SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   ----------

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                     For fiscal year ended December 31, 1999

                        Commission File Number: 333-10611

                               UNIFRAX CORPORATION
             (Exact name of registrant as specified in its charter)

         Delaware                                 34-1535916
(State or other jurisdiction          (I.R.S. Employer Identification No.)
     of incorporation)

                    2351 Whirlpool Street, Niagara Falls, NY
                                   14305-2413
                    (Address of principal executive offices)
                                   (Zip Code)

                    Registrant's telephone number, including
                            area code: (716) 278-3800

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

                    SECURITIES REGISTERED PURSUANT TO SECTION
                                12(g) OF THE ACT:

                           10.5% Senior Notes Due 2003

                    SECURITIES REGISTERED PURSUANT TO SECTION
                             12(b) OF THE ACT: NONE

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 the 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 ]

Documents Incorporated By Reference: None.

<PAGE>

                                     PART I

ITEM 1. BUSINESS

     Unifrax  Corporation  ("Unifrax" or "Company")  manufactures heat resistant
ceramic fiber products for  automotive,  commercial,  and  industrial  customers
primarily  throughout  North  America.  Manufacturing  facilities are located in
Western New York and Indiana.

     Developed by the Company in 1942, ceramic fiber is a white, glassy material
belonging to a class of  materials  known as man-made  vitreous  fibers (a class
which also  includes  fiberglass  and mineral  wool).  Ceramic  fiber  possesses
several commercially  attractive  performance  properties including stability at
very high  temperatures,  extremely low heat  transmission and retention,  light
weight  compared  to other  heat-resistant  materials,  chemical  stability  and
corrosion resistance.  These properties make ceramic fiber a superior insulating
material in high temperature applications.

     Ceramic  fiber's  most  common  application  has  been to  line  industrial
furnaces,  where high temperatures  demand its  heat-resistant  characteristics.
Historically,  the industrial furnace-related market has represented the largest
percentage of the  Company's  sales.  Increasingly,  the Company has applied its
expertise  to  rapidly-growing,   high  value-added  niche  markets,   including
automotive, power generation, and fire protection.

MARKETS

     Furnace-Related Markets. Ceramic fiber for furnace-related  applications is
generally  sold to the metal  production,  petrochemical,  and ceramic and glass
industries.

     Automotive Market. Three product types account for substantially all of the
fiber consumed by the automotive  industry:  paper,  catalytic  converter gasket
material, and insulation heat shields.

     Other Markets. Ceramic fiber is being used in several newer applications in
niche  markets  such  as  power  generation,  fire  protection,  and  commercial
insulation.  In these industries,  products are often customized to meet special
customer needs.

MANUFACTURING AND OPERATIONS

     Ceramic fiber is produced by melting a combination of alumina,  silica, and
other additives in either a submerged  electrode furnace (SEF) or in an electric
arc  furnace.  The molten  mixture  is made into fiber  either by blowing an air
stream on the molten material flowing from the furnace  (blowing  process) or by
directing  the  molten  material  onto a series  of  spinning  wheels  (spinning
process).  The blowing  and  spinning  processes  produce  fiber with  different
characteristics, dimensions, and process yields.

     The Company also employs advanced  manufacturing  processes associated with
the "wet"  manufacture of papers and felts,  boards,  and other products.  These
processes use bulk ceramic fiber as a feedstock in  combination  with binders or
other liquids.

     The  Company's  operations  in  Tonawanda,  New York,  in early 1997 became
certified under the International  Quality Standard,  ISO 9000, and the rigorous
U.S. automotive standard,  QS 9000. During 1998, the Company's operations in New
Carlisle, Indiana and in Amherst, New York also became certified under ISO 9000.

                                       2
<PAGE>

RAW MATERIALS

     Although  the  Company  purchases  some  of its  raw  materials  from  sole
suppliers,  substitute  materials are available from other  suppliers on similar
terms.  Supplier  changes  would  require  some  level of  product  and  process
qualification,  but there are no technical barriers identified. The exception is
vermiculite,  a mineral which is an important raw material in the manufacture of
XPE(TM) which is used in automotive  catalytic  converter  gaskets.  The Company
currently  purchases the majority of its  requirements  of  vermiculite  from an
overseas source and the balance from a U.S. supplier.  Because  vermiculite from
the overseas source has superior  performance  qualities,  the Company  believes
that over the next two to three years, both it and its competitors will continue
to rely on the overseas source.

RESEARCH AND DEVELOPMENT

     The research and development group, located at the Company's  headquarters,
operates in a 9,500 square foot laboratory, including facilities for pilot plant
development and traditional research and development activities.

     The Company has  maintained a strong  financial  commitment to its research
and development  program.  Research and development  expense totaled $2,734,000,
$2,770,000,  and $2,586,000,  or approximately 3.1%, 3.2%, and 3.0% of net sales
during the years 1997, 1998, and 1999, respectively.

COMPETITION

     The ceramic fiber industry is highly competitive, and some of the Company's
competitors  are larger and have  greater  resources  than the  Company.  In the
furnace-related  markets,  competition  is based  primarily on product  quality,
price, and service.  In the new high growth niche markets,  competition is based
primarily on product technology, technical specifications, manufacturing process
capabilities, quality assurance and price.

     The Company  has  significant  competitors  in its  markets,  some of which
manufacture ceramic fiber while others purchase ceramic fiber and then reprocess
it  into  products   which  compete  with  the   Company's   products.   In  the
furnace-related  markets,  the Company's  competitors  are the Thermal  Ceramics
business  unit  of  Morgan  Crucible,  the  Premier  Refractories  International
business unit of Cookson Group plc., and the A.P. Green business unit of RHI AG.
In the automotive market, the Company's significant  competitors include Thermal
Ceramics,  Minnesota  Mining &  Manufacturing  Company  ("3M") and Lydall.  Both
Lydall and 3M are reprocessors of ceramic fiber.

     The Company's  significant  competitors in its other markets include Lydall
and Thermal Ceramics.  In some instances,  ceramic fiber competes with a limited
number of non-ceramic fiber products such as hard brick refractories and mineral
wool.

CYCLICALITY AND SEASONALITY

     The Company's  products are generally used in industries  subject to supply
and demand cycles which reflect general economic activity. In addition,  certain
markets  historically  have been  slightly  seasonal,  with higher  sales in the
second and fourth quarters and lower sales in the first and third quarters.

BACKLOG

     The Company does not consider its backlog significant because it fills most
of its orders within one month and  substantially all of its orders within three
months.

                                       3
<PAGE>

PRODUCT AND HEALTH SAFETY ISSUES

     Manufacturers  of man-made  vitreous  fibers  ("MMVF") such as  fiberglass,
mineral  wool and ceramic  fiber have  investigated  the  potential  for adverse
health effects  associated  with the inhalation of airborne  fiber.  Independent
animal  studies have  indicated  that ceramic fiber inhaled by test animals,  in
large quantities during the course of their lifetimes,  can cause fibrosis, lung
cancer and mesothelioma,  a malignant tumor of the lining of the lungs and chest
cavity.  Company and  industry-sponsored  studies of workers  with  occupational
exposure to airborne  ceramic fiber,  however,  to date have found no clinically
significant  relationship between ceramic fiber exposure and respiratory disease
in humans.

     The Company has  established  organization  and management  systems for the
purpose of ensuring  that health and safety  matters  are  properly  identified,
evaluated  and  addressed  throughout  the  Company's  operations.  The  Company
utilizes  the   knowledge,   skills  and  expertise  of  a  number  of  external
consultants,   including  an  independent   advisory  board.   Comprised  of  an
internationally recognized group of experts in the fields of medicine, pulmonary
science, veterinary pathology, toxicology and legislative,  regulatory and legal
affairs,  the Ceramic  Fiber  Advisory  Board  ("CFAB")  provides  advice to the
Company regarding proper handling  practices for ceramic fiber and other related
product management issues.

     The Company developed and implemented a comprehensive  Product  Stewardship
Program ("PSP") as one  of its management  systems.  A key element of the PSP is
research  focused on identifying  and  evaluating  the potential  health effects
associated  with the inhalation of respirable  fibers.  These studies have taken
two  forms:  human  studies,  known  as  epidemiological   investigations,   and
toxicological research,  which is generally conducted with test animals. Many of
these research  activities have been conducted with the  participation  of other
members of the ceramic fiber industry.

     The  Company's  PSP also  includes  elements  designed to identify  exposed
populations,  monitor  employee  and  customer  exposures  and  pursue  exposure
reductions.  Initial  assessments  indicate that most ceramic fiber  exposure is
confined to the workplace and to a limited  population of about 30,000  persons.
Employee  and customer  exposure  monitoring  has been  conducted by the Company
under a rigorous  protocol,  jointly  adopted  pursuant to a  voluntary  consent
agreement by the U.S. Environmental Protection Agency ("EPA") and the Refractory
Ceramic Fiber Coalition ("RCFC"),  the ceramic fiber industry trade association.
Under the terms of this agreement,  industry and customer  workplace  monitoring
samples were taken for a period of five years concluding in mid-1998.

     In the absence of a specific U.S.  government  standard  regulating ceramic
fiber exposure,  several years ago the industry  adopted a recommended  exposure
guideline  ("REG") of one fiber per cubic  centimeter  of air.  Scientific  data
available to date has been regarded as insufficient  for the purpose of defining
a specific exposure  threshold of acceptably low risk for humans. The industry's
voluntary  exposure  guideline provides a quantitative basis to measure progress
in implementing  PSP objectives to seek  continuous  reduction in fiber exposure
through initiatives that are technically and economically feasible.  During 1997
several participants in the industry, including the Company, voluntarily reduced
the REG from one  fiber  per  cubic  centimeter  to  one-half  fiber  per  cubic
centimeter based on prudence and not significant risk.

     Over time, health research data have been used by various  organizations to
classify certain man-made fibers.  For example,  classification  terms,  such as
"possible"  (International  Agency for Research on Cancer,  "IARC"),  "probable"
(EPA and Health Canada,  "HC"),  "reasonably  anticipated"  (National Toxicology
Program,  "NTP"),  and  "suspected"  (proposed  by the  American  Conference  of
Governmental   Industrial   Hygienists,   "ACGIH")  reflect  the  view  of  each
organization as to the potential  carcinogenicity  of ceramic fiber and/or other
MMVFs.  Each of these  classifications  reflect  concern  for human  health  and
uncertainty  regarding  the  potential  for  airborne  ceramic  fiber to  affect
occupational health adversely. These classification determinations have not been
followed by exposure standards in the U.S., although the ACGIH recently proposed
exposure standards for public comment.

                                       4
<PAGE>

     Some  regulators  in other  countries  have adopted a variety of regulatory
thresholds. Member States of the European Union voted in November 1997, under DG
XI, to  classify  ceramic  fiber as  "Category  2:  Substances  which  should be
regarded  as if they are  carcinogenic  to man" on the basis of animal  studies,
although  refractory  ceramic fiber  exposure has not been  associated  with any
respiratory  disease  in  humans.  If the  U.S.  were to  adopt  legislative  or
regulatory  standards severely  restricting the use of ceramic fiber or severely
limiting fiber  exposure,  a material  adverse effect on the Company's  business
could result.

ENVIRONMENTAL REGULATION

     The Company's  operations  and  properties are subject to a wide variety of
foreign,  federal,  state  and  local  laws  and  regulations,  including  those
governing the use, storage, handling, generation,  treatment, emission, release,
discharge  and  disposal  of  certain  materials,  substances  and  wastes,  the
remediation of contamination  in the  environment,  and the health and safety of
employees and other  persons.  As such,  the nature of the Company's  operations
exposes it to the risk of claims with respect to  environmental  protection  and
health and safety matters,  and there can be no assurance that material costs or
liabilities  will not be incurred in connection  with such claims.  Reference is
made  to the  information  included  in Note  13 to the  consolidated  financial
statements  included in this Form 10-K, and to information  appearing  under the
headings "Health and Safety Indemnity" and  "Environmental  Indemnity"  provided
under  Item 13 of this  Form  10-K,  which  are  hereby  incorporated  herein by
reference.

PATENTS AND TRADEMARKS

     Although  the  Company  obtains  patent   protection  for  certain  product
innovations,  the Company  believes that its success depends more heavily on the
technical expertise and innovative abilities of its personnel than on its patent
protection.  The Company  believes  its  trademarks  are  important  in order to
develop and support brand image and to differentiate itself from competitors.

EMPLOYEES

     As of December 31, 1999, the Company employed  approximately 386 persons on
a full-time basis,  Approximately 65 employees at the Company's  Tonawanda plant
are  members  of the  Paper,  Allied-Industrial,  Chemical  and  Energy  Workers
International Union (PACE Local 1-2058).

                                       5
<PAGE>

ITEM 2.  PROPERTIES

     The  flagship  of the  Company's  operations  is located  in New  Carlisle,
Indiana. This facility is believed to be the largest ceramic fiber manufacturing
plant in the world,  producing  blown and spun forms of bulk fiber and blankets.
The  Company  also  operates  three  manufacturing  plants in  Niagara  and Erie
Counties in Western New York.

     The Company's headquarters is located in Niagara Falls, New York. This site
houses  salaried and hourly support and management  staff as well as application
engineers and other  professionals  dedicated to research and development of new
products and applications for ceramic fiber.

     The  following  table  provides a description  of the  Company's  principal
facilities.

<TABLE>
<CAPTION>
                          Approximate
Plant Site                Square Feet       Status      Use
----------                -----------       ------      ---
<S>                         <C>             <C>         <C>
New Carlisle, IN            230,000         Owned       Bulk ceramic fiber, blankets, modules, boards

Tonawanda, NY               186,000         Leased      Papers, felts, boards, XPE(TM), porosity- controlled paper

Amherst, NY                  42,000         Leased      Woven and spun textiles

Sanborn, NY                  10,000         Leased      Fibermax(R) high temperature fiber

Niagara Falls, NY            33,000         Owned       Headquarters, research laboratory

</TABLE>

ITEM 3.  LEGAL PROCEEDINGS

     Reference  is  made  to  the  information   included  in  Note  13  to  the
consolidated  financial  statements of the Company included under Item 8 in this
Form 10-K, which is hereby incorporated herein by reference.

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

     None.

                                       6
<PAGE>

                                    PART II

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

     There is no established public trading market for the Company's stock.

ITEM 6.  SELECTED FINANCIAL DATA

     The  following  table  should  be read in  conjunction  with  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
with the Company's consolidated financial statements and related notes in Item 8
of this Form 10-K.

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                        -----------------------
                                                    1995           1996         1997       1998         1999
                                                    ----           ----         ----       ----         ----
                                                                        (Dollars in Thousands)
<S>                                             <C>            <C>          <C>         <C>          <C>
STATEMENT OF INCOME DATA:
Net sales                                       $  84,064      $  91,631    $  87,111   $  85,499    $  85,089
Income before interest and income taxes            21,448         22,429       20,039      18,338       19,101
Interest expense                                       --          2,246       12,537      11,988       11,335
Provision for income taxes                          8,743          8,543        1,937       2,305        2,792
                                                ---------      ---------    ---------   ---------    ---------
Net income                                      $  12,705      $  11,640    $   5,565   $   4,045    $   4,974
                                                =========      =========    =========   =========    =========
OTHER DATA:
EBITDA(a)                                       $  25,837      $  26,771   $   25,382   $  23,980   $   24,831
Depreciation and amortization                       4,301          4,091        5,323       5,649        5,420
Cash Flows From Operating Activities               18,925         18,631       13,987       9,243       12,684
Cash Flows From Investing Activities               (3,593)        (8,579)      (9,276)     (3,759)      (3,177)
Cash Flows From Financing Activities              (15,393)        (9,191)      (5,250)     (5,800)      (9,550)

BALANCE SHEET DATA (AT PERIOD END):
Working capital                                 $  14,763      $  14,022   $   12,921   $   4,858   $    9,447
Long Term Debt                                         --        127,750      122,500     105,950      100,900
Total assets                                       54,239         93,391       90,462      88,654       84,578
Total liabilities                                  18,815        147,455      136,641     130,778      122,009
Parent company investment(b)                       35,424             --           --          --           --
Stockholders' Deficit(b)                               --        (54,064)     (46,179)    (42,124)     (37,431)
</TABLE>

                                       7
<PAGE>

(a)  "EBITDA" means earnings from  operations  before interest  expense,  taxes,
     profits or losses on sales or disposals of fixed assets, depreciation,  and
     amortization.  EBITDA is included because management believes that it is an
     indicator  used by  investors  to gauge a company's  ability to service its
     interest and  principal  obligations.  EBITDA  should not be  considered in
     isolation  from, as a substitute  for, or as being more meaningful than net
     income,  cash flows from operating,  investing and financing  activities or
     other  income or cash flow  statement  data  prepared  in  accordance  with
     generally accepted accounting  principles and should not be construed as an
     indication  of the  Company's  operating  performance  or as a  measure  of
     liquidity.  EBITDA, as presented herein,  may be calculated  differently by
     other companies and, as such,  EBITDA amounts  presented  herein may not be
     comparable to other similarly titled measures of other companies.

(b)  Prior to  consummation  of its  recapitalization  in 1996,  the Company was
     accounted for as a division of Carborundum rather than as a subsidiary, and
     had no separately identifiable equity other than an amount equal to its net
     assets  captioned as "parent  company  investment."  In connection with the
     recapitalization,   this   investment   was   eliminated  and  replaced  by
     stockholders' deficit.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS FORWARD LOOKING STATEMENTS

     Statements included in this Management Discussion and Analysis of Financial
Condition and Results of  Operations  and elsewhere in this document that do not
relate to present or  historical  conditions  are "forward  looking  statements"
within the meaning of that term in Section 27A of the Securities Act of 1933, as
amended,  and of Section 21F of the Securities Exchange Act of 1934, as amended.
Forward looking statements include,  without limitation,  any statement that may
predict,   forecast,   indicate  or  imply  future   results,   performance   or
achievements,  and may  contain  the words  "believe,"  "anticipate,"  "expect,"
"estimate,"  "project,"  "will  continue," "will result," or words or phrases of
similar  meaning.  Additional oral or written forward looking  statements may be
made by the Company from time to time,  and such  statements  may be included in
documents  filed with the  Securities  and  Exchange  Commission.  Such  forward
looking statements involve risks and uncertainties  which could cause results or
outcomes to differ  materially  from those  expressed  in such  forward  looking
statements.  Among the important  factors on which such statements are based are
assumptions  concerning the  continuing  strength of the ceramic fiber market on
which the Company is substantially dependent,  changing prices for ceramic fiber
products,  acceptance  of new  products,  the status of health and safety issues
affecting the ceramic fiber  industry in general and the Company in  particular,
the Company's  continuing  ability to operate under the restrictions  imposed by
the substantial  indebtedness  which it is subject to, the risks associated with
international  operations,  the  impact  of  environmental  regulations  on  the
Company's operations and property and related governmental regulations,  and the
continuing availability of certain raw materials, including vermiculite which is
purchased from an overseas source.

GENERAL

     The  following  section  should  be  read in  conjunction  with  the  other
information set forth in this document,  including the financial  statements and
the notes thereto.

                                       8
<PAGE>

RESULTS OF OPERATIONS
                                                  Year Ended December 31,
                                                  ----------------------
                                                  1997     1998     1999
                                                  ----     ----     ----

Net sales                                        100.0%   100.0%  100.0%
Cost of goods sold                                50.7     51.2    50.3
                                                 -----    -----   -----
Gross profit                                      49.3     48.8    49.7
Selling, general and administrative               26.3     27.3    27.0
                                                 -----    -----   -----
Operating income                                  23.0%    21.5%   22.7%

YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998

     Net sales  decreased  $0.4  million or 0.5% from  $85.5  million in 1998 to
$85.1 million in 1999.  Several  Unifrax  markets for ceramic  fiber,  including
petrochemicals  and steel remained weak throughout most of 1999.  Also, sales of
porosity-controlled  products  continued to decline due to  automotive  industry
airbag design changes toward systems using less filtration.

     Gross profit increased by $0.6 million, or 1.4%, from $41.7 million in 1998
to $42.3 million in 1999.  Gross profit as a percentage  of net sales  increased
from 48.8% in 1998 to 49.7% in 1999.  The  increase  in gross  profit was due to
improved plant operating efficiencies and lower overall production costs.

     Selling,  general and administrative  expenses decreased by $0.4 million or
1.8%,  from $23.4 million in 1998 to $23.0 million in 1999 primarily as a result
of   nonrecurring   reductions  of  liabilities   associated  with  the  product
stewardship  programs and retiree  medical and insurance  programs,  and reduced
testing  and  development  expenditures.  Selling,  general  and  administrative
expenses as a percentage of net sales  decreased  slightly from 27.3% in 1998 to
27.0% in 1999.

     Operating income increased by $1.0 million,  or 5.5%, from $18.4 million in
1998 to $19.4  million in 1999.  Operating  income as a percentage  of net sales
increased  from  21.5%  in 1998 to 22.7% in  1999,  as a result  of the  factors
previously indicated.

     Other expense  increased by $0.5 million,  or 413.7%,  from $0.1 million in
1998 to $0.6 million in 1999 due to increased  foreign currency  exchange losses
relative to Europe and Brazil, and increased losses on disposals of equipment.

     Interest expense decreased by $0.6 million,  or 5.4%, from $11.9 million in
1998 to $11.3  million in 1999  primarily as a result of the  repurchase of $2.0
million of 10.5%  Senior  Notes and  repayment of principal on the term loan and
note payable - affiliate, offset in part by increasing interest rates on certain
variable-rate  borrowings.  Interest  expense  as  a  percentage  of  net  sales
decreased from 13.9% in 1998 to 13.3% in 1999.

     Provision  for income taxes  increased  $0.5 million,  or 21.1%,  from $2.3
million in 1998 to $2.8 million in 1999. The effective income tax rate decreased
from 36.3% in 1998 to 36.0% in 1999.

     Net income increased by $1.0 million,  or 23.0%,  from $4.0 million in 1998
to $5.0 million in 1999, as a result of factors previously indicated. Net income
as a percentage of net sales  increased  from 4.7% in 1998 to 5.8% in 1999, as a
result of the factors discussed above.

     EBITDA  increased by $0.8 million,  or 3.5%,  from $24.0 million in 1998 to
$24.8 million in 1999. The increase in EBITDA is principally attributable to the
factors  affecting  operating  income which were  discussed  above.  EBITDA as a
percent of net sales increased from 28.1% in 1998 to 29.2% in 1999.

                                       9
<PAGE>

     Capital Expenditures decreased $0.6 million, or 16.0%, from $3.8 million in
1998 to $3.2  million in 1999,  due to lower  spending  on plant and  equipment.
Capital expenditures in 1999 included projects to increase capacity,  to replace
equipment and to reduce costs.

     Working  capital  increased  from $4.9  million in 1998 to $9.4  million in
1999.  Decreased levels of raw materials and in-process  inventories were offset
by higher  accounts  receivable  and a reduction in the current  portion of long
term debt due to the repayment of the note payable - affiliate.

     Cash flows from operating activities increased $3.5 million, or 38.0%, from
$9.2 million in 1998 to $12.7 million in 1999 as a consequence of the higher net
income and inventory  change  discussed  above offset in part by higher accounts
receivable.  Cash outflows from investing activities decreased $0.6 million from
$3.8  million  in  1998  to  $3.2  million  in  1999  due to  decreased  capital
expenditures.  Cash outflows from  financing  activities  increased $3.8 million
from $5.8 million in 1998 to $9.6 million in 1999.

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

     Net sales  decreased  $1.6  million or 1.9% from  $87.1  million in 1997 to
$85.5 million in 1998.  Several  Unifrax  markets for ceramic  fiber,  including
petrochemicals,   steel  and  power  generation,   weakened  during  1998  as  a
consequence   of   global   economic    pressures   and    uncertainty.    Also,
porosity-controlled  products  continued to be affected by  automotive  industry
airbag design changes toward systems using less filtration.

     Gross profit declined by $1.3 million,  or 2.8%, from $43.0 million in 1997
to $41.7 million in 1998.  Gross profit as a percentage  of net sales  decreased
from 49.3% in 1997 to 48.8% in 1998.  The decline in gross profit was due to the
lower sales volume and downward  pressure on prices in the automotive market and
in some traditional markets.

     Selling,  general and administrative  expenses increased by $0.4 million or
1.9%,  from  $23.0  million  in 1997 to $23.4  million  in 1998 as a  result  of
inflation and additional testing and development  expenditures for new products,
offset partially by the effects of the lower sales volume. Selling,  general and
administrative  expenses as a percentage  of net sales  increased  from 26.3% in
1997 to 27.3% in 1998.

     Operating income decreased by $1.6 million,  or 8.2%, from $20.0 million in
1997 to $18.4  million in 1998.  Operating  income as a percentage  of net sales
decreased  from  23.0%  in 1997 to 21.5% in  1998,  as a result  of the  factors
previously indicated.

     Interest expense decreased by $0.6 million,  or 5.1%, from $12.5 million in
1997 to $11.9  million in 1998 as a result of the  repurchase of $2.0 million of
10.5% Senior Notes,  voluntary  prepayment of principal on the term loan,  lower
interest rates on borrowings,  and conversion of the amount due affiliates  into
preferred  stock of the Company.  Interest  expense as a percentage of net sales
decreased from 14.4% in 1997 to 13.9% in 1998.

     Provision  for income taxes  increased  $0.4 million,  or 20.7%,  from $1.9
million in 1997 to $2.3 million in 1998. The effective income tax rate increased
from 25.8% in 1997 to 36.3% in 1998. The effective  income tax rate for 1997 was
less than that which would be expected due to the recognition of $1.0 million of
deferred tax assets  resulting from the  Recapitalization  which were,  prior to
1997, unrecognized.

     Net income decreased by $1.6 million,  or 27.3%,  from $5.6 million in 1997
to $4.0 million in 1998, as a result of factors previously indicated. Net income
as a percentage of net sales  decreased  from 6.4% in 1997 to 4.7% in 1998, as a
result of the factors discussed above.

     EBITDA  decreased by $1.4 million,  or 5.4%,  from $25.4 million in 1997 to
$24.0  million in 1998.  The decrease in EBITDA is  attributable  to the factors
affecting  operating income which were discussed  above,  offset partially by an
increase in  depreciation  and  amortization  from $5.3  million in 1997 to $5.7
million in 1998,  resulting from the capacity expansion in New Carlisle.  EBITDA
as a percent of net sales decreased from 29.1% in 1997 to 28.1% in 1998.
                                       10
<PAGE>

     Capital Expenditures decreased $5.6 million, or 59.4%, from $9.4 million in
1997 to $3.8 million in 1998,  due primarily to the completion of the investment
in capacity  expansion in New Carlisle.  Capital  expenditures  in 1998 included
projects to replace worn equipment,  to reduce costs and to increase capacity in
certain processes.

     Working  capital  decreased  from $12.9  million in 1997 to $4.9 million in
1998.  Increased levels of raw materials and in-process  inventories were offset
by the reclassification of the note payable--affiliate from long term to current
liabilities,  and  also  the  current  portion  of long  term  debt  to  current
liabilities.

     Cash flows from operating activities decreased $4.8 million, or 33.9%, from
$14.0 million in 1997 to $9.2 million in 1998 as a consequence  of the lower net
income and inventory  change  discussed  above.  Cash  outflows  from  investing
activities  decreased  $5.5 million from $9.3 million in 1997 to $3.8 million in
1998  due to  decreased  capital  expenditures.  Cash  outflows  from  financing
activities  increased  $0.5 million from $5.3 million in 1997 to $5.8 million in
1998.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's Credit Agreement provides for a $25.0 million term loan and a
$20.0  million  revolving  credit  facility.  The revolving  credit  facility is
available  for working  capital and other  corporate  purposes.  Loans under the
Credit  Agreement bear interest at a rate based upon LIBOR or the lender's prime
rate plus a negotiated  margin.  The Credit  Agreement and the indenture for the
Company's 10.5% Senior Notes contain  certain  restrictive  covenants  including
requirements that the Company meet certain financial ratio tests and limitations
on the ability of the Company to incur additional indebtedness.  At December 31,
1999,  the Company was in  compliance  with all Credit  Agreement  and Indenture
covenants.

     During 1999 the Company made payments of principal totaling $3.8 million on
its Term Loan thereby  reducing the balance  outstanding  from $10.0  million at
December 31, 1998 to $6.2 million at December 31, 1999.  As of December 31, 1999
the Company had borrowed $4.9 million against its $20.0 million revolving credit
facility.

     On March 3, 1999,  the Company  repurchased $2 million face value of Senior
Notes.

     Management  believes that cash flows from  operations and borrowings  under
the available  credit facility will be adequate to meet the Company's  operating
requirements  and  planned  capital  expenditures  over the next 12 months.  See
"Forward Looking Statements."

     As of October 30, 1996,  the Company  entered into a tax sharing  agreement
with its principal stockholder,  Unifrax Holding Co. ("Holding"). The results of
its operations are now included in the  consolidated U.S. corporate  income  tax
return of Holding.  The  Company's  provision for income taxes is computed as if
the  Company  filed its annual tax  returns on a  separate  Company  basis.  The
current portion of the income tax provision will be satisfied by a payment to or
from Holding.

     At December 31, 1999,  the Company had Federal and state net operating loss
carryforwards  totaling  approximately  $15.5 million which will be available to
offset future taxable income.  These net operating loss carryforwards  expire in
2011 through 2019.

                                       11
<PAGE>

LEGAL PROCEEDINGS

     Reference  is  made  to  the  information   included  in  Note  13  to  the
consolidated  financial  statements of the Company included under Item 8 in this
Form 10-K, which is hereby incorporated herein by reference.

IMPACT OF YEAR 2000

     In prior years, the Company  discussed the nature and progress of its plans
to become Year 2000 ready.  During 1999, the Company  completed its  remediation
and  testing  of  systems.  As a result  of those  planning  and  implementation
efforts, the Company experienced no significant  disruptions in mission critical
information technology and non-information technology systems and believes those
systems  successfully  responded  to the Year  2000  date  change.  The  Company
expensed  approximately  $75,000 during 1999 in connection with  remediating its
systems.  The Company is not aware of any material problems  resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services  of third  parties.  The Company  will  continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure  that any latent  Year 2000  matters  that may arise are
addressed promptly.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS
No.  133   establishes   accounting  and  reporting   standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts, and for hedging activities.  It requires that an entity recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those  instruments  at fair value.  The intended use of the
derivative and its  designation as either a fair value hedge, a cash flow hedge,
or a foreign  currency  hedge,  will  determine  when the gains or losses on the
derivatives are to be reported in earnings and when they are to be reported as a
component of other  comprehensive  income.  The new standard must be adopted for
year 2000 financial  reporting.  The impact of compliance  with SFAS No. 133 has
not yet been determined by the Company.

SUBSEQUENT EVENTS

     On February 4, 2000, the Company  announced that Holding had entered into a
non-binding  letter of intent to explore the purchase of Carborundum  Insulation
Technology,  the worldwide  ceramic fibers business of Compagne de Saint-Gobain.
The  proposed  acquisition  is  subject  to various  conditions,  including  the
execution of a definitive purchase agreement and the satisfactory  completion of
due diligence.  It is expected that the  acquisition,  if  consummated,  will be
completed by the end of the second quarter of 2000.

                                       12

<PAGE>

ITEM 7A. MARKET RISK DISCLOSURES

     The  Company is exposed to certain  market  risks,  principally  changes in
interest  rates.  Market risk is the potential loss arising from adverse changes
in market rates and prices,  such as interest rates.  The Company does not enter
into  derivatives  or other  financial  instruments  for trading or  speculative
purposes.

     The Company has various long-term indebtedness  outstanding at December 31,
1999,  and has also entered into  interest rate swap  agreements to  effectively
convert  fixed-rate  debt with a notional  principal  amount of  $25,000,000  to
variable-rate debt.. The interest impact of an increase in interest rates of 100
basis points (1%) would be as follows:

 Instrument                       Interest Rate             Impact on Earnings
 ----------                       -------------             ------------------
                                                             (in thousands)

Loan and Security Agreement       Variable, based on LIBOR   $       (112)

Senior Notes                      Fixed                                 -

Interest Rate Swap Agreement      Variable                           (250)
                                                                     ----
                                                                     (362)
Less tax benefit                                                      127
                                                                      ---
Net income reduction                                         $       (235)
                                                             ============

                                       13
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

                                                                      Page in
                                                                     Form 10K
                                                                     --------
Report of Independent Auditors                                          15
Consolidated  Balance  Sheets as of December  31, 1998 and 1999         16
Consolidated Statements  of Income for the Years Ended
   December 31,  1997,  1998 and 1999                                   17
Consolidated Statements of Stockholders' Deficit for the Years Ended
   December 31, 1997, 1998 and 1999                                     18
Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1997, 1998 and 1999                                     19
Notes to Consolidated Financial Statements                              20

                                       14
<PAGE>

                         Report of Independent Auditors

Board of Directors
Unifrax Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Unifrax
Corporation  as of  December  31, 1998 and 1999,  and the  related  consolidated
statements of income, stockholders' deficit and cash flows for each of the three
years in the period  ended  December  31,  1999.  Our audits also  included  the
financial  statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule 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 financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial  position  of  Unifrax
Corporation  at December 31, 1998 and 1999 and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1999, in conformity with accounting  principles  generally accepted
in the United  States.  Also, in our opinion,  the related  financial  statement
schedule, 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

Buffalo, New York
February 17, 2000

                                       15
<PAGE>

                               Unifrax Corporation

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                   December 31

                                                              1998            1999
                                                              ----            ----
                                                                 (In Thousands)
<S>                                                      <C>            <C>
Assets
Current assets:
 Cash                                                    $       43     $         -
 Accounts receivable, trade, less allowance of $708
  and $821, respectively                                     12,328          14,697
 Accounts receivable, other                                     625               -
 Inventories                                                 10,343           9,403
 Deferred income taxes                                        2,494           2,705
 Prepaid expenses and other current assets                      220             233
                                                         ----------     -----------
Total current assets                                         26,053          27,038
Property, plant and equipment, net                           36,707          35,601
Deferred income taxes                                        22,402          19,334
Financing costs, net of accumulated amortization of
 $1,642 and $2,392, respectively                              3,279           2,529
Other assets                                                    213              76
                                                        -----------    ------------
                                                        $    88,654    $     84,578
                                                        ===========    ============

Liabilities and stockholders' deficit
Current liabilities:
 Note payable--affiliate                                $    7,000     $          -
 Current portion of long-term debt                           3,750            6,250
 Accounts payable                                            3,306            3,642
 Accrued expenses                                            7,139            7,699
                                                        ----------     ------------
Total current liabilities                                   21,195           17,591
Long-term debt                                             105,950          100,900
Accrued postretirement benefit cost                          3,472            3,356
Other long-term obligations                                    161              162

Stockholders' deficit
Common stock--$.01 par value; 40,000 shares authorized;
 20,000 shares issued and outstanding                            -                -
Redeemable convertible cumulative preferred stock--voting;
 $.01 par value; 10,000 shares authorized; 1,666.67 shares
 issued and outstanding                                          -                -
Additional paid-in capital                                  42,520           42,520
Accumulated deficit                                        (84,361)         (79,387)
Accumulated other comprehensive income-cumulative foreign
 currency translation adjustment                              (283)            (564)
                                                        ----------     ------------
                                                           (42,124)         (37,431)
                                                        ----------     ------------
                                                        $   88,654     $     84,578
                                                        ==========     ============

</TABLE>

See accompanying notes to consolidated financial statements.

                                       16
<PAGE>

                               Unifrax Corporation

                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                              December 31

                                                      1997        1998        1999
                                                      ----        ----        ----
                                                             (In Thousands)
<S>                                               <C>          <C>         <C>
Net sales                                         $  87,111    $ 85,499    $ 85,089

Cost of goods sold                                   44,154      43,760      42,765
                                                  ---------    --------    --------
Gross profit                                         42,957      41,739      42,324

Selling, general and administrative expenses         22,964      23,388      22,972
                                                  ---------    --------    --------
Operating income                                     19,993      18,351      19,352

Royalty income, net of related expenses                 350         104         350
Other expense                                          (304)       (117)       (601)
                                                  ---------    --------    --------
Income before interest and income taxes              20,039      18,338      19,101

Interest expense                                    (12,537)    (11,988)    (11,335)
                                                  ---------    --------    --------
Income before income taxes                            7,502       6,350       7,766

Provision for income taxes                            1,937       2,305       2,792
                                                  ---------    --------    --------
Net income                                        $   5,565    $  4,045    $  4,974
                                                  =========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       17
<PAGE>

                               Unifrax Corporation

                Consolidated Statements of Stockholders' Deficit

                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                                    Additional                    Other          Total
                                           Common    Preferred       Paid-In      Accumulated  Comprehensive  Stockholders'
                                           Stock       Stock         Capital        Deficit       Income        Deficit
                                           -----       -----         -------       -------        ------        -------
                                                                         (In Thousands)
<S>                                      <C>         <C>           <C>         <C>           <C>           <C>
Balance at January 1, 1997               $    -      $      -      $  40,020   $   (93,971)  $   (113)     $  (54,064)

Net income                                    -             -              -         5,565          -           5,565

Foreign currency translation adjustment       -             -              -             -       (180)           (180)
                                                                                                             --------
Comprehensive income                                                                                            5,385
Issuance of Preferred Stock                   -             -          2,500             -          -           2,500
                                         -----------------------------------------------------------------------------
Balance at December 31, 1997                  -             -         42,520       (88,406)      (293)        (46,179)

Net income                                    -             -              -         4,045          -           4,045
Foreign currency translation adjustment       -             -              -             -         10              10
                                                                                                             --------
Comprehensive income                                                                                            4,055
                                         -----------------------------------------------------------------------------
Balance at December 31, 1998                  -             -         42,520       (84,361)      (283)        (42,124)

Net income                                    -             -              -         4,974          -           4,974
Foreign currency translation adjustment       -             -              -             -       (281)           (281)
                                                                                                             --------
Comprehensive income                                                                                            4,693
                                         -----------------------------------------------------------------------------
Balance at December 31, 1999             $    -       $     -      $  42,520    $  (79,387)    $ (564)      $ (37,431)
                                         =============================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       18
<PAGE>

                               Unifrax Corporation

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                        December 31
                                                             1997            1998         1999
                                                             ----            ----         ----
                                                                        (In Thousands)
<S>                                                     <C>             <C>          <C>
Operating activities
Net income                                              $   5,565       $   4,045    $   4,974
Adjustments to reconcile net income to cash
 provided by operating activities:
  Depreciation and amortization                            5,323           5,649         5,420
  Provision for deferred income taxes                      1,802           2,273         2,857
  Loss (gain) on sales of property, plant and equipment       20              (7)          310
  Changes in operating assets and liabilities:
     Accounts receivable                                   1,136            (233)       (1,678)
     Inventories                                           2,206          (2,458)          940
     Prepaid expenses and other current assets              (117)            191           (13)
     Accounts payable and accrued expenses                (1,942)           (493)          270
     Accrued postretirement benefit cost                     252             263          (116)
     Other long-term liabilities                             (78)              3             1
     Other                                                  (180)             10          (281)
 Cash provided by operating activities                    13,987           9,243        12,684

Investing activities
Capital expenditures                                      (9,421)         (3,821)       (3,211)
Proceeds from sales of property, plant and equipment         145              62            34
Cash used in investing activities                         (9,276)         (3,759)       (3,177)

Financing activities
Borrowings under revolving loan                           19,350          21,600        42,000
Repayments of revolving loan                             (16,850)        (22,400)      (38,800)
Repayments of long-term borrowings                        (7,750)         (5,000)       (5,750)
Repayment of amounts due affiliates                            -               -        (7,000)
Cash used in financing activities                         (5,250)         (5,800)       (9,550)
Net decrease in cash                                        (539)           (316)          (43)
Cash at beginning of year                                    898             359            43
Cash at end of year                                 $        359        $     43     $       -

</TABLE>


See accompanying notes to consolidated financial statements.

                                       19
<PAGE>

                               Unifrax Corporation

                   Notes to Consolidated Financial Statements

                                December 31, 1999


1.   Organization And Basis Of Presentation

Prior to October 30, 1996, the date on which Unifrax  Corporation  ("Unifrax" or
"Company") completed a comprehensive  recapitalization (the "Recapitalization"),
Unifrax  and  its  predecessor,  the  North  American  Fibers  Division  of  The
Carborundum Company  ("Carborundum") was an indirect wholly-owned  subsidiary of
The   British   Petroleum   Company   p.l.c.   ("BP").   As  a  result   of  the
Recapitalization,  Unifrax  Holding  Co.  ("Holding")  and BP own 90%  and  10%,
respectively, of the Company. Pursuant to the Recapitalization,  BP America Inc.
("BP  America") a subsidiary of BP, agreed to indemnify the Company,  subject to
certain limitations, against all liabilities, if any, that might result from any
claims for wrongful  death or personal  injury  caused by exposure to refractory
ceramic fiber products  manufactured by Unifrax prior to the consummation of the
Recapitalization, and against certain environmental liabilities arising prior to
consummation of the Recapitalization.

2.   Significant Accounting Policies

Certain Risks and Uncertainties

The  Company  manufactures  heat  resistant  ceramic  fiber  products  for  sale
generally  to  automotive,   commercial,   and  industrial  customers  primarily
throughout  North America.  Manufacturing  facilities are located in Western New
York and Indiana. The Company maintains adequate allowances for potential credit
losses,  performs  ongoing  credit  evaluations,  and generally does not require
collateral.

Approximately  17% of the Company's  employees are  represented by a labor union
and are covered under a collective bargaining agreement which expires in 2004.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  subsidiaries.  All  significant  intercompany  transactions,  balances  and
profits are eliminated upon consolidation.

Revenue Recognition

Revenue is recognized at the time of shipment to the  customer.  Provisions  are
recorded for probable  future returns and  uncollectible  accounts as revenue is
recognized.

Inventories

Inventories are stated at the lower of cost or market. The cost of substantially
all inventories is determined by the last-in, first-out method (LIFO).

                                       20
<PAGE>

Property, Plant and Equipment

Property,  plant  and  equipment  is stated at cost.  Depreciation  is  computed
principally  using the  straight-line  method over the estimated useful lives of
the assets which range from 3 years to 20 years for machinery and equipment, and
20 years to 45 years  for land  improvements  and  buildings.  Expenditures  for
renewals  and  improvements  that  extend  the  useful  life  of  an  asset  are
capitalized.  Expenditures  for routine  repairs and  maintenance  are generally
charged to operations when incurred.

Financing Costs

Financing  costs are being  amortized  on a straight  line  basis  over  periods
ranging from 5 to 7 years.

Impairment of Long Lived Assets

The Company  reviews asset carrying  amounts  whenever  events or  circumstances
indicate  that such carrying  amounts may not be  recoverable.  When  considered
impaired, the carrying amount of the asset is reduced, by a charge to income, to
its current fair value.

Environmental Liabilities

Environmental  expenditures  that  relate  to  current  or future  revenues  are
expensed or capitalized as  appropriate. Expenditures that relate to an existing
condition  caused by past  operations  and that are not  allocable to current or
future earnings are expensed. Liabilities for environmental costs are recognized
when  environmental  assessments  or clean-ups  are probable and the  associated
costs can be reasonably estimated.

Income Taxes

As of October 30, 1996,  the Company  entered into a tax sharing  agreement with
Holding.  The results of the Company's  operations are currently included in the
consolidated  U.S.  corporate  income  tax  return  of  Holding.  The  Company's
provision  for income  taxes is computed as if the Company  filed its annual tax
returns on a  separate  company  basis.  The  current  portion of the income tax
provision is satisfied by a payment to or from Holding.

Income taxes are accounted for under the  liability  method.  Under this method,
deferred tax assets and liabilities are determined based on differences  between
the financial reporting and tax bases of assets and liabilities and are measured
using the  enacted  tax rate and laws  that  apply in the  periods  in which the
deferred tax asset or liability is expected to be realized or settled.

Investment tax credits are accounted for using the flow-through method.

Accounting for Stock Based Compensation

The  Company   accounts  for  stock  options   granted  under  its   stock-based
compensation  plan in  accordance  with the  intrinsic  value  based  method  of
accounting  as  prescribed  by  Accounting  Principles  Board  Opinion  No.  25,
"Accounting  for  Stock  Issued to  Employees"  ("APB  25"),  as  allowed  under
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation" ("SFAS 123"). Accordingly,  compensation cost for stock options is
measured as the excess,  if any, of the fair market value of the Company's stock
at the date of grant over the amount an employee must pay to acquire the stock.

                                       21
<PAGE>

Advertising Costs

Advertising  costs,  which  consist   principally  of  advertisements  in  trade
journals,  brochures,  and attendance at trade shows,  are expensed as incurred.
Advertising  costs totaled  $792,000,  $810,000 and $771,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.

Research and Development Costs

Product  research  and  development  costs are  charged to expense as  incurred.
Research and development expense for the years ended December 31, 1997, 1998 and
1999 was $2,734,000, $2,770,000, and $2,586,000, respectively.

Health, Safety and Environmental Quality Programs

Costs associated with the Company's  Health,  Safety and  Environmental  Quality
("HSEQ") programs,  which include the Company's Product Stewardship Program, the
Ceramic Fibers  Advisory  Board,  ongoing  employee health studies and workplace
exposure  monitoring  studies,  are  expensed as  incurred.  Amounts  charged to
operations  during the years ended December 31, 1997,  1998 and 1999 relating to
HSEQ and testing in connection with research and development totaled $1,253,000,
$1,738,000 and $1,374,000,  respectively,  and are included in selling,  general
and administrative expenses in the accompanying statements of income.

Financial Instruments

The  Company has entered  into  interest  rate swap  agreements  to  effectively
convert a portion of fixed-rate debt into  variable-rate  debt. All payments and
receipts  under the swap  agreements  are  recorded as  adjustments  to interest
expense.

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS No.
133 establishes  accounting and reporting standards for derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities.  It requires that an entity  recognize all  derivatives  as
either assets or liabilities in the statement of financial  position and measure
those  instruments  at fair value.  The intended use of the  derivative  and its
designation  as  either a fair  value  hedge,  a cash flow  hedge,  or a foreign
currency  hedge,  will determine when the gains or losses on the derivatives are
to be reported in  earnings  and when they are to be reported as a component  of
other  comprehensive  income.  The new  standard  must be adopted  for year 2000
financial reporting. The impact of compliance with SFAS No. 133 has not yet been
determined by the Company.

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 amounts  reported in the financial  statements and  accompanying
notes. Actual results could differ from those estimates.

                                       22
<PAGE>

3.   Inventories

Major classes of inventories are as follows:

                                                  December 31
                                               1998        1999
                                               ----        ----
                                               (In Thousands)

Raw material and supplies                  $  3,459     $  4,006
In-process                                    2,008        1,480
Finished product                              4,341        3,459
                                           --------     --------
                                              9,808        8,945
Adjustment to LIFO cost                         535          458
                                           --------     --------
                                           $ 10,343     $  9,403
                                           ========     ========

The cost of  inventories  determined on the LIFO method exceeds the current cost
of inventories principally as a result of reduced manufacturing costs.

4.   Property, Plant and Equipment

Property, plant and equipment consist of the following:

                                                       December 31
                                                     1998        1999
                                                     ----        ----
                                                      (In Thousands)

Land and land improvements                       $  1,982     $  1,929
Buildings                                          18,793       18,761
Machinery, equipment, furniture and fixtures       50,759       51,068
Construction in progress                            2,829        4,697
                                                 --------     --------
                                                   74,363       76,455
Less accumulated depreciation                     (37,656)     (40,854)
                                                 --------    ---------
                                                 $ 36,707    $  35,601

For the years ended  December  31,  1997,  1998 and 1999,  depreciation  expense
amounted to $4,383,000, $4,739,000 and $4,534,000, respectively.

5.   Long Term Debt and Note Payable -- Affiliate

Long term debt consists of the following:

                                                    December 31
                                                  1998         1999
                                                  ----         ----
                                                    (In Thousands)

10 1/2% Senior Notes due 2003                 $  98,000     $  96,000
Loan and Security Agreement:
  Term loan                                      10,000         6,250
  Revolving loan                                  1,700         4,900
                                              ---------     ---------
                                                109,700       107,150
Less current portion                              3,750         6,250
                                              ---------     ---------
Long term debt                                $ 105,950     $ 100,900
                                              =========     =========

                                       23
<PAGE>

The Company's  Loan and Security  Agreement  dated as of October 30, 1996 ("Loan
Agreement")  enables the Company to borrow up to $45,000,000 as follows:  a term
loan of $25,000,000  (reduced by repayments  subsequent to October 30, 1996) and
revolving  loans plus letter of credit  obligations  not to exceed  $20,000,000.
Interest  rates on the revolving  loan and term loan range from LIBOR plus 1.00%
to LIBOR plus 1.75%,  as defined.  A fee of .25% is charged on the average daily
amount by which the revolving  credit amount  available  exceeds the outstanding
principal balance of revolving loans plus the letter of credit  obligations.  As
of December 31,  1999,  the Company had a letter of credit in effect of $624,000
required  by the  State of New  York for  Worker's  Compensation.  The  weighted
average  interest rate on the  obligations  outstanding at December 31, 1999 was
8.00% (7.04% at December  31,  1998).  All  outstanding  amounts  under the Loan
Agreement mature October 2001.

The Loan Agreement contains various restrictive covenants which include, but are
not limited to, a minimum net worth requirement, a minimum fixed charge coverage
ratio,  a  minimum   interest   coverage  ratio,  and  restrictions  on  capital
expenditures,  distributions,  and incurring debt, as defined.  Borrowings under
the Loan  Agreement  are  secured by assets of the  Company  including,  but not
limited to, accounts receivable, inventory, equipment and fixtures.

On August 25,  1998,  the Company  repurchased  $2 million  face value of Senior
Notes,  and on March 3, 1999,  the Company  repurchased an additional $2 million
face value of Senior Notes.

The note payable -- affiliate,  plus accrued interest at the prime lending rate,
was repaid November 1, 1999.

Maturities of long-term debt are as follows (in thousands):

         2000           $   6,250
         2001               4,900
         2002                   -
         2003              96,000

Interest  payments  made  in  1997,  1998  and  1999  amounted  to  $12,417,000,
$12,031,000 and $11,813,000, respectively.

6.   Fair Value of Financial Instruments

At December  31, 1998 and 1999,  the  carrying  amount and the fair value of the
Company's  financial  instruments  were as  follows.  Bracketed  amounts  in the
carrying  amount  column  represent  liabilities  for potential  cash  outflows.
Bracketed  amounts in the fair value column  represent  estimated  cash outflows
required to currently settle the financial instrument at current market rates.

                                 December 31, 1998        December 31, 1999
                                 -----------------        -----------------
                                Carrying      Fair       Carrying    Fair
                                 Amount       Value       Amount     Value
                                 ------       -----       ------     -----
                                               (In Thousands)
Assets:
Cash and cash equivalents       $      43   $     43    $    --    $     --
Liabilities:
Long-term debt (including
current maturities)              (116,700)  (120,620)  (107,150)   (105,350)
Interest rate swap agreement           --         --         --        (173)

                                       24
<PAGE>

The following methods and assumptions were used by the Company in estimating the
fair  values of  financial  instruments.  The  carrying  amount  reported in the
balance sheet for cash and cash  equivalents  approximates  fair value. The fair
value of the Company's senior notes was estimated using quoted prices.  The fair
value of variable rate loans  approximate  carrying  amounts.  The fair value of
interest rate swap agreements was determined using discounted cash flows.

Effective  October  1,  1999,  the  Company  entered  into  interest  rate  swap
agreements to  effectively  convert  fixed-rate  debt with a notional  principal
amount of $25,000,000 to variable-rate  debt. Under the agreements,  the Company
receives  from the banks an amount for interest  based upon a fixed rate of 6.2%
per annum,  and pays the banks an amount for interest based upon the established
LIBOR rate,  which at December  31, 1999 was 6.48%.  All  payments  and receipts
under the swap agreements are recorded as adjustments to interest expense.

7.   Related Party Transactions

Kirtland Capital  Partners II L.P.  ("Kirtland"),  the principal  shareholder of
Holding,  and the  Company  have  entered  into an Advisory  Services  Agreement
pursuant to which Kirtland provides management consulting and financial advisory
services to the Company for an annual fee  initially  in the amount of $300,000.
The Company paid $300,000 in each of 1997,  1998, 1999 to Kirtland in connection
with the Advisory Services Agreement.

As  a  consequence  of  the  Recapitalization,   Holding  advanced  the  Company
$2,250,000  in December,  1996.  During 1997 this advance was converted to 1,500
shares of 6% cumulative  preferred  stock.  To preserve its 10% ownership in the
Company,   BP   subsequently   exchanged   interest  owed  to  it  on  the  Note
payable-affiliate for 166.67 shares of 6% cumulative preferred stock.

8.   Accrued Expenses

Accrued expenses consist of the following:

                                                          December 31
                                                        1998         1999
                                                        ----         ----
                                                         (In Thousands)

Accrued compensation and employee benefits           $  2,726    $   3,806
Ceramic fiber product stewardship and monitoring          742          536
Interest                                                1,989        1,913
Other                                                   1,682        1,444
                                                     --------    ---------
                                                     $  7,139    $   7,699
                                                     ========    =========

                                       25
<PAGE>

9.   Pension and Other Retirement Benefits

The Company  sponsors a qualified  defined  benefit  pension  plan (the  "Plan")
covering  its  hourly  union  employees.  Benefits  under this plan are based on
length of service.

The following tables summarize certain information with respect to the Plan:

                                                         December 31
                                                      1998          1999
                                                      ----          ----
                                                          (In Thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year          $    785      $    1,023
Service cost                                           43              41
Interest cost                                          54              66
Benefits paid                                           -             (19)
Actuarial loss                                         33            (149)
Amendment                                             108               -

Benefit obligation at end of year                   1,023             962

Change in Plan Assets
Fair value of plan assets at beginning of year   $    753      $      839
Actual return on plan assets                           86             106
Benefits paid                                           -             (19)

Fair value of plan assets at end of year             839              926

Funded status                                       (184)             (36)
Unrecognized prior service cost                      108              101
Unrecognized actuarial gains                         (24)            (212)
Additional minimum liability                         (84)               -
Accrued pension obligation                      $   (184)      $     (147)

<TABLE>
<CAPTION>
                                                          Year Ended December 31

                                                    1997           1998           1999
                                                    ----           ----           ----
                                                           (In Thousands)
<S>                                             <C>            <C>            <C>
Components of Net Periodic Pension Cost
Service cost                                    $     55       $      43      $     40
Interest cost                                         48              54            66
Expected return on plan assets                       (49)            (60)          (66)
Amortization of unrecognized prior service cost        -               -             7

Net periodic pension cost                       $     54       $      37      $     47

Discount rate                                        7.0%            6.5%          7.5%
Expected return on plan assets                       7.0%            8.0%          8.0%

</TABLE>

Unrecognized  gains and losses are  amortized  on a  straight-line  basis over a
period   approximating   the  average   remaining   service  period  for  active
participants.

                                       26
<PAGE>

The Company  also  sponsors a  qualified  defined  contribution,  money-purchase
pension plan for its salaried  employees.  Under the  money-purchase  plan,  the
Company  contributes an amount equal to 2.5% of an employee's  applicable annual
compensation  to  investment  accounts as directed by the  employee.  The annual
expense for the money purchase plan was $422,000,  $426,000 and $435,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.

The Company also sponsors a defined  contribution 401(k) plan which is available
to substantially all non-union employees of the Company.  Company contributions,
representing a 50% matching of employee  contributions  up to a maximum of 6% of
the employee's base pay, amounted to $428,000,  $427,000 and $480,000 during the
years ended December 31, 1997, 1998 and 1999, respectively.

In addition to pension  benefits,  the Company also provides certain health care
benefits to retired employees who meet eligibility  requirements.  The Company's
policy is to fund other postretirement  benefits as insurance premiums or claims
become due.

The following table summarizes certain information with respect to the Company's
other postretirement benefits.

<TABLE>
<CAPTION>
                                                                  Year Ended December 31
                                                               1997        1998      1999
                                                               ----        ----      ----
                                                                       (In Thousands)
<S>                                                        <C>         <C>         <C>
Components of net periodic postretirement benefit cost
Service cost--benefits earned                              $   214     $   214     $   95
Interest costs                                                 134         159        110
Amortization of unrecognized net gain                          (84)        (72)       (90)
Amortization of unrecognized prior service cost                  -           -         24
Curtailment gain                                                 -           -       (265)
                                                           -------     -------     ------
Net periodic postretirement benefit expense (income)       $   264     $   301     $ (126)
                                                           =======     =======     ======
</TABLE>

                                                     December 31
                                                  1998       1999
                                                  ----       ----
                                                   (In Thousands)

Change in Benefit Obligation

Benefit obligation at beginning of year     $    2,268    $   2,820
Service cost                                       214           95
Interest cost                                      159          110
Plan participant's contributions                     -            7
Curtailment                                          -           36
Actuarial loss (gain)                              182       (1,391)
Benefits paid                                       (3)         (33)

Benefit obligation at end of year                2,820        1,644
Unrecognized prior service cost                      -         (276)
Unrecognized actuarial gains                       687        1,988
Accrued postretirement benefit cost         $    3,507    $   3,356


Weighted Average Assumptions as of December 31
Discount rate                                      6.5%         7.5%

                                       27
<PAGE>

Pursuant to the  Recapitalization,  BP America retained  responsibility  for all
postretirement  medical  and/or life  insurance  coverage  for retirees or other
employees terminated prior to the Closing Date and for any employee who receives
benefits under other plans as defined in the Agreement.

The  assumed  annual  rate of future  increase in per capita cost of health care
benefits  (health  care  cost  trend  rate)  for 2000 and  beyond  is 6% for all
beneficiaries. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A one percentage point change in
assumed health care cost trend rates would have the following effect:

<TABLE>
<CAPTION>
                                                         One Percentage    One Percentage
                                                         Point Increase    Point Decrease
                                                         --------------    --------------
                                                                  (In Thousands)
<S>                                                        <C>                <C>
Effect on total of service and interest cost components    $     11           $  (9)
Effect on postretirement benefit obligation                      83             (72)

</TABLE>


Unrecognized  gains and losses are  amortized  on a  straight-line  basis over a
period   approximating   the  average   remaining   service  period  for  active
participants.

10.  Income Taxes

The provision for income taxes consists of the following:

                                                     Year Ended December 31
                                                  1997      1998        1999
                                                  ----      ----        ----
                                                        (In Thousands)
Current:
   Federal                                    $   100     $     -     $    53
   State                                           35          32          38
                                              -------     -------     -------
                                                  135          32          91
Deferred                                        1,802       2,273       2,701
                                              -------     -------     -------
                                              $ 1,937     $ 2,305     $ 2,792
                                              =======     =======     =======

The provision for income taxes differs from the amount  computed by applying the
statutory income tax rate as follows:

                                                   Year Ended December 31
                                                1997       1998        1999
                                                ----       ----        ----
                                                       (In Thousands)

Income before income taxes at 34%            $ 2,551     $ 2,159     $ 2,641
Permanent income tax disallowances                66          62          63
State taxes, net of federal benefit              291          21          24
Impact of income tax rate changes on
 deferred income taxes                             -           -       2,054
Reduction of valuation allowance              (1,000)          -      (2,078)
Other                                             29          63          88
                                            --------     -------     -------
                                            $  1,937     $ 2,305     $ 2,792
                                            ========     =======     =======
                                       28
<PAGE>

Deferred  income taxes reflect the net effect of temporary  differences  between
the carrying amounts of assets and liabilities for financial  reporting purposes
and the amounts used for income tax purposes. At December 31, 1998 and 1999, the
major components of deferred tax assets and liabilities were as follows:

                                                              December 31
                                                         1998            1999
                                                         ----            ----
                                                            (In Thousands)
Deferred tax liabilities
  Property, plant and equipment                     $      -         $    (866)
  Deferred charges                                       (47)                -
                                                    --------         ---------
Gross deferred tax liabilities                           (47)             (866)

Deferred tax assets
  Tax goodwill and other intangible assets            26,296            23,034
  Property, plant and equipment                        1,559                 -
  Net operating loss carryforward                      6,631             7,186
  Accrued liabilities                                  1,252             1,511
  Accrued postretirement benefit cost                  1,389             1,275
  Inventory                                            1,156             1,112
  Other                                                  160               209
                                                   ---------        ----------
Gross deferred tax assets                             38,443            34,327
Valuation allowance                                   13,500            11,422
                                                   ---------        ----------
Deferred tax assets, net of valuation allowance       24,943            22,905
                                                   ---------        ----------
Net deferred tax asset                             $  24,896        $   22,039
                                                   =========        ==========

The   Recapitalization   agreement   provided   for  an  election  to  have  the
Recapitalization  (see Note 1)  treated  as an asset  purchase  for  income  tax
purposes,  with a resulting  increase in the tax basis of assets. The historical
cost  basis of assets and  liabilities  was  retained  for  financial  reporting
purposes.

At December  31,  1999,  the Company  has Federal and state net  operating  loss
carryforwards  totaling  approximately  $15,504,000  which will be  available to
offset future taxable income.  These net operating loss carryforwards  expire in
2011 through  2019.  The Company paid  $125,000,  $11,000 and $80,000 for income
taxes during the years ended December 31, 1997, 1998 and 1999, respectively.

11.  Stock Options

Effective October 30, 1996 the Company  established the Unifrax Corporation 1996
Stock Option Plan to make awards of stock  options to officers and key employees
for up to  1,505  shares  of  common  stock.  The  options  are  granted  at the
approximate  fair  value of the  underlying  shares  at the  date of  grant  and
generally vest in equal amounts over a four year period from the grant date. The
options  expire ten years after grant.  A summary of stock  option  activity and
exercise prices is as follows:

<TABLE>
<CAPTION>
                                 1997                1998                 1999
                                 ----                ----                 ----
                                   Exercise             Exercise             Exercise
                          Options   Price      Options   Price      Options   Price
                          -------   -----      -------   -----      -------   -----
<S>                        <C>      <C>         <C>      <C>         <C>      <C>
Outstanding, January 1     1,075    $ 1,500     1,075    $ 1,500     1,236    $ 1,500
Granted                        -          -       161      1,500         -          -

Outstanding, December 31   1,075    $ 1,500     1,236    $ 1,500     1,236    $ 1,500

Exercisable, end of year     268    $ 1,500       577    $ 1,500       886    $ 1,500
</TABLE>


The weighted-average  remaining  contractual life of the options at December 31,
1999 is 7.04 years.
                                       29
<PAGE>

The Company has elected to account for its employee  stock options in accordance
with APB 25 and related  interpretations, as permitted by SFAS 123. As a result,
no  compensation  expense for employee stock options has been  recognized in the
financial  statements.  Companies electing to account for employee stock options
in accordance  with APB 25 must make pro forma  disclosures  of net income as if
the fair value based method of accounting in SFAS 123 had been applied. The fair
value of each option on the date of grant was  $453.45,  which was  estimated at
the  date  of  grant  using  the  minimum   value   method  and  the   following
weighted-average  assumptions:  risk free interest rate of 6%, dividend yield of
0%, and a  weighted-average  expected life of the option of 6 years. If the fair
value based method accounting provision of SFAS 123 had been adopted, net income
would  have been  $5,492,000,  $3,965,000  and  $4,888,000  for the years  ended
December 31, 1997,  1998, and 1999,  respectively.  The effects of applying SFAS
123 for providing pro forma  disclosures are not likely to be  representative of
the effects on reported net income for future years.

12.  Lease Commitments and Rentals

The Company rents three  manufacturing  facilities and certain  equipment  under
various operating leases.  The lease agreement for one of the facilities expires
2014 and contains  options  which allow the Company to extend the lease term for
up to two  additional  five  year  periods.  The  lease  agreement  for a second
facility expires 2004 and contains options which allow the Company to extend the
lease  term for up to two  additional  five year  periods,  or to  purchase  the
facility  for a purchase  price equal to fair value.  Total  rental  expense was
$1,580,000,  $1,788,000  and  $1,717,000  for the years ended December 31, 1997,
1998 and 1999, respectively.

Future minimum lease payments under all non-cancelable operating leases having a
remaining  term in excess of one year as of December 31, 1999 are as follows (in
thousands):

                           2000                      $   821
                           2001                          815
                           2002                          742
                           2003                          742
                           2004                          672
                           Thereafter                  5,677
                                                       -----
                                                    $  9,469

13.  Contingencies

Ceramic Fibers

Regulatory agencies and others,  including the Company, are currently conducting
scientific  research to determine the potential health impact resulting from the
inhalation  of  airborne  ceramic  fibers.  To date,  studies  of  workers  with
occupational  exposure  to  airborne  ceramic  fiber  have  found no  clinically
significant  relationship between prior or current exposure to ceramic fiber and
disease in humans;  however,  independent  animal  studies have  indicated  that
ceramic fiber inhaled by test animals at elevated doses can produce  respiratory
disease,  including cancer.  The results of this research have been inconclusive
as to whether or not ceramic fiber  exposure  presents an  unreasonable  risk to
humans.

From time to time Unifrax and other  manufacturers  of ceramic  fibers have been
named as defendants in lawsuits alleging death or personal injury as a result of
exposure in the  manufacture  and handling of ceramic fiber and other  products.
The amount of any liability  that might  ultimately  exist with respect to these
claims or any other unasserted claims is presently not determinable. The Company
believes  the  lawsuits  brought  against  it have  been  without  merit and the
litigation  currently pending, or to its knowledge  threatened,  will not have a
material  adverse effect on the financial  condition or results of operations of
the Company.  The Company's  belief is based on the fact that,  although  animal
studies have  indicated  that ceramic  fiber inhaled by test animals at elevated
doses can cause  disease,  there is no  evidence  that  exposure  to  refractory
ceramic fiber has resulted in disease in humans.

                                       30
<PAGE>

Consistent  with  customary  practice  among   manufacturers  of  ceramic  fiber
products,  the Company has entered  into  agreements  with  distributors  of its
product whereby it agreed to indemnify the distributors against losses resulting
from ceramic  fiber claims and the costs to defend  against such claims.  To the
best of the Company's  knowledge,  there have been no historical,  nor are there
any current,  ceramic fiber exposure  claims made against these  indemnification
agreements.  Consequently,  the amount of any  liability  that might  ultimately
exist with respect to these indemnities is presently not determinable.

Pursuant to the Recapitalization  Agreement,  BP America Inc. and certain of its
affiliates  (collectively  "BP  America"),  have agreed to indemnify the Company
against  liabilities  for personal  injury and wrongful  death  attributable  to
exposure  which  occurred  prior to the  Closing to  refractory  ceramic  fibers
manufactured  by the  Company.  BP America has agreed to  indemnify  the Company
against all liabilities  arising from exposure claims pending at the time of the
Closing.  For all other claims arising from alleged  exposure  occurring  solely
prior to Closing,  BP America has agreed to indemnify the Company against 80% of
all losses,  until the total loss which the Company incurs reaches $3.0 million,
after which time BP America has agreed to indemnify the Company  against 100% of
such losses. BP America has agreed to indemnify the Company against all punitive
damages  attributable  to the  conduct of the Company  prior to  Closing.  Where
losses arise from alleged  exposure  both before and after  closing,  the losses
will be  allocated  between BP America and the Company,  pro rata,  based on the
length of exposure or pursuant to  arbitration  if initiated by the Company.  To
date the Company has incurred no claims  losses  applicable  to the $3.0 million
total mentioned above.

The Company cannot avail itself of this indemnity for losses attributable to the
Company's failure to maintain a Product  Stewardship Program consistent with the
program  maintained  by  the  Company  prior  to  Closing,   as  modified  in  a
commercially   reasonable   manner  in  accordance  with  changing   regulatory,
scientific  and  technical  factors.  BP shall not  indemnify  the Company  with
respect to any  liabilities  for wrongful death or personal injury to the extent
caused by the failure of the Company to maintain a Product  Stewardship  Program
consistent  with that  maintained  by the Company  prior to the Closing.  In the
Company's  opinion,  the Product  Stewardship  Program has been  maintained in a
manner  consistent  with these  requirements.  Unifrax intends to defend ceramic
fiber claims vigorously.

Environmental Matters

The Company is subject to loss contingencies  pursuant to various federal, state
and local environmental laws and regulations. These include possible obligations
to remove or mitigate the effects on the environment of the placement,  storage,
disposal or release of certain  chemical or petroleum  substances by the Company
or by other parties.

The Company may be named as a potentially  responsible party ("PRP") pursuant to
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended  ("CERCLA" or "Superfund") or comparable state law in connection with
off-site  disposal of hazardous  substances at three sites,  and The Carborundum
Company has entered into a Consent Decree with the New York State  Department of
Environmental Conservation to remediate contamination at the facility located in
Sanborn,  New York. While the Company's ultimate clean-up liability at the sites
at which the  Company is a  potential  PRP is not  presently  determinable,  the
Company does not expect to incur any material  liability  with respect to any of
these sites,  individually or in the aggregate, as a result of its activities at
these sites.  Furthermore,  BP America has agreed to  indemnify  the Company for
certain  environmental  liabilities,  which might  ultimately  exist,  under the
Recapitalization  Agreement.  In addition,  BP America has assumed liability for
other potential off-site clean-up obligations  associated with Carborundum.  The
locations at which the Company has maintained  potential  off-site liability and
the Carborundum Sanborn, New York facility are described below.

                                       31
<PAGE>

     Kline Trail Site.  In 1984,  the Company  voluntarily  advised the State of
Indiana of  potential  unauthorized  disposal  of waste at an Indiana  site by a
transporter.  No  response  from the state  has been  received,  and no  further
information  about  the  potential  for  remediation  costs at the site has been
received by the  Company.  It is expected  that little or no  liability  will be
associated with this site.

     PCB Inc., Site. The New Carlisle,  Indiana, facility received a request for
information from the EPA in 1994 concerning potential responsibility for cleanup
of the PCB  Treatment  site  located in Kansas  City,  Kansas  and Kansas  City,
Missouri.  Records  indicate that a number of  capacitors  from the New Carlisle
facility  of the  Company  were  sent  to the PCB  Treatment  site.  A  response
documenting the timely  destruction of those materials was submitted to the EPA.
In September 1997 the EPA contacted BP America via letter to verify that a total
of 10,900 pounds of capacitors and  transformers had been sent to the site by BP
America/Carborundum.  No additional  information on clean-up  timing or cost has
since been received.  Based on the total pounds  delivered by all parties to the
site,  the  liability,  if any,  ultimately  attributable  to BP  America or the
Company is not  expected  to have a  material  adverse  effect on the  Company's
financial position.

     Osage Metals Site.  Osage  Metals Co.,  Inc. was a scrap metal  business in
Kansas City, Kansas, that reclaimed metals from various sources, including metal
from used transformers and capacitors. Osage purchased transformer and capacitor
scrap metal from PCB Treatment Co., Inc.  ("PCB Inc." above) and others.  An EPA
sampling  of soil at the  Osage  site  indicated  the  presence  of PCB and lead
contamination.  In early 1998 BP  America  was  notified  by the EPA that it was
potentially liable under CERCLA for response costs at the Osage site. In 1999 BP
America made a de minimus payment which substantially  settled its environmental
obligations  for this site.  Consequently,  the  liability,  if any,  ultimately
attributable  to BP America or the  Company is not  expected  to have a material
adverse effect on the Company's financial position.

     Shulman  Site.  The Company has  potential  liability  with  respect to the
Shulman site in St. Joseph  County,  Indiana.  The site is a landfill  which the
Company  believes  to have been  contaminated  by  chemicals  migrating  from an
adjacent facility.  Plant trash from the New Carlisle facility was hauled to the
site. An agreement has been reached pursuant to which the Company,  as part of a
response group,  agreed to assume  approximately  5% of certain  response costs,
which to date  includes  $1.7  million for  installation  of a water  line.  The
Company's  share  of that  cost is under  $100,000.  The  owner of the  adjacent
facility  has  assumed  the  bulk of  site  remediation  costs  to  date.  It is
anticipated that site remediation will ultimately  involve installing a clay cap
over the site, the cost of which is not yet known.

     Sanborn  Site.  Under the terms of an  agreement  with BP America,  Unifrax
leases a portion of the  present  manufacturing  facilities  on this  site.  The
Carborundum  Company's  Sanborn,  New York  site was used by a number  of former
Carborundum  operations.  Testing  in the area has found that  contamination  by
volatile organic compounds is present in the soil and groundwater.  Neither past
nor current  operations of Unifrax are believed to have contributed to, or to be
contributing  to, the  existence of this  contamination.  While The  Carborundum
Company  entered into a Consent Decree with the State of New York under which it
was to conduct  remedial  activities  at the site, BP America has taken title to
and assumed  liability  for the  remediation  of this property as of October 30,
1996.  Efforts to remediate the site, chiefly by means of soil vapor extraction,
are expected to continue for some time.

Under the terms of the Recapitalization Agreement, BP America assumed liability,
and the rights to recovery from third parties, for environmental remediation and
other similar required actions with respect to certain environmental obligations
of Unifrax including the above, which existed as of the Closing Date.

The Company may, in the future, be involved in further environmental assessments
or clean-ups.  While the ultimate requirement for any such remediation,  and its
cost, is presently not known,  and while the amount of any future costs could be
material  to the  results  of  operations  in  the  period  in  which  they  are
recognized,  the Company does not expect these costs, based upon currently known
information and existing requirements,  to have a material adverse effect on its
financial position.
                                       32
<PAGE>

Legal Proceedings

In addition to the ceramic  fiber and  environmental  matters  discussed  above,
BP/Carborundum and Unifrax are involved in litigation relating to various claims
arising out of their  operations  in the normal  course of  business,  including
product  liability  claims.  While  the  outcomes  of this  litigation  could be
material to the results of  operations  in the period  recognized,  based on the
current claims asserted the management of the Company believes that the ultimate
liability,  if any, resulting from such matters will not have a material adverse
effect on the Company's financial position.

The  Carborundum  Company  has been  named in  numerous  legal  claims  alleging
pre-Closing  asbestos exposure.  None of the current or past products of Unifrax
are asbestos-containing  materials, as defined by OSHA (29CFR1900.1001(b)).  For
these claims related to pre-Closing  Carborundum Company matters, BP America has
responsibility under the  Recapitalization  Agreement and is managing the claims
directly.

14.  Stockholders' Equity

Effective  September 30, 1997, Unifrax  Corporation issued and sold 1,500 shares
of 6%  cumulative  preferred  stock of the  Company  to Unifrax  Holding  Co. in
satisfaction  of an advance of $2.25 million made by Unifrax  Holding Co. to the
Company on December 20, 1996. The advance was then canceled effective  September
30,  1997.  The  preferred  stock  thereby  acquired  by Unifrax  Holding Co. is
cumulative  with an annual  dividend  of 6% with  dividend  payments  subject to
various covenants in the Company's loan agreements.

Unifrax  Corporation  also issued and sold BP Exploration  (Alaska) Inc.  166.67
shares of 6% cumulative  preferred stock at $1,500 per share, as satisfaction in
part for interest owed through October 30, 1997, on the note payable--affiliate.

The preferred  stock is  redeemable,  in full, at the option of the Company,  at
$1,500 per share,  which equals the stated  value of the  preferred  stock.  The
preferred stock is convertible, at the option of the stockholder,  into an equal
number of shares of common stock.  The number of shares into which the preferred
stock is convertible is subject to adjustment  for  subsequent  stock  dividends
payable on the common stock,  stock splits or reverse  stock  splits,  and other
modifications to the common stock.

Dividends  in arrears  totaled  $336,250 at December  31, 1999 or $224 per share
($186,250 or $124 per share at December 31, 1998).

15.  Subsequent Events

On February 4, 2000,  the Company  announced  that its parent  company,  Unifrax
Holding  Co.,  had entered  into a  non-binding  letter of intent to explore the
purchase of  Carborundum  Insulation  Technology,  the worldwide  ceramic fibers
business of Compagne de  Saint-Gobain.  The proposed  acquisition  is subject to
various  conditions,  including the execution of a definitive purchase agreement
and the  satisfactory  completion  of due  diligence.  It is  expected  that the
acquisition, if consummated,  will be completed by the end of the second quarter
of 2000.

                                       33
<PAGE>

                                   Schedule II

                        Valuation and Qualifying Accounts

                               Unifrax Corporation
                             (Dollars In Thousands)

<TABLE>
<CAPTION>
                                          Balance
                                            at             Charged to                                 Balance at
                                         Beginning         Charged to         Other                     End of
                                         of Period          Expense          Accounts    Deductions     Period
                                         ---------          -------          --------    ----------     ------
<S>                                     <C>                <C>             <C>           <C>           <C>
YEAR ENDED DECEMBER 31, 1999
Deducted from asset accounts:
  Allowance for doubtful accounts       $   382            $     (1)       $    -       $    1(a)       $   380
  Allowance for return                      326                 938             -          823(b)           441
                                        -------            --------        ------       ------          -------
TOTAL                                   $   708            $    937        $    -       $  824          $   821
                                        =======            ========        ======       ======          =======
YEAR ENDED DECEMBER 31, 1998
Deducted from asset accounts:
  Allowance for doubtful accounts       $   794            $  (404)        $    -       $    8(a)       $  382
  Allowance for return                      460                935              -        1,069(b)          326
                                        -------            -------         ------       ------          ------
TOTAL                                   $ 1,254            $   531         $    -       $1,077          $  708
                                        =======            =======         ======       ======          ======
YEAR ENDED DECEMBER 31, 1997
Deducted from asset accounts:
  Allowance for doubtful accounts       $   799            $     3         $    -       $    8(a)       $  794
  Allowance for return                      403                877              -          820(b)          460
                                        -------            -------         ------       ------          ------
TOTAL                                   $ 1,202            $   880         $    -       $  828          $1,254
                                        =======            =======         ======       ======          ======
</TABLE>

(a)  Uncollectible accounts written off, net of recoveries.

(b)  Returns from customers during the year.


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURES

None.

                                       34
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>

Name                       Age      Position
----                       ---      --------
<S>                        <C>      <C>
William P. Kelly           50       Director, President and Chief Executive Officer
Mark D. Roos               44       Vice President and Chief Financial Officer
David E. Brooks            50       Vice President, Sales and Marketing
Kevin J. O'Gorman          49       Vice President, Operations
Paul J. Viola              44       Vice President, Acquisitions and Strategic Development
Paul M. Boymel             47       Vice President, Technology
Joseph J. Kuchera          42       Vice President, Human Resources
John E. Pilecki            47       Vice President, Engineering and Purchasing
James E. Cason             45       Vice President, Risk Management
Raymond A. Lancaster       54       Director
William D. Manning, Jr.    65       Director
John G. Nestor             55       Chairman of the Board
John F. Turben             64       Director
Edmund S. Wright           57       Director

</TABLE>

     Mr. Kelly has been  President  and Chief  Executive  Officer of the Company
since February 1996. He joined Carborundum in 1972 as an engineer, and served in
several positions,  including Vice President of Carborundum's  worldwide ceramic
fiber  business  from 1993 to 1996,  Vice  President of  Carborundum's  domestic
ceramic fiber business from 1989 to 1993,  and Vice  President of  Carborundum's
European operations from 1986-1989.

     Mr. Roos has been Vice President and Chief Financial Officer of the Company
since February 1996, and has been Chief  Financial  Officer of the Company since
1995. He joined  Carborundum in 1985 and served in several  financial  planning,
control and  business  strategy  positions  until he left in 1991 to become Vice
President, Finance and Administration, of The Airolite Company, a metal products
manufacturer.  He rejoined Carborundum in 1993 as Director of Finance,  Planning
and Control.

     Mr.  Brooks has been Vice  President,  Sales and  Marketing  of the Company
since May 1998. Previously he was President of Monofrax, Inc., a unit of Cookson
Group/Vesuvius  Refractories,  since January 1997. Mr. Brooks  originally joined
Carborundum in 1980 and served in several positions, including Marketing Manager
of  Carborundum's  domestic ceramic fiber business from 1988 to 1993 and General
Manager of the Monofrax Refractories Division from 1993 to 1996.

     Mr.  O'Gorman  has been Vice  President,  Operations  of the Company  since
February  1996.  He joined  Carborundum  in 1990 and served as General  Manager,
Manufacturing  and Engineering of its worldwide ceramic fiber business from 1993
to 1995 and Manager,  Manufacturing for its domestic ceramic fiber business from
1990 to 1993.

     Mr. Viola has been Vice President,  Acquisitions and Strategic  Development
of the Company since May 1998. Previously he had been Vice President,  Sales and
Marketing of the Company since February  1996.  Mr. Viola joined  Carborundum in
1978 and served in  several  positions,  including  General  Manager,  Sales and
Marketing for  Carborundum's  worldwide ceramic fiber business from 1993 to 1995
and  Manager  of the  Automotive  Products  Group  of  Carborundum's  Structural
Ceramics Division from 1991 to 1993.

                                       35
<PAGE>

     Dr. Boymel has been Vice President, Research and Development of the Company
since February 1996 and Manager of Technology since 1989. He joined  Carborundum
in 1981.

     Mr. Kuchera has been Vice  President,  Human Resources of the Company since
February  1996 and was Manager of Human  Resources  for  Carborundum's  domestic
ceramic  fiber  business from 1988 to 1996.  He joined  Carborundum  in 1981 and
served in  several  human  resource  positions  in  connection  with a number of
different Carborundum business units.

     Mr.  Pilecki has been Vice  President,  Engineering  and  Purchasing of the
Company since February 1996. He joined  Carborundum's  ceramic fiber business in
1976  and  has  served  in  various  engineering  and  manufacturing  positions,
including domestic engineering manager since 1990 and worldwide  engineering and
purchasing manager since 1993.

     Mr. Cason has been Vice President,  Risk  Management,  of the Company since
1997, and Director of Health,  Safety,  and  Environment,  since 1996. He joined
Carborundum in 1993 as Director of Health, Safety, and Environmental Quality.

     Mr.  Lancaster has been a Managing Partner of Kirtland since 1995, and is a
member  of  Kirtland  Capital  Partners  Advisory  Board.  He is a  Director  of
Fairmount Minerals,  Ltd., Management Reports, Inc., PVC Container Corp., R Tape
Corp., Shore Bridge Corp., and STERIS Corp.

     Mr. Manning is currently  self-employed  as a management  consultant.  From
1987 to 1994,  he was Senior Vice  President  of The  Lubrizol  Corporation  and
President  of  Lubrizol  Petroleum  Chemicals  Co. Mr.  Manning is a Director of
Robbins and Myers, Inc., Fletcher Paper Company and Park Avenue Marble Co.

     Mr. Nestor has been with Kirtland since 1986,  has been a Managing  Partner
of Kirtland since 1995, and is a member of Kirtland  Capital  Partners  Advisory
Board. He is Chairman of TruSeal Technologies, Inc., and a Director of Fairmount
Minerals Ltd., R Tape Corp., and Profile Metal Forming, Inc.

     Mr.  Turben  has been  with  Kirtland  since  1977 and has been a  Managing
Partner of Kirtland since 1995. He is Chairman of the Board of Kirtland  Capital
Corp.  and serves as Chairman of The Hickory  Group,  PVC  Container  Corp.  and
Harrington &  Richardson  1871,  Inc.,  Chairman of the  Executive  Committee of
Fairmount   Minerals  Ltd.,  and  a  Director  of  NACCO   Industries,   TruSeal
Technologies,  Inc.,  Stonebridge  Industries,  Inc., Gries Financial Corp., and
Instron Corp.

     Mr.  Wright  has been  affiliated  with  Kirtland  since  1985.  He is past
Chairman of Dakota  Catalyst  Products  Inc. and from 1981 to 1994 was President
and Chief Executive Officer of North American  Refractories  Company. Mr. Wright
is a director of  Fairmount  Minerals  Ltd.,  Glasstech,  Inc.,  STAM,  Inc. and
Stonebridge Industries, Inc.

                                       36
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

Compensation of Directors

     All non-Executive  Directors receive an annual retainer of $10,000 which is
paid in approximately quarterly installments.

     The following  table sets forth the respective  amounts of  compensation of
the Chief Executive Officer and the next four highest-paid executive officers of
the Company (the "named executive officers") for 1997, 1998 and 1999.

<TABLE>
<CAPTION>
                                            SUMMARY COMPENSATION TABLE

                                                                      Long-Term
                                                                    Compensation
                                              Annual Compensation    Securities        All
Name and                                      -------------------    Underlying       Other
Principal Position                         Salary           Bonus     Options      Compensation*
------------------                         ------           -----     -------      ------------
<S>                             <C>      <C>            <C>           <C>         <C>
W. Kelly                        1999     $ 247,913      $      -0-    N/A         $ 13,444
President and                   1998       224,363         88,715     N/A           10,034
Chief Executive Officer         1997       211,226             -0-    N/A            9,556

D. Brooks                       1999       165,240          6,000     N/A            9,088
Vice President                  1998        96,974             -0-    N/A            5,334
Sales and Marketing             1997           N/A             N/A    N/A              N/A

K. O'Gorman                     1999       149,864             -0-    N/A            8,776
Vice President,                 1998       144,034         21,851     N/A            7,922
Operations                      1997       128,538             -0-    N/A            7,390

J. Cason                        1999       135,556             -0-    N/A            7,986
Vice President                  1998       132,252         20,522     N/A            7,274
Risk Management                 1997       128,430             -0-    N/A            7,471

P. Viola                        1999       128,486             -0-    N/A            7,571
Vice President,                 1998       124,640         19,169     N/A            6,855
Acquisitions and                1997       121,248             -0-    N/A            6,668
Strategic Development
</TABLE>

* All Other Compensation includes Company match on 401k savings plan and Company
contribution to defined contribution pension plan.

                                       37
<PAGE>

 STOCK OPTION GRANTS, EXERCISES AND YEAR-END VALUES

     The  following  tables set forth  information  regarding  grants of Unifrax
Corporation  stock options to the named  executive  officers.  The stock options
which were  granted in 1996 and 1998 relate to shares of common stock of Unifrax
Corporation.  No  options  were  granted  in 1997 or 1999  and no  options  were
exercised during 1997, 1998 or 1999.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                            AND FY-END OPTION VALUES

                  Number of Securities Underlying   Value of Unexercised In-The-
                  Unexercised Options at FY-End       Money Options at FY-End
Name                Exercisable/Unexercisable      Exercisable/Unexercisable (a)
----                -------------------------      -----------------------------

W. Kelly             282.00   /    94.25                      -0-
D. Brooks             80.50   /    80.75                      -0-
K. O'Gorman          120.75   /    40.50                      -0-
P. Viola             120.75   /    40.50                      -0-
J. Cason              40.25   /    13.50                      -0-

(a)  There are no options that are considered to be  in-the-money as of December
     31, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Of the 20,000  shares of common stock of Unifrax  Corporation  outstanding,
Unifrax Holding Co. owns 18,000 shares or 90% and BP Exploration  (Alaska) Inc.,
a  subsidiary  of BP,  owns  2,000  shares  or 10%.  Of the  1666.67  shares  of
cumulative preferred stock outstanding,  Unifrax Holding Co. owns 1500 shares or
90% and BP Exploration  (Alaska) Inc.,  owns 166.67 shares or 10%. The following
own shares of Unifrax Holding Co. and, consequently,  have a beneficial interest
in Unifrax Corporation.

<TABLE>
<CAPTION>
                                       Number of
                                       Shares of           Beneficial
                                   Unifrax Holding Co.     Percent of         Ownership of
Beneficial Owner                     Common Stock       Unifrax Holding Co.   Unifrax Corp.
----------------                     ------------       -------------------   -------------
<S>                                    <C>                   <C>                <C>
Kirtland
  2550 SOM Center Road
  Suite 105
  Willoughby Hills, Ohio 44094(a)      245,541               90.0%              81.0%
William P. Kelly                         5,000                1.8%               1.6%
David E. Brooks                          3,700                1.4%               1.2%
Paul J. Viola                            1,350                  *                  *
Kevin J. O'Gorman                        1,500                  *                  *
James E. Cason                           1,000                  *                  *
All directors and executive officers
  of Unifrax Corporation as a group(b)  18,050                6.6%               6.0%

</TABLE>

*        Less than 1.0%
                                       38
<PAGE>

(a)  "Kirtland"  includes  Kirtland Capital Partners II L.P. and its affiliates.
     Kirtland  Capital  Corporation  is the  general  partner  of  Kirtland  and
     exercises  voting  control  and  investment   discretion  with  respect  to
     Kirtland's  investment  in  Unifrax.  John F.  Turben,  John G.  Nestor and
     Raymond  A.  Lancaster  are  advisory  board  members of  Kirtland  Capital
     Corporation.

(b)  Excludes  shares  held by  Kirtland  of which  Messrs.  Turben,  Nestor and
     Lancaster  may be  deemed  to be  beneficial  owners  as a result  of their
     control of Kirtland. Messrs. Turben, Nestor and Lancaster disclaim any such
     beneficial ownership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Reference  is made to the  information  included  in  Notes 1 and 13 of the
financial statements contained in Item 8, which is hereby incorporated herein by
reference.

RELATIONSHIP WITH BP AND ITS SUBSIDIARIES

     Stockholders   Agreement.   On  October  30,  1996,   Unifrax  Holding  Co.
("Holding") and BP Exploration (Alaska),  Inc. ("BPX") entered into an agreement
relating  to  their   respective   ownership   of  stock  of  the  Company  (the
"Stockholders  Agreement").  This agreement (i) in certain  circumstances grants
BPX preemptive  rights and rights of first refusal with respect to issuances and
sales,  respectively,  of  stock  of  the  Company;  (ii)  grants  BP  piggyback
registration  rights with respect to equity  securities  of the  Company;  (iii)
restricts  in certain  circumstances  the  ability of the  Company to enter into
certain dilutive or non-arm's length transactions;  and (iv) grants BP the right
to participate in certain circumstances in sales by Unifrax Holding of Holding's
common stock of the Company.

     Recapitalization   Agreement.   Pursuant   to   the   Unifrax   Corporation
Recapitalization Agreement ("Recapitalization Agreement"), BP America, Inc. ("BP
America") has agreed to indemnify the Company as set forth below.

     General Indemnity. The Recapitalization Agreement provides that, subject to
certain limitations,  BP America and certain of its affiliates shall jointly and
severally indemnify the Company and Holding against, among other things, any and
all  claims,  damages,  losses,  expenses,   costs,  penalties,   liens,  fines,
assessments,  obligations  or  liabilities  of any  kind,  arising  from all the
discontinued  operations of the Company or its  subsidiaries.  The  discontinued
operations  include  but  are  not  limited  to  certain   previously   divested
businesses, any other former Carborundum business not part of the Company or its
foreign  subsidiaries,  and the Sanborn,  New York, real estate transferred from
the Company to a BP subsidiary  prior to Closing.  BP America also has agreed to
indemnify the Company and Holding for any breach of a representation or warranty
set forth in the Recapitalization Agreement.

     Health and Safety Indemnity. Pursuant to the Recapitalization Agreement, BP
America has agreed to indemnify the Company and Holding against  liabilities for
personal injury and wrongful death attributable to exposure prior to the Closing
to refractory ceramic fibers  manufactured by the Company. BP America has agreed
to  indemnify  the Company and Holding  against  all  liabilities  arising  from
exposure claims pending at the time of the Closing. For all other claims arising
from alleged exposure  occurring solely prior to Closing,  BP America has agreed
to indemnify the Company and Holding against 80% of all losses,  until the total
loss which the Company incurs reaches $3.0 million,  after which time BP America
has agreed to indemnify the Company and Holding against 100% of such losses.  BP
America has agreed to  indemnify  the Company and Holding  against all  punitive
damages  attributable  to the  conduct of the Company  prior to  Closing.  Where
losses arise from alleged  exposure  both before and after  Closing,  the losses
will be  allocated  between BP America and the Company,  pro rata,  based on the
length of exposure or pursuant to arbitration if initiated by the Company.

                                       39
<PAGE>

     The Company cannot avail itself of this  indemnity for losses  attributable
to the Company's failure to maintain a Product  Stewardship  Program  consistent
with the program  maintained by the Company  prior to Closing,  as modified in a
commercially   reasonable   manner  in  accordance  with  changing   regulatory,
scientific  and  technical  factors.  BP America shall not indemnify the Company
with respect to any  liabilities  for wrongful  death or personal  injury to the
extent  caused by the failure of the  Company to maintain a Product  Stewardship
Program  consistent  with that  maintained  by the Company  prior to October 30,
1996.

     Environmental  Indemnity.  Pursuant to the Recapitalization  Agreement, and
subject to certain  limitations,  BP America has agreed to indemnify the Company
and  Holding  against   environmental   liabilities   arising  from  pre-closing
conditions.  The Recapitalization  Agreement also provides that BP America shall
indemnify the Company and Holding  against  off-site  liabilities  caused by the
transport,  storage  or  disposal  of  hazardous  substances  as well as for the
remedial obligations at the Sanborn, New York site.

     Non-compete  Agreement.  At the Closing,  BP entered  into the  Non-compete
Agreement  with  Holding  providing  that for a period  of five  years  from the
Closing,  BP and its affiliates will not,  anywhere in the world,  own,  advise,
consult,  manage,  operate,  join, control, be associated with or participate in
the  ownership,  management,  operation or control of any business that competes
with the  Company  or its  subsidiaries.  Holding  paid BP $10  million  for the
Non-compete Agreement.

     Sanborn  Lease.  Prior to the  Closing,  the Company  transferred  the real
property located in Sanborn,  New York (the "Sanborn  Property") to a subsidiary
of BP  America.  BP America  leased the real  property  comprising  the  Sanborn
Property  currently  used by the  Company in its  operations  to the  Company in
accordance  with the terms and conditions of a 20 year lease (the "Lease").  The
Lease  provides that the Company will be  responsible  for taxes,  utilities and
insurance.  The Company has an option to purchase  the property for $1.00 at any
time during the 20-year  lease term.  The Company  will  utilize  this  facility
pursuant to a lease,  rather than fee  ownership,  in order to preserve  maximum
flexibility for possible consolidation of operations in the future.

RELATIONSHIP WITH KIRTLAND AND UNIFRAX HOLDING CO.

     Kirtland Advisory Services Agreement. Kirtland and the Company have entered
into an Advisory  Services  Agreement  pursuant to which  Kirtland  will provide
management  consulting  and  financial  advisory  services to the Company for an
annual fee initially in the amount of $300,000, which amount may be increased up
to $500,000  with the  approval of the members of the Board of  Directors of the
Company  who do not have a direct  financial  interest  in any person  receiving
payments  under the Advisory  Services  Agreement.  In addition,  if the Company
completes  an  acquisition,  Kirtland  will be  entitled  to receive a fee in an
amount which will  approximate 1% of the gross purchase price of the acquisition
(including  assumed debt). The Advisory Services  Agreement  included  customary
indemnification provisions in favor of Kirtland.

     Tax Sharing Agreement.  Holding will file a consolidated federal income tax
return,  under  which the  federal  income  tax  liability  of  Holding  and its
subsidiaries  will be determined on a  consolidated  basis.  Holding has entered
into a tax sharing agreement with the Company (the "Tax Sharing Agreement"). The
Tax Sharing Agreement provides that in any year in which the Company is included
in any  consolidated  tax return of Holding and has taxable income,  the Company
will pay to Holding  (except  with respect to tax  benefits  resulting  from the
Non-compete  Agreement  between BP and Holding) the amount of the tax  liability
that the  Company  would have had on such date if it had been  filing a separate
return.  Conversely,  if the Company  generates losses or credits which actually
reduce the consolidated tax liability of Holding and its other subsidiaries,  if
any,  Holding  will credit to the Company  the amount of such  reduction  in the
consolidated  tax  liability.  In the event any state and local income taxes are
determinable  on a combined or  consolidated  basis,  the Tax Sharing  Agreement
provides for a similar  allocation between Holding and the Company of such state
and local taxes.

                                       40

<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report:

                                                                      Page in
                                                                     Form 10-K
                                                                     ---------

(1)  FINANCIAL STATEMENTS

     Audited consolidated financial statements of the                    14
     Company 14 as of December 31, 1998 and 1999, and
     for the three years in the period ended December 31,
     1999.

(2)  FINANCIAL STATEMENT SCHEDULE

     II - Valuation and Qualifying Accounts                             34

     All other schedules have been omitted as the
     required  information is not applicable or the
     information is presented in the financial
     statements or the notes thereto.

(3)  EXHIBITS

        2.1(i)   Unifrax Corporation Recapitalization Agreement

        3.1(i)   Certificate of Incorporation of the Registrant

        3.2(iii) Consent of Stockholders for Amendment of Certificate of
                 Incorporation

        3.3(iii) Certificate of Amendment to Certificate of Incorporation

        3.4(i)   By-laws of the Registrant

        4.1(i)   Form of Indenture (including form of Note)

        10.1(i)  Form of Loan and Security Agreement among Unifrax Corporation,
                 Bank of America Illinois and the lenders party thereto
                 (Credit Agreement)

        10.2(ii) First Amendment to Loan and Security Agreement

        10.3(iv) Second Amendment to Loan and Security Agreement

        10.4(i)* 1996 Stock Option Plan

        10.5(ii) Unifrax Corporation Noncompetition Agreement

        10.6(i)  Lease relating to Tonawanda plant

        10.7     Amendment to lease relating to Tonawanda plant

                                       41
<PAGE>

        10.8(i)  Lease relating to Amherst plant

        10.9(i)  Sanborn Lease

        10.10(i)  Covenant Not to Compete between The British Petroleum Company
                  p.l.c., its affiliates, and the Unifrax Corporation and
                  Societe Europeenne des Produits Refractaires, and its
                  affiliates (portions of this Exhibit have been omitted and
                  were filed separately with the Commission pursuant to a
                  request for confidential treatment)

        10.11(i)  Product Distribution Agreement between the Unifrax Corporation
                  and Societe Europeenne des Produits Refractaires (portions of
                  this Exhibit have been omitted and were filed separately with
                  the Commission pursuant to a request for confidential
                  treatment)

        10.12(i)  Distributed Product License Agreement between the Unifrax
                  Corporation and Societe Europeenne des Produits Refractaires
                  (portions of this Exhibit have been omitted and were filed
                  separately with the Commission pursuant to a request for
                  confidential treatment)

        10.13(i)  License Agreement between the Unifrax Corporation and Societe
                  Europeenne des Produits Refractaires (portions of this Exhibit
                  have been omitted and were filed separately with the
                  Commission pursuant to a request for confidential treatment)

        10.14(i)  Trademark License and Consent Agreement between the Unifrax
                  Corporation and Societe Europeenne des Produits Refractaires

        10.15(i)  Conversion Agreement between the Unifrax Corporation and
                  Societe Europeenne des Produits Refractaires (portions of this
                  Exhibit have been omitted and were filed separately with the
                  Commission pursuant to a request for confidential treatment)

        10.16(i)  XPE(TM) License Agreement between the Unifrax Corporation and
                  Societe Europeenne des Produits Refractaires

        10.17(i)  Form of Covenant Not to Compete between Holding and BP

        10.18(i)  Form of Stockholders Agreement among the Company,
                  BPX and Holding

      10.19(iii)  Amendment to Stockholders  Agreement dated September 30, 1997,
                  among the Company, BP Exploration  (Alaska),  Inc. and Holding

      10.20(iii)  Stock Purchase Agreement dated September 30, 1997, between the
                  Company and Holding

      10.21(iii)  Stock Purchase Agreement dated September 30, 1997, between the
                  Company and BP Exploration (Alaska), Inc.

        10.22(i)  Tax Sharing Agreement between the Company and Holding

        10.23(i)  Advisory Services Agreement between the Company and Kirtland
                  Capital Corporation

        10.24(i)  Form of BP Note

        10.25(v)  Termination Agreement dated December 4, 1998 relative to the
                  Conversion Agreement and the purchase of certain assets
                  from SEPR

                                       42
<PAGE>

        10.26*    Retirement Select Basic Plan document and Trust Agreement

        12.1      Computation of Ratio of Earnings to Fixed Charges

        21.1      Subsidiaries of the Registrant

        27.1      Financial Data Schedule

(i)   Incorporated by  reference  to the  exhibits  filed with the  Registration
      Statement on  Form  S-1  of  Unifrax  Investment  Corp  (Registration  No.
      333-10611).

(ii)  Incorporated by  reference  to the  exhibits  filed with Form 10-K for the
      fiscal year ended December 31, 1996 for Unifrax Corporation.

(iii) Incorporated by  reference  to the  exhibits  filed with Form 10-K for the
      fiscal year ended December 31, 1997 for Unifrax Corporation.

(iv)  Incorporated by  reference  to the  exhibits  filed with Form 10-Q for the
      fiscal quarter ended June 30, 1998 for Unifrax Corporation.

(v)   Incorporated by  reference  to the  exhibits  filed with Form 10-K for the
      fiscal year ended December 31, 1998 for Unifrax Corporation.

 *    Indicates a management contract or compensatory plan or arrangement.

(b)   No reports on Form 8-K have been filed  during the period  covered by this
      report.

                                       43
<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, on March 28, 2000.

                                             UNIFRAX CORPORATION.

                                             By: /s/William P. Kelly
                                                 ----------------------------
                                                 William P. Kelly, President and
                                                 Chief Executive Officer

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

<TABLE>
<CAPTION>

Signature                             Title                                 Date
---------                             -----                                 ----
<S>                             <C>                                    <C>
/s/William P. Kelly                                                    March 21, 2000
----------------------
William P. Kelly                Director, President and Chief
                                Executive Officer (Principle
                                Executive Officer)


/s/Mark D. Roos                                                        March 21, 2000
--------------------------
Mark D. Roos                    Vice President & Chief
                                Financial Officer (Principal
                                Financial Officer and Principal
                                Accounting Officer)

/s/John G. Nestor                                                      March 23, 2000
--------------------------
John G. Nestor                  Chairman of the Board


/s/Raymond A. Lancaster                                                March 22, 2000
--------------------------
Raymond A. Lancaster            Director


/s/William D. Manning, Jr.                                             March 24, 2000
--------------------------
William D. Manning, Jr.         Director


/s/John F. Turben                                                      March 27, 2000
--------------------------
John F. Turben                  Director


/s/Edmund S. Wright                                                    March 24, 2000
--------------------------
Edmund S. Wright                Director

</TABLE>
                                       44