as of August 20, 1997,
          between the Company and the Subsidiaries.(3)

10.10   Assignment for Security, dated April 21, 1998, by Mercer.(1)

10.11   First Amendment to Deed of Trust with Absolute Assignment of
          Leases and Rents, Security Agreement and Fixture Filing,
          dated April 21, 1998, between the Company and NationsBank,
          N.A.(1)

10.12   Florida Mortgage, Security Agreement and Assignment of
          Leases and Rents, dated April 21, 1998, between Mercer and
          NationsBank, N.A. (unrecorded)(1)

10.13   Stock Pledge Agreement, dated August 20, 1997.(3)
</TABLE>

<PAGE>
<TABLE>
<C>     <S>
10.14   Pledge Agreement, dated April 21, 1998, between the Company
          and NationsBank, N.A.(1)

10.15   Consent Solicitation Statement dated March 30, 1998.(1)

10.16   Form of Consent to Amendments to Indenture.(1)

10.17   Investment Agreement, dated as of August 20, 1997, between
          the Company and preferred shareholders.(3)

10.18   Shareholders' Agreement, dated as of August 20, 1997,
          between the Company and the shareholders.(3)

10.19   Shareholders' Registration Rights Agreement, dated as of
          August 20, 1997, between the Company and the
          shareholders.(3)

10.20   Warrantholders' Registration Rights Agreement dated as of
          August 20, 1997, between the Company and the
          warrantholders.(3)

10.21   Form of Warrant Certificate.(3)

10.22   Form of Election Form for Series C Preferred Stock.(1)

10.23   Management Agreement, dated August 20, 1997, between the
          Company and J.F. Lehman & Company.(3)

10.24   Lease Agreement, dated April 30, 1997, between the Company
          and Senter Properties, LLC for the premises at 2049 Senter
          Road, San Jose, CA.(3)

10.25   Lease Agreement, dated October 20, 1995, between the Company
          and Lincoln Property Company for the premises at 13767
          Freeway Drive, Santa Fe Springs, CA.(3)

10.26   Lease Agreement, dated April 25, 1983, between the Company
          and Donald M. Hypes for the premises at 14910 Carmenita
          Boulevard, Norwalk, CA.(3)

10.27   Lease Agreement, dated March 29, 1996, between S & M
          Development Co., a general partnership, for the premises
          at 13615 Excelsior Drive, Santa Fe Springs, CA.(3)

10.28   Lease Agreement, dated June 5, 1995, 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, MA.(3)

10.29   Consent to sale of all of the outstanding shares of Mercer
          Products Company, Inc. to Burke Industries, Inc., dated
          March 20, 1998 by Land Co. Leasing & New Development Co.
          and related Standard/Industrial Commercial Single-Tenant
          Lease-Gross, dated June 22, 1994, as amended, between The
          Childs Family Trust u/t/a of April 30, 1981 and The A.G.
          Gardner Trust u/t/a of March 5, 1981 dba Landco and
          Mercer.(1)

10.30   Consent of Lessor dated April 21, 1998 and related Agreement
          of Lease dated December 1, 1998, as amended, between RTC
          Properties, Inc. and Mercer.(1)

10.31   Sublease Agreement, dated February 20, 1992, between Burke
          Rubber Company for the premises at 107 South Riverside
          Drive, Modesto, CA.(3)

10.32   Servicing Agreement, dated April 26, 1996, between the
          Company and Westland Technologies.(3)

10.33   Amendment No. 1 to the Stock Purchase Agreement, dated April
          21, 1998, among Burke, Sovereign and Mercer.(5)

10.34   Lease Agreement, dated April 15, 1998, between Robert
          Steele, et al and the Company, for the premises at 10039
          Norwalk Boulevard, Santa Fe Springs, CA.(5)

10.35   Management Services Agreement, dated as of June 18, 1998,
          between the Company and J.F. Lehman & Company.(5)

10.36   Amendment No. 1 to Management Agreement between the Company
          and J.F. Lehman & Company, dated as of June 18, 1998.(5)

10.37   Burke Industries, Inc. Executive Deferred Compensation
          Agreement.(5)
</TABLE>

<PAGE>
<TABLE>
<C>     <S>
10.38   Burke Industries, Inc. 1997 Stock Option Plan.(5)

10.39   Form of Incentive Stock Option Agreement under the Burke
          Industries, Inc. 1997 Stock Option Plan

10.40   Burke Industries, Inc. 1997 Stock Option Plan Amended and
          Restated as of November 30, 1999.

10.41   Form of Incentive Stock Option Agreement under the Burke
          Industries, Inc. Amended and Restated 1997 Stock Option
          Plan.

10.42   Employment Agreement, dated as of September 16, 1999, by and
          between Theodore M. Clark and Burke Industries, Inc.

10.43   Letter Agreement, dated February 4, 2000, by and between
          Burke Industries, Inc. and Theodore M. Clark, amending Mr.
          Clark's employment agreement dated as of September 16,
          1999.

10.44   Extension and First Amendment of Lease, dated as of January
          13, 1994, by and between RTC Properties, Inc. and Mercer
          Products Company, Inc.

10.45   Extension and Second Amendment of Lease, dated as of January
          23, 1995, by and between RTC Properties, Inc. and Mercer
          Products Company, Inc.

10.46   Third Amendment and Extension of Agreement of Lease, dated
          as of March 26, 1997, by and between RTC Properties, Inc.
          and Mercer Products Company, Inc.

10.47   Fourth Amendment of Lease, dated as of April 21, 1998, by
          and between RTC Properties, Inc. and Mercer Products Co.,
          Inc.

10.48   Lease Agreement, dated June 22, 1999, by and between
          ProLogis Trust and Burke Industries, Inc.

12.1    Computation of Ratios of Earnings to Fixed Charges and
          Combined Fixed Charges and Preferred Stock Dividends.

21.1    Subsidiaries of the Company.

27.     Financial Data Schedule.
</TABLE>

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

(1) Incorporated by reference to the registrant's Registration Statement on
    Form S-4, File No. 333-36675, as filed with the Securities and Exchange
    Commission on June 19, 1998.

(2) Incorporated by reference to the Company's 1997 annual report on Form 10-K,
    File No. 333-36675, as filed with the Securities and Exchange Commission on
    April 2, 1998.

(3) Incorporated by reference to the registrant's Registration Statement on
    Form S-4, File No. 333-36675, as filed with the Securities and Exchange
    Commission on September 29, 1997, as amended.

(4) Incorporated by reference to the Company's current report on Form 8-K, File
    No. 333-36675, as filed with the Securities and Exchange Commission on
    May 5, 1998.

(5) Incorporated by reference to the Company's 1998 annual report on Form 10-K,
    File No. 333-36675, as filed with the Securities and Exchange Commission on
    March 31, 1999.