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                                                                 EXHIBIT 10.7

                                SHAREHOLDERS AGREEMENT


    SHAREHOLDERS AGREEMENT, dated as of  August 20, 1997, among Burke
Industries, Inc., a California corporation (the "Company"), J.F. Lehman Equity
Investors I, L.P. ("JFLEI"), Massachusetts Mutual Life Insurance Company
("MMLIC"), MassMutual Corporate Value Partners Limited ("MMCVP") and MassMutual
High Yield Partners LLC ("MMHYP" and, together with MMLIC and MMCVP,
"MassMutual"), Jackson National Life Insurance Company ("Jackson National"),
Paribas North America, Inc. ("Paribas" and, together with MassMutual and Jackson
National, in their capacity as holders of the Warrants or the Warrant Shares
(each, as defined below), the "Warrantholders"), and each of the persons whose
names are listed on SCHEDULE A hereto (the "Continuing  Shareholders").  JFLEI,
the Warrantholders and the Continuing Shareholders are hereinafter sometimes
referred to collectively as the "Shareholders" and individually as a
"Shareholder."

                                   R E C I T A L S

    WHEREAS, as of the date hereof, the Shareholders, other than the
Warrantholders, own all of the issued and outstanding shares of the Company's
Common Stock, without par value (the "Common Stock");

    WHEREAS, the Shareholders desire to enter into this Agreement setting forth
rights and obligations with respect to all shares of Common Stock owned and
hereafter acquired by them.

                                  A G R E E M E N T

    NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

    1.   CORPORATE GOVERNANCE.

         (a)  ARTICLES OF INCORPORATION; BY-LAWS.  The Amended and Restated
Articles of Incorporation and the Amended and Restated By-Laws of the Company,
each as in effect on the date hereof, are attached hereto as EXHIBIT A and
EXHIBIT B, respectively.

         (b)  COMPOSITION AND ELECTION OF BOARD OF DIRECTORS.

              (i)  The Board of Directors of the Company shall initially
consist of nine (9) members (collectively, the "Directors" and, individually, a
"Director") , who shall be Rocco C. Genovese, Reed C. Wolthausen, John F.
Lehman, Donald Glickman, George Sawyer, Keith Oster, Dr. Oliver C. Boileau, Jr.,
Thomas G. Pownall and Bruce D. Gorchow.  So long as, together with its Related
Transferees, Jackson National holds in the aggregate Warrants and shares
obtained upon exercise of the Warrants representing at least seventy-five
percent (75%) of the Warrants initially issued to Jackson National, Jackson
National shall have the right to designate one Director.  So long as, together
with its Related Transferees, MassMutual holds in

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the aggregate Warrants and shares obtained upon exercise of the Warrants
representing at least seventy-five percent (75%) of the Warrants initially
issued to MassMutual, MassMutual shall have the right to designate one Director
(and, if MassMutual elects to exercise such right, the number of Directors of
the Company shall be increased to ten (10)).  Subject to the rights of the
holder of the Series A Preferred Stock to elect Directors upon the occurrence of
certain events, JFLEI shall be entitled to designate all Directors of the
Company not designated by Jackson National and, if MassMutual elects to exercise
its right to designate one Director, by MassMutual.

              (ii) Each Shareholder agrees to vote all shares of Common Stock
now or hereafter owned by it, to cause each of its Related Transferees to vote
all shares of Common Stock now or hereafter owned by it and otherwise to use its
reasonable best efforts, to:

                   (A)  elect as Directors the persons designated by JFLEI, by
         Jackson National and, if MassMutual elects to exercise its right to
         designate one Director, by MassMutual, in accordance with Section
         1(b)(i);

                   (B)  remove, with or without cause, (x) any Director
         designated by JFLEI in accordance with Section 1(b)(i), if requested
         by JFLEI, (y) any Director designated by Jackson National in
         accordance with Section 1(b)(i), if requested by Jackson National and
         (z) if MassMutual elects to exercise its right to designate one
         Director, any Director designated by MassMutual in accordance with
         Section 1(b)(i), if requested by MassMutual; and

                   (C)  cause any vacancy on the Board of Directors of the
         Company created by the death, resignation, incapacity or removal of
         (x) any Director designated by JFLEI in accordance with Section
         1(b)(i), to be filled by a replacement Director designated by JFLEI,
         (y) any Director designated by Jackson National in accordance with
         Section 1(b)(i), to be filled by a replacement Director designated by
         Jackson National and (z) if MassMutual elects to exercise its right to
         designate one Director, any Director designated by MassMutual in
         accordance with Section 1(b)(i), to be filled by a replacement
         Director designated by MassMutual.

         (c)  INFORMATION RIGHTS OF SHAREHOLDERS.

              (i)  Until such time as the Company shall have become subject to
the reporting requirements of Section 13 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Company shall (A) provide each Shareholder
with quarterly financial statements and reports of and any other regularly
prepared monthly financial data related to the Company's and its subsidiaries'
performance, (B) use reasonable efforts to deliver all other financial
information distributed by the Company to any Shareholder (in its capacity as
such) to each other Shareholder and (C) cause members of senior management of
the Company to be available to each Shareholder from time to time to review the
Company's performance.


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              (ii) (A)  So long as, together with its Related Transferees,
MassMutual holds in the aggregate Warrants and shares obtained upon exercise of
the Warrants representing at least seventy-five percent (75%) of the Warrants
initially issued to MassMutual, MassMutual shall have the right to designate two
representatives (less the number of Directors MassMutual, in its capacity as a
Warrantholder or in its capacity as a holder of the Series A 11.5% Cumulative
Redeemable Preferred Stock of the Company, has designated or elected) to attend
all meetings of the Board of Directors of the Company and all committees thereof
as non-voting observers.

                   (B)  So long as, together with its Related Transferees,
Jackson National holds in the aggregate Warrants and shares obtained upon
exercise of the Warrants representing at least seventy-five percent (75%) of the
Warrants initially issued to Jackson National, Jackson National shall have the
right to designate two representatives (less the number of Directors Jackson
National, in its capacity as a Warrantholder or in its capacity as a holder of
the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company, has
designated or elected) to attend all meetings of the Board of Directors of the
Company and all committees thereof as non-voting observers.


                   (C)  So long as, together with its Related Transferees,
Paribas holds in the aggregate Warrants and shares obtained upon exercise of the
Warrants representing at least seventy-five percent (75%) of the Warrants
initially issued to Paribas, Paribas shall have the right to designate one
representative to attend all meetings of the Board of Directors of the Company
and all committees thereof as a non-voting observer.
The Company shall deliver to MassMutual, Jackson National and Paribas,
concurrently with the delivery to the directors of the Company, all notices of
meetings of the Board of Directors of the Company or committees thereof, and
copies of all written reports and other material given to the Board of Directors
or committees thereof in connection with such meetings (whether or not their
observers attend) or actions by consent in lieu thereof.  Notwithstanding any
provision of this Agreement to the contrary, the rights of MassMutual, Jackson
National and Paribas pursuant to this Section 1(e)(ii) may not be assigned
without the consent of the Company, other than to a Related Transferee.

    2.   RESTRICTIONS ON TRANSFER OF SECURITIES.

         (a)  GENERAL.  No Shareholder shall, directly or indirectly, transfer
or otherwise dispose of any shares of Common Stock or Warrants owned by such
Shareholder, or any interest therein, except pursuant to a Permitted Transfer
described in Section 2(b), unless such transfer or disposition is made in
accordance with the applicable provisions of Sections 3, 4 and 5 of this
Agreement.  Any attempt by a Shareholder to effect a transfer or disposition in
violation of this Agreement shall be void and ineffective for all purposes.  The
words "transfer" and "dispose" mean the making of any sale, exchange,
assignment, gift, security interest, pledge or other encumbrance, or any
contract therefor, any voting trust or other agreement or arrangement with
respect to the transfer or voting rights or any other beneficial interests, the
creation of any other claim thereto or any other transfer or disposition
whatsoever, whether voluntary or involuntary,


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affecting the right, title, interest or possession in or to the Common Stock or
Warrants; PROVIDED, HOWEVER, that in the case of MassMutual, Jackson National
and Paribas, neither a pledge of the Warrants, the shares obtained upon exercise
of the Warrants or any shares obtained pursuant to Section 3 in connection with
a financing transaction nor foreclosure of such pledge shall constitute a
transfer or disposition prohibited by this Section 2 if the person acquiring
such Warrants or shares pursuant to such foreclosure executes an instrument
acknowledging that it shall thereafter be bound by the terms of this Agreement.

         (b)  PERMITTED TRANSFERS.  None of the restrictions contained in this
Agreement with respect to transfers of Common Stock or Warrants (other than
those set forth in this Section 2(b) and Section 2(c)) shall apply:

              (i)  to any transfer (including any gift) by any Shareholder who
is an individual to:

                   (A)  such Shareholder's spouse or children (collectively,
         "relatives");

                   (B)  a trust of which there are no beneficiaries other than
         one or more of such Shareholder and the relatives of such Shareholder;

                   (C)  a partnership of which there are no partners other than
         one or more of such Shareholder and the relatives of such Shareholder;

                   (D)  a corporation of which there are no Shareholders other
         than one or more of such Shareholder and the relatives of such
         Shareholder;

                   (E)  a legal representative or guardian of such Shareholder
         or a relative of such Shareholder if such Shareholder or relative
         becomes mentally incompetent; or

                   (F)  any Person by will or by the laws of descent;

              (ii) to any transfer by any Shareholder that is not an individual
    to any Affiliate thereof, as such term is defined in Rule 12b-2 of the
    Exchange Act, or (other than JFLEI or an Affiliate of JFLEI) to any
    Qualified Institutional Buyer, as such term is defined in Rule 144A of the
    Securities Act of 1933, as amended (the "Securities Act");

              (iii)  to any transfer by any Shareholder that is a
    partnership (other than JFLEI or an Affiliate of JFLEI) to the general
    and/or limited partners of such Partnership as of the date hereof; PROVIDED
    that such transfer is made PRO RATA according to the economic interests of
    such partners thereof as determined under the governing instructions of
    such partnership;

              (iv) to any transfer by a Selling Shareholder (as hereinafter
    defined) made in accordance with the applicable provisions of Section 3
    and, unless such transfer


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    is to an Offeree Shareholder (as hereinafter defined), the applicable
    provisions of Section 4;

              (v)  to any transfer by a Tag-Along Shareholder (as hereinafter
    defined) pursuant to the Tag-Along Right (as hereinafter defined); and

              (vi) to any transfer by a Drag-Along Shareholder (as hereinafter
    defined) made pursuant to the Drag-Along Right (as hereinafter defined);
    and

              (vii) to any transfer by a Shareholder for cash in a bona
    fide public offering (a "Registered Offering") pursuant to an effective
    registration statement under the Securities Act of 1933.

Transfers made pursuant to this Section 2(b) are referred to herein as
"Permitted Transfers" and transferees taking under a Permitted Transfer are
referred to herein as "Permitted Transferees."  Transferees taking under a
Permitted Transfer described in Sections 2(b)(i) through (iii) are referred to
herein as "Related Transferees."

         (c)  REGISTRATION OF TRANSFER BY COMPANY.  No transfer of Common Stock
or Warrants by any Shareholder (other than transfers pursuant to a Registered
Offering) shall be effective (and the Company shall not transfer on its books
any such shares) unless (i) the certificates representing such Common Stock or
Warrants issued to the Permitted Transferee shall bear any legends required by
Section 10, (ii) the Permitted Transferee (if not already a party hereto) shall
have executed and delivered to the Company, as a condition precedent to such
transfer, an instrument or instruments in form and substance reasonably
satisfactory to the Company confirming that the Permitted Transferee agrees to
be bound by the terms of this Agreement to the same extent as its transferor.
In addition, no transfer of Common Stock or Warrants shall be made by any
Shareholder unless such transfer is effected in connection with a Registered
Offering or is exempt from registration under the Securities Act and the
Company, should it so request, has received a written legal opinion (which may
be rendered by in-house legal counsel of any Shareholder that is not an
individual) satisfactory to its counsel that the proposed transfer is exempt
from such registration.

         (d)  LEGEND.  In the event that any shares of Common Stock or Warrants
become free of the rights and restrictions imposed by this Agreement, the
Shareholders holding such securities shall be entitled to receive, promptly upon
presentment to the Company of the certificate or certificates evidencing the
same, a new certificate or certificates not bearing the restrictive legend
provided for in the second paragraph of Section 10.  In the event that any
shares of Common Stock or Warrants are (i) transferred in connection with a
Registered Offering, or (ii) transferred pursuant to an exemption from
registration under the Securities Act and the Company has received a written
legal opinion (which may be rendered by in-house legal counsel of any
Shareholder that is not an individual) satisfactory to its counsel (A) as to the
availability of and the compliance with such exemption and (B) that such shares
need not bear the restrictive legend set forth in the first paragraph of Section
9 hereof, the Company shall issue a new certificate or certificates representing
such securities not bearing such legend.


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    3.   RIGHT OF FIRST OFFER.

         (a)  FIRST OFFER NOTICE.  If a Shareholder (the "Selling Shareholder")
desires to transfer any shares of Common Stock or Warrants other than (i) to a
Related Transferee, (ii) as a Tag-Along Shareholder (as hereinafter defined) or
(iii) as a Drag-Along Shareholder, such Selling Shareholder shall, prior to
soliciting a BONA fide written offer from an independent third-party (the
"Third-Party Offer"), deliver a written notice (the "First Offer Notice")
offering to sell the Common Stock or Warrants proposed to be sold ("Offered
Securities") to the remaining Shareholders (the "Offeree Shareholders") or to
the Company.  The First Offer Notice shall state (i) that the Selling
Shareholder desires to sell the Offered Securities and (ii) the purchase price
per share and other material terms on which and the material conditions subject
to which the Offered Securities are offered.

         (b)  EXERCISE OF RIGHT OF FIRST OFFER.

              (i)  Upon receipt of the First Offer Notice, each Offeree
Shareholder shall have the option (the "Shareholders' Right of First Offer"),
which shall be exercisable by written notice (the "Notice of Election")
delivered to the Selling Shareholder within ten (10) days after the date of the
First Offer Notice (the "Shareholders' First Offer Option Period"), to purchase
from the Selling Shareholder, at the price and upon the terms specified in the
First Offer Notice, a number of shares of Common Stock and a number of Warrants
up to the sum of (A) the number of shares of Common Stock and Warrants included
in the Offered Securities multiplied by a fraction, the numerator of which is
the number of shares of Common Stock and shares of Common Stock issuable upon
exercise of Warrants ("Common Stock Equivalents") owned by such Offeree
Shareholder and the denominator of which is the number of shares of Common Stock
and Common Stock Equivalents held by all Offeree Shareholders and (B) the number
of shares of Common Stock and Warrants that, under the formula in clause (A),
all Offeree Shareholders could have elected to purchase but did not so elect,
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock and Common Stock Equivalents owned by such Offeree Shareholder and
the denominator of which is the total number of shares of Common Stock and
Common Stock Equivalents owned by the Offeree Shareholders (including such
Offeree Shareholder) that exercised the option provided herein.  Each Offeree
Shareholder who desires to exercise its option to purchase Offered Securities
shall state in its Notice of Election the number of shares of Common Stock and
Warrants that such Offeree Shareholder proposes to purchase determined in
accordance with clause (b)(i)(A) plus an amount of additional shares and
Warrants, if any, that such Offeree Shareholder would be willing to purchase
from the Selling Shareholder in the event that one or more Offeree Shareholders
(other than such Offeree Shareholder) elect not to exercise their Shareholders'
Right of First Offer, in whole or in part.  If any Offeree Shareholder shall
fail to deliver the Notice of Election within the Shareholders' First Offer
Option Period, such failure shall be deemed an election not to purchase any
Offered Securities subject to the Shareholders' Right of First Offer and such
Shareholders' Right of First Offer shall thereupon expire with respect to the
Offered Securities only.


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              (ii) If the number of shares with respect to which the
Shareholders' Right of First Offer has been exercised is less than the number of
Offered Securities, the Company shall have the option (the "Company's Right of
First Offer"), which shall be exercisable by written notice delivered to the
Selling Shareholder within five (5) days after the expiration of the
Shareholders' First Offer Option Period (the "Company's First Offer Option
Period"), to purchase any or all of the Offered Securities not purchased by the
Offeree Shareholders at the price and upon the terms specified in the First
Offer Notice.  If the Company shall fail to deliver a notice (the "Company
Notice") of its election to exercise the Company's Right of First Offer within
the Company First Offer Option Period, such failure shall be deemed an election
not to purchase any Offered Securities subject to the Company's Right of First
Offer and the Company's Right of First Offer shall thereupon expire with respect
to the Offered Securities only.

              (iii)  The Shareholders' Right of First Offer and the
Company's Right of First Offer shall be exercisable only if the Offeree
Shareholders and/or the Company, in the aggregate, elect to purchase all, and
not less than all, of the Offered Securities.  Each Notice of Election and
Company Notice shall recite that such Notice of Election or Company Notice, as
the case may be, constitutes a binding obligation of the Offeree Shareholder or
the Company, as the case may be, submitting same to purchase, upon the same
terms and subject to the same conditions as the Third-Party Offer, up to the
number of shares set forth in the Notice of Election or the Company Notice, as
the case may be.

              (iv) The closing of the purchase of the Offered Securities
subscribed to by the Offeree Shareholders and the Company pursuant to this
Section 3 shall be held at the principal office of the Company at 10:00 a.m.,
local time not later than the thirtieth (30th) day after the Company First Offer
Option Period shall have expired.

         (c)  SALE TO THIRD-PARTY PURCHASER.

              (i)  If the First Offer Notice shall have been duly delivered,
and the Offeree Shareholders and the Company together shall not have exercised
the Shareholders' Right of First Offer and the Company's Right of First Offer to
purchase all of the Offered Securities, the Selling Shareholder may solicit
Third-Party Offers to purchase all (but not less than all) of the Offered
Securities and, so long as any sale of the Offered Securities made pursuant to a
Third-Party Offer that is (A)  upon such terms, including price, 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; PROVIDED, HOWEVER,
that the price may be not less than 90% of the price set forth in the First
Offer Notice (B) BONA FIDE,(C) consummated within one hundred eighty (180) days
from the expiration date of the Company First Offer Option Period, (D) if
applicable, subject to any Tag-Along Right and (E) in accordance with clause
(ii) below, such transfer may be consummated without further restriction under
this Section 3 and shall be a Permitted Transfer under this Agreement.

              (ii) All Offered Securities transferred by the Selling
Shareholder in accordance with clause (i) above shall remain, and the
third-party purchaser shall agree to take


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and hold such Offered Securities, subject to all of the obligations and
restrictions imposed upon the Selling Shareholder by this Agreement.  No
transfer of Offered Securities to which the preceding sentence applies shall be
effective unless and until the third-party purchaser shall have executed and
delivered to the Company an appropriate instrument to the foregoing effect.

    4.         TAG-ALONG RIGHTS.

                    (a)  THE RIGHT.  If JFLEI and/or any of its Affiliates
 (collectively,the "JFLEI Group") proposes to transfer any shares of Common 
Stock owned by it on the date hereof to a Prospective Purchaser other than in
 a Permitted Transfer (a "Tag-Along Sale"), then each of the remaining 
Shareholders shall have the right to participate in any such sale of Common 
Stock by the JFLEI Group in accordance with the procedures set forth below; 
PROVIDED that such right may not be exercised with respect to any shares 
acquired by any such remaining Shareholder pursuant to the exercise of a Right 
of First Offer within One Hundred Eighty (180) days prior to the proposed date 
of consummation of the Tag-Along Sale; PROVIDED FURTHER, HOWEVER, that such 
participation shall be on the same terms and subject to the same conditions as
those on which JFLEI proposes to transfer its shares; and PROVIDED STILL
FURTHER, HOWEVER, that, in addition to receiving their ratable portion of any 
consideration paid in respect of the Common Stock or Warrants, the Shareholders 
shall be entitled to receive a ratable portion of any consideration to be paid 
other than in respect of the Common Stock or Warrants, to the extent that such 
consideration exceeds (i) the fair market value of any tangible property 
transferred by the JFLEI Group in exchange for such consideration or (ii) an 
amount that is customary and reasonable for any intangible property rights or 
transferred or granted in exchange for such consideration.

                    (b)  ELECTION TO PARTICIPATE.  Shareholders shall have the 
right (the "Tag-Along Right") for thirty (30) days from receipt of the First 
Refusal Notice described in Section 3(a) (the "Tag-Along Option Period") to 
elect to participate in the Tag-Along Sale.  Any remaining Shareholder electing 
to participate in the Tag-Along Sale (a "Tag-Along Shareholder") shall give 
JFLEI, all other Shareholders and Company written notice thereof (the "Election
Notice") within the Tag-Along Option Period.  The Election Notice shall specify
the number of shares of Common Stock that such Tag-Along Shareholder desires to
sell to the Prospective Purchaser, which amount shall be equal to or less than
the total number of shares of Common Stock held by such Shareholder multiplied
by a fraction, the numerator of which is the total number of shares of Common
Stock proposed to be sold by the JFLEI Group and the denominator of which is the
total number of shares of Common Stock then owned by the JFLEI Group.  The
failure of any remaining Shareholder to submit an Election Notice within the
Tag-Along Option Period shall constitute an election by such remaining
Shareholder not to participate in such Tag-Along Sale, PROVIDED such Tag-Along
Sale is consummated within forty-five (45) days of the expiration of the
Tag-Along Option Period.  By delivering an Election Notice to JFLEI within the
Tag-Along Option Period, a Tag-Along Shareholder shall have the right to sell to
the Prospective Purchaser that number of shares of Common Stock specified in the
Election Notice; PROVIDED, HOWEVER, that, to the extent the Prospective
Purchaser is unwilling or unable to purchase all of the shares proposed to be
sold by the JFLEI Group and the Tag-Along Shareholders, the number of shares to
be sold by each of the JFLEI Group and each of the Tag-Along Shareholders shall
be ratably reduced so that the number of shares to be sold by the JFLEI Group
and each of the Tag-Along


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Shareholders equals the number of shares that the Prospective Purchaser is
willing or able to purchase.  The only representations, warranties or
indemnities that a Tag-Along Shareholder shall be required to give in connection
with a Tag-Along Sale shall be as to due authority and execution, validity and
marketability of title and the absence of liens or other encumbrances  with
respect to such Tag-Along Shareholder's shares of Common Stock.

               5.   DRAG-ALONG RIGHTS.

                    (a)  THE RIGHT.  If one or more Shareholders holding, in the
aggregate, a majority of the issued and outstanding Common Stock (the "Majority
Shareholders") propose to sell all the Common Stock owned by such Majority
Shareholders (whether owned by such Shareholders on the date hereof or hereafter
acquired in a manner consistent with this Agreement) to a Prospective Purchaser,
other than a Related Transferee, then such Majority Shareholders shall have the
right (the "Drag-Along Right") to compel the remaining Shareholders (the
"Drag-Along Shareholders") to sell all of the shares of Common Stock and
Warrants owned by them to the Prospective Purchaser for such consideration per
share (reduced by the exercise price of the Warrants, in the case of the
Warrants), and on the same terms and subject to the same conditions, as the
Majority Shareholders are able to obtain.  The Majority Shareholders shall
exercise the Drag-Along Right by giving written notice (the "Drag-Along Notice")
to the Company and the Drag-Along Shareholders stating (i) that they propose to
effect such transaction, (ii) the name and address of the Prospective Purchaser,
(iii) the proposed purchase price per share and other terms and conditions of
the proposed sale (including any consideration proposed to be paid other than in
respect of the Common Stock or Warrants) and (iv) that all the Shareholders
shall be obligated to sell their shares of Common Stock and Warrants upon the
same terms and subject to the same conditions; PROVIDED, HOWEVER, that, in
addition to receiving their ratable portion of any consideration paid in respect
of the Common Stock or Warrants, the Shareholders shall be entitled to receive a
ratable portion of any consideration paid other than in respect of the Common
Stock or Warrants, to the extent that such consideration exceeds (i) the fair
market value of any tangible property transferred by the Majority Shareholders
in exchange for such consideration or (ii) an amount that is customary and
reasonable for any intangible property or rights transferred or granted in
exchange for such consideration.

                    (b)  PROCEDURE.  Not later than twenty (20) days following 
the date of receipt of the Drag-Along Notice, each of the other Shareholders 
shall deliver to the Majority Shareholders certificates representing all shares 
of Common Stock held by a Drag-Along Shareholder, accompanied by duly executed 
stock powers, and all Warrants held by such Drag-Along Shareholder with duly 
executed assignments thereof.  If any Drag-Along Shareholder fails to deliver 
such certificates and Warrants to the Majority Shareholders, the Company shall 
cause the books and records of the Company to show that the shares represented 
by such certificates and Warrants of such Drag-Along Shareholder are bound by 
the provisions of this Section 5 and are transferable only to the Prospective
Purchaser or a Related Transferee of such Prospective Purchaser upon surrender
for transfer by the holder thereof.  Upon the consummation of the sale of the
Common Stock of the Majority Shareholders and the Drag-Along Shareholders
pursuant to this Section 5, the Majority Shareholders shall give notice thereof
to the Drag-Along


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Shareholders and shall remit to each of the Drag-Along Shareholders the total
sales price received for the shares of Common Stock of such Drag-Along
Shareholder sold pursuant hereto.  Notwithstanding anything herein to the
contrary, no Shareholder shall be obligated to receive as consideration for any
Drag-Along Sale any property or securities the holding of which by such
Shareholder would be prohibited by any law, rule or regulation of any
governmental entity or insurance industry regulatory body.

               6.   SUBSCRIPTION OFFER WITH RESPECT TO PRIMARY ISSUANCES.

                    (a)  SUBSCRIPTION OFFER.  The Company shall not issue (a 
"Primary Issuance") equity securities, or securities convertible into equity 
securities, of the Company to any person  (a "Primary Purchaser") 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 the Primary 
Purchaser. Notwithstanding the foregoing, this Section 6 shall not apply to the
issuance of options, warrants or rights to subscribe for shares of Common Stock
to officers, directors, employees, consultants or agents of the Company pursuant
to the termsof any stock option plan or arrangement approved by the Board of 
Directors, or the issuance of shares of its Common Stock upon the exercise of 
any such stock options, warrants or rights; PROVIDED, HOWEVER, that the 
aggregate number of shares of Common Stock that may be issued under such stock 
option plan or arrangement without application of this Section 6 to such 
issuance shall not exceed, in the aggregate, 482,000 shares (appropriately 
adjusted for stock splits, dividends and/or combinations).

                    (b)  PROCEDURE.  Not less than ten (10) days prior to the 
date described in clause (i) of this paragraph, the Company shall make to each
Shareholder an offer (the "Subscription Offer") to purchase any securities that
are the subject of a Primary Issuance, which offer specify (i) the date on which
the Company and the Primary Purchaser intend to consummate the Primary Issuance,
(ii) the material rights, preferences, privileges and restrictions granted to or
imposed upon the securities, including, if applicable, the certificate of
determination or indenture governing such securities, (iii) the principal terms
of and conditions applicable to the Primary Issuance, including, without
limitation, the price at which such securities are being offered to the Primary
Purchaser and (iv) the number of securities proposed to be issued to the Primary
Purchaser pursuant to the Primary Issuance multiplied by a fraction, the
numerator of which is the number of shares of Common Stock held by such
Shareholder and the denominator of which is the total number of shares of Common
Stock outstanding, on a fully diluted basis.  Each Shareholder electing to
participate in the Primary Issuance (a "Subscribing Shareholder") shall give the
Primary Purchaser, the Company and each other Shareholder written notice (the
"Subscription Notice") of such election not less than five (5) days after
receipt of the Subscription Offer (the "Subscription Period").  The Subscription
Notice shall specify the number of securities with respect to which such
Shareholder desires to subscribe, which amount shall be equal to or less than
the total number of securities set forth in the Subscription Offer.  The failure
of any Shareholder to submit a Subscription Notice within the Subscription
Period shall constitute an election by such Shareholder not to accept such
Subscription Offer, PROVIDED


                                          10

<PAGE>

that the Primary Issuance is consummated not later than the date described in
clause (i) of this paragraph.

               7.   REGISTRATION RIGHTS.  Each of the Shareholders shall have 
the rights, if any, with respect to registration of the shares of Common Stock 
held by them as are set forth in the Shareholders Registration Rights Agreement,
the form of which is attached hereto as EXHIBIT C.

               8.   MERGER.  The Company shall not enter into any merger or 
consolidation (a "Merger") unless the terms of such Merger provide that all 
shares of Common Stock shall be treated equally within the meaning on Section 
1101 of the California General Corporation Law.

               9.   CERTAIN CLOSING CONDITIONS.  At the closing of any transfer
or disposition of Common Stock or Warrants pursuant to this Agreement, in 
addition to any other conditions specifically set out herein concerning such 
transfer or disposition, the transferor shall (i) deliver the certificates 
representing the Common Stock and the Warrants that are the subject of the 
transfer, duly endorsed for transfer and bearing any necessary tax stamps; (ii) 
by delivering such certificates and Warrants, be deemed to have represented and
warranted that the transferor has valid and marketable title to the Common Stock
represented by such certificates and the Warrants free of all encumbrances and 
(iii) deliver such certificates of authority, tax releases, consents to transfer
and evidences of title as may reasonably be required by the transferee.  The 
transferor shall be responsible for the payment of all transfer taxes unless 
otherwise specified.

               10.  LEGENDS.  Each stock certificate representing shares of 
Common Stock and each Warrant certificate now held or hereafter acquired by any
Shareholder shall bear the following legend:

                    "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN 
                    REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED 
                    (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY BE
                    OFFERED, PLEDGED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE 
                    DISPOSED OF ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF
                    THE ACT AND SUCH LAWS, OR IF AN EXEMPTION FROM REGISTRATION 
                    IS AVAILABLE.

                    THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO
                    SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 20,
                    1997 (THE "AGREEMENT"), WHICH CONTAINS PROVISIONS REGARDING
                    (I) CERTAIN RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES,
                    (II) CERTAIN RIGHTS OF FIRST OFFER, TAG-ALONG RIGHTS AND
                    DRAG-ALONG RIGHTS APPLICABLE TO THIS SECURITY AND (III)
                    CERTAIN OTHER MATTERS.  A COPY OF SUCH AGREEMENT IS
                    AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE


                                          11
<PAGE>

                    COMPANY.  ANY TRANSFER OF THE SECURITIES EVIDENCED BY THIS 
                    CERTIFICATE IN VIOLATION OF THE AGREEMENT IS NULL AND VOID."

               11.  TERMINATION.

                    (a)  TERMINATION AS TO SHAREHOLDER.  This Agreement shall
terminate with respect to any Shareholder at such time as the Shareholder ceases
to hold any shares of Common Stock or Warrants; PROVIDED, HOWEVER, that the 
provisions of this Agreement shall continue in effect for the purpose of 
enforcing against such Shareholder all obligations and undertakings that shall 
have theretofore become operative; PROVIDED, FURTHER, HOWEVER, that the 
provisions of this Agreement shall be binding upon any transferee of any 
Shareholder, whether such transfer was pursuant to a Permitted Transfer (other 
than a Registered Offering)or otherwise.  Notwithstanding the foregoing, the 
benefits of this Agreement shall inure only to a Permitted Transferee of a 
Shareholder.

                    (b)  TERMINATION AS TO SHARES.  This Agreement shall 
terminate with respect to any particular shares of Common Stock or Warrants when
such shares or Warrants shall have been sold in a Registered Offering or 
distributed to the public pursuant to Rule 144 under the Securities Act.

                    (c)  TERMINATION OF AGREEMENT.  This Agreement shall 
terminate upon the earliest to occur of (i) the Agreement having been 
terminated as to all Shareholders and all transferees of all Shareholders 
pursuant to paragraph (a) hereof; (ii) the Agreement having been terminated as 
to all shares of Common Stock and Warrants pursuant to paragraph (b) hereof; 
(iii) the sale of shares of Common Stock at an aggregate offering price of at 
least $25,000,000 in a Registered Offering and (iv) the tenth anniversary of 
this Agreement.

               12.  MISCELLANEOUS PROVISIONS.

                    (a)  FURTHER ACTION.  Each party hereto agrees to execute 
and deliver any instrument and take any action that may reasonably be requested
by any other party for the purpose of effectuating the provisions of this 
Agreement.

                    (b)  INCORPORATION OF SCHEDULE AND EXHIBITS.  The schedule 
and exhibits attached hereto are incorporated into this Agreement and shall be
deemed a part hereof as if set forth herein in full.  References herein to "this
Agreement" and the words "herein," "hereof" and words of similar import refer to
this Agreement (including its schedules and exhibits) as an entirety.  In the
event of any conflict between the provisions of this Agreement and any such
schedule or exhibit, the provisions of this Agreement shall control.

                    (c)  ASSIGNMENT.  Except as otherwise provided in this 
Section 12(c)or in Sections 2, 3, 4 and 5 hereof, no right under this Agreement
shall be assignable and any attempted assignment, in violation of this provision
shall be void.  The Company shall have the right to assign its rights and
obligations hereunder to any successor entity (including any entity acquiring 
substantially all of the assets of the Company), whereupon references herein 
tO the


                                          12
<PAGE>

Company shall be deemed to be to such successor.  Except as expressly otherwise
provided herein, this Agreement, and the rights and obligations of the parties
hereunder, shall be binding upon and inure to the benefit of any and all
transferees of the Common Stock or Warrants subject hereto, in each case with
the same force and effect as if such transferees were named herein as parties
hereto.

                    (d)  ENFORCEMENT.  The parties recognize that irreparable 
damage will result in the event that this Agreement shall not be specifically 
performed. Should any dispute arise concerning the disposition of any Common 
Stock or Warrants hereunder, the parties hereto agree that an injunction may be
issued restraining such disposition pending determination of such controversy 
and that no bond or other security may be required in connection therewith.  
Should any dispute arise concerning the right or obligation of the Shareholders 
or the Company to purchase or sell any of the Common Stock or Warrants subject 
hereto, such right or obligation shall be enforceable by a decree of specific
performance.  Such remedies shall, however, not be exclusive and shall be in
addition to any other remedy which the parties may have.

                    (e)  NOTICES.  Any notice or other communication required 
or which may be given hereunder shall be in writing by hand delivery, registered
or certified first class mail, telecopier or air courier guaranteeing 
overnight delivery:

               (i)   if to the Company, to:

                     Burke Industries, Inc.
                     2250 South Tenth Street
                     San Jose, California  95112
                     Attention: Rocco C. Genovese
                     Fax:     (408) 995-5163

               (ii)  if to JFLEI, to:

                     C/O J.F. Lehman & Company
                     450 Park Avenue
                     Sixth Floor
                     New York, New York  10022
                     Attention: Donald Glickman
                     Fax:     (212) 634-1155

                     IN EITHER CASE, WITH A COURTESY COPY TO:

                     Gibson, Dunn & Crutcher LLP
                     333 South Grand Avenue
                     Los Angeles, California  90071
                     Attention: Kenneth M. Doran, Esq.
                     Fax:     (213) 229-7520


                                          13
<PAGE>

               (iii) if to MMLIC, MMCVP or MMHYP, to:

                     Massachusetts Mutual Life Insurance
                     1295 State Street
                     Springfield, Massachusetts  01111
                     Attention: Richard E. Spencer
                              Wallace G. Rodger
                     Fax:     (413) 744-6127

                     AND, IF TO MMCVP, WITH A COPY TO:

                     c/o Bank of America Trust and Banking Corporation
                       (Cayman) Limited
                     P.O. Box 1092
                     George Town
                     Grand Cayman
                     Cayman Islands, B.W.I.
                     Attention: Michael Carney

               (iv)  if to Jackson National, to:

                     c/o PPM America, Inc.
                     225 West Wacker Drive
                     Suite 1200
                     Chicago, Illinois  60606
                     Attention: Private Placement Group
                     Fax:     (312) 634-0054

               (v)   if to Paribas, to:

                     c/o Paribas Principal Partners
                     787 Seventh Avenue
                     New York, New York  10019
                     Attention: Stephen Eisenstein
                     Fax:     (212) 841-2502


                                          14
<PAGE>

                     IN THE CASE OF ANY WARRANTHOLDER OR PREFERRED STOCKHOLDER,
                     WITH A COURTESY COPY TO:

                     Schwartz, Cooper, Greenberger & Krauss
                     180 North LaSalle Street
                     Suite 2700
                     Chicago, Illinois  60601
                     Attention: Brian O'Neil, Esq.
                     Fax:     (312) 782-8416

               (iv)  if to any other Shareholder, to his or its address set
forth on SCHEDULE A attached hereto,

                     WITH A COURTESY COPY TO:

                     Morrison & Foerster LLP
                     755 Page Mill Road
                     Palo Alto, California  94304-1018
                     Attention: William D. Sherman, Esq.
                     Fax:     (415) 494-0792

or at such other address, notice of which is given in accordance with the
provisions of this Section 11(e).  All such notices shall be deemed to have been
duly given when delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.

          (g)  APPLICABLE LAW.  This Agreement shall be governed by, and
construed and enforced in accordance with and subject to, the laws of California
applicable to agreements made and to be performed entirely within such State,
without giving effect to the conflicts-of-law principles thereof.

          (h)  ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.  This Agreement sets
forth the entire understanding of the parties with respect to the subject matter
hereof.  The failure of any party to seek redress for the violation of or to
insist upon the strict performance of any term of this Agreement shall not
constitute a waiver of such term and such party shall be entitled to enforce
such term without regard to such forbearance.  This Agreement may be amended,
each party hereto may take any action herein prohibited or omit to take action
herein required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived, only by the
written consent or written waiver of Shareholders holding (i) 66K% of all shares
of Common Stock, on a fully diluted basis and (ii) 66K% of the shares of Common
Stock, on a fully diluted basis, adversely affected by any such amendment,
action, omission or waiver; provided, however, that any amendment, action,
omission or waiver adversely affecting any rights of the Shareholders under
Sections 3 or 6 shall require the written consent or written waiver of
Shareholders holding 90% of the shares of Common Stock, on a fully diluted
basis, adversely affected by any such amendment, action, omission or waiver;


                                          15
<PAGE>

PROVIDED that such Shareholder shall be given five (5) days advance notice of
any such proposed amendment, action, omission or waiver; and PROVIDED, FURTHER,
that such consent or waiver shall be effective only in the specific instance and
for the specific purpose for which given.

     IN WITNESS WHEREOF, the undersigned have executed this Shareholders
Agreement as of the date first set forth above.

                                        BURKE INDUSTRIES, INC.



                                        By:  /s/ DONALD GLICKMAN
                                             -------------------------------
                                               Name:  Donald Glickman
                                               Title:  Assistant Vice President

                                        J.F. LEHMAN EQUITY INVESTORS I, L.P.,
                                           a Delaware limited partnership

                                        By:  JFL INVESTORS L.L.C.
                                        Its: General Partner

                                             By:  A Managing Member



                                                  By: /s/ DONALD GLICKMAN
                                                      -------------------
                                                      Name:  Donald Glickman

                                        MASSACHUSETTS MUTUAL LIFE
                                           INSURANCE COMPANY



                                        By:  /s/ RICHARD E. SPENCER II
                                             ---------------------------------
                                              Name: Richard E. Spencer II
                                              Title: Managing Director


                                          16
<PAGE>

                                        MASSMUTUAL CORPORATE VALUE
                                           PARTNERS LIMITED

                                        By:  Massachusetts Mutual Life Insurance
                                             Company
                                        Its: Investment Advisor



                                        By:  /s/ RICHARD E. SPENCER II
                                             ---------------------------------
                                              Name: Richard E. Spencer II
                                              Title: Managing Director

                                        MASSMUTUAL HIGH YIELD PARTNERS LLC

                                        By:  HYP Management, Inc., as Manager



                                             By: /s/ ROGER W. CRANDALL
                                                 ---------------------
                                                  Name: Roger W. Crandall
                                                  Title: Vice President


                                          17
<PAGE>

                                        JACKSON NATIONAL LIFE INSURANCE
                                           COMPANY

                                        By:  PPM America, Inc.
                                        Its:  Agent



                                             By:  /s/ DEBBIE ACKERMAN
                                                  ----------------------------
                                                   Name: Debbie Ackerman
                                                   Title: Managing Director

                                        PARIBAS NORTH AMERICA, INC.



                                        By:  /s/ DONNA KIERNAN
                                             ---------------------------------
                                              Name: Donna Kiernan
                                              Title: CFO


                                          18
<PAGE>

                                        /s/ TIMOTHY E. HOWARD
                                        --------------------------------------
                                        Timothy E. Howard

                                        /s/ DANIEL P. FLAMEN
                                        --------------------------------------
                                        Daniel P. Flamen

                                        /s/ ROCCO C. GENOVESE
                                        --------------------------------------
                                        Rocco C. Genovese

                                        /s/ REED C. WOLTHAUSEN
                                        ------------------------------------
                                        Reed C. Wolthausen

                                        /s/ ROBERT F. PITMAN
                                        ------------------------------------
                                        Robert F. Pitman

                                        /s/ DAVID E. WORTHINGTON
                                        ------------------------------------
                                        David E. Worthington

                                        /s/ ANNE G. HOWE
                                        ------------------------------------
                                        Anne G. Howe

                                        /s/ ROBERT G. ENGLE
                                        ------------------------------------
                                        Robert G. Engle

                                        /s/ CRAIG A. CARNES
                                        ------------------------------------
                                        Craig A. Carnes

                                        /s/ ROBERT P. HARRISON
                                        ------------------------------------
                                        Robert P. Harrison

                                        /s/ HISHAM ALAMEDDINE
                                        ------------------------------------
                                        Hisham Alameddine

                                        /s/ RONALD A. STIEBEN
                                        ------------------------------------
                                        Ronald A. Stieben


                                          19
<PAGE>

                                      SCHEDULE A
                                      ----------



                                          1