<PAGE>   1



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED JULY 3, 1999



Commission File Number   000-23353
                       --------------------------------------------------------

                               Denali Incorporated
-------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

                    Delaware                                   76-0454641
-------------------------------------------------------------------------------
         (State or Other Jurisdiction of                    (I.R.S. Employer
         Incorporation or Organization)                    Identification No.)

  1360 Post Oak Blvd., Suite 2250, Houston, Texas                77056
-------------------------------------------------------------------------------
    (Address of Principal Executive Offices)                   (Zip Code)

                                  713-627-0933
-------------------------------------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock $0.01 Par Value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of September 1, 1999, there were 5,423,215 shares of Common Stock of the
Registrant outstanding. The aggregate market value on such date of the voting
stock of the Registrant held by non-affiliates was an estimated $41.7 million
based upon the closing price of $7.69 on August 31, 1999.

Documents incorporated by reference. Certain portions of the Registrant's
definitive Proxy Statement for the 1999 Annual Meeting of Shareholders ("Proxy
Statement") are incorporated in Part III by reference.


<PAGE>   2




                               DENALI INCORPORATED
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 3, 1999

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                           Page No.
<S>              <C>                                                                                     <C>
PART I
Item 1.           Business....................................................................................1
Item 2.           Properties..................................................................................8
Item 3.           Legal Proceedings...........................................................................9
Item 4.           Submission of Matters to a Vote of Security Holders.........................................9

PART II
Item 5.           Market for the Registrant's Common Equity and Related Stockholder Matters..................10
Item 6.           Selected Financial Data....................................................................11
Item 7.           Management's Discussion and Analysis of Financial Condition and Results
                         of Operations.......................................................................13
Item 7A.          Quantitative and Qualitative Disclosures About Market Risks................................20
Item 8.           Financial Statements and Supplementary Data................................................21
Item 9.           Changes in and Disagreements with Accountants on Accounting and
                  Financial Disclosure.......................................................................21

PART III
Item 10.          Directors and Executive Officers of the Registrant.........................................22
Item 11.          Executive Compensation.....................................................................22
Item 12.          Security Ownership of Certain Beneficial Owners and Management.............................22
Item 13.          Certain Relationships and Related Transactions.............................................22

PART IV
Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K............................23
</TABLE>


Signatures

Index to Exhibits





                                        i


<PAGE>   3



                                     PART I


ITEM 1.           BUSINESS

    Denali Incorporated is a rapidly growing provider of products and services
for fluids handling. The Company believes that it is a leading manufacturer of
fiberglass composite underground storage tanks ("USTs") in the United States,
steel aboveground storage tanks ("ASTs") in the United States and engineered
fiberglass reinforced composites for handling corrosive fluids in the United
States and Europe. Fluids handling products and services are used in a wide
variety of applications, including in retail petroleum marketing and in
petroleum, chemical, pulp and paper, power generation and other industrial
process plants.

    With the recent acquisition of Welna, N.V., a supplier of fiberglass
composite products in Europe, the Company believes it is the world's largest
manufacturer of specialty-engineered, corrosion-resistant fiberglass reinforced
plastic ("FRP") products. Denali has over 20 manufacturing locations around the
world and distributes a wide range of engineered products and systems in the
United States and Europe.

BACKGROUND

    The Company was formed in 1994 to acquire the fiberglass composite UST
business of Owens Corning. Initially, the Company focused its efforts on
improving profitability, improving responsiveness to customers and developing
new products. The Company's management also realized that the fluids handling
industry was highly fragmented and that there would be significant opportunities
to consolidate the industry.

    The Company's objective is to become a leading provider of a broad range of
products and services for fluids handling through strategic acquisitions and
internal growth. The Company believes that the fragmented nature of the fluids
handling industry, which is comprised of many companies with limited product
ranges or serving limited geographic areas, will provide continued acquisition
and internal growth opportunities. The Company also believes that these
opportunities provide the Company with the ability to offer a comprehensive
range of specialized solutions for meeting its customers' fluids handling needs.

PRODUCTS AND SERVICES

    The Company's operations are divided into two groups in the United States:
Containment Products and Engineered Products. For a discussion of certain
industry segment data, see Note 17 of Notes to the Consolidated Financial
Statements included herein.

    Containment Products. The Company's Containment Products Group ("Containment
Solutions") specializes in the manufacture of fiberglass composite USTs and
steel ASTs, primarily for petroleum storage. The Company's products are marketed
under the Containment Solutions tradename. In addition, the Company manufactures
FRP gates, metered manholes, shelters, flumes and systems under the Plasti-fab
tradename for use in the water/wastewater industries.

    Engineered Products. The Company's Engineered Products Group ("Specialty
Solutions") provides engineered containment and material solutions to a variety
of industries, including chemical process, pulp and paper, power, and water and
wastewater. The Company markets its engineered FRP products under the Ershigs,
Fibercast and Belco tradenames and believes that it is a leading domestic
provider of engineered FRP products for corrosion resistant applications. In
addition, SEFCO, a Specialty Solutions company, is an integrated manufacturer of
engineered field-erected steel tanks and accessories for use in the water and
wastewater, agrochemical and petroleum industries. The Specialty Solutions group
focuses its operations on complex projects, where custom engineering and special
manufacturing expertise are critical.



                                        1


<PAGE>   4




    With the acquisition of Welna, which closed on July 1, 1999, the Company
will expand its products globally, primarily to Europe. Welna's operations are
divided into two groups: Welna Synthetics and Welna Trade.

    Welna Synthetics. The Company's Welna Synthetics operation designs,
manufactures and installs FRP products including storage and transport tanks,
vessels and piping systems for corrosion-resistant applications. This operation
is similar in both markets and products to the Company's Engineered Products
Group.

    Welna Trade. The Company's distribution operation, Welna Trade, supplies a
wide range of engineered products and systems including, but not limited to,
valves, expansion joints, tubes, suspension and support systems, filtration
systems and turbines for use in the power generation, water treatment, paper and
chemical processing industries.

ACQUISITION HISTORY

    The Company has acquired ten businesses since its inception. A brief
description of these acquisitions is as follows:

<TABLE>
<CAPTION>
    Acquired Company                        Date Acquired              Products
<S>                                        <C>                        <C>
    Containment Solutions:
         Fluid Containment, Inc.            December 1994              Fiberglass USTs, oil/water separators,
                                                                       manhole products
         Hoover Containment, Inc.           October 1995               Steel ASTs, lubricant storage tanks
         Plasti-Fab, Inc.                   November 1998              Fiberglass-reinforced flumes and metering stations

    Specialty Solutions:
         Ershigs, Inc.                      February 1997              Engineered FRP products
         SEFCO, Inc.                        October 1997               Field erected aboveground steel tanks
         LaValley                           October 1997               Engineered FRP products
         CC&E                               May 1998                   Field constructed FRP products
         Fibercast                          June 1998                  FRP piping systems
         Belco Manufacturing Company,
            Inc.                            February 1999              Engineered  FRP tanks, vessels,
                                                                       and piping systems

    Welna, N.V.                             July 1999                  FRP pipe systems, vessels and other related
                                                                       equipment, and distributor of high quality
                                                                       products and engineered systems
</TABLE>

COMPETITION

    The UST market is highly competitive and fragmented, with entrants from both
steel tank suppliers and another major fiberglass composite UST supplier. In
terms of revenues, steel tanks account for a majority of the United States UST
market. The remainder of this market is divided fairly evenly between the
Company and one other fiberglass composite UST supplier. Although steel USTs are
less expensive than fiberglass composite USTs, fiberglass composite USTs are not
subject to corrosion and do not expose the customer to corrosion leaks and
related environmental problems. When determining which product to acquire, one
of these two factors will generally control the purchase decision. Most of the
steel UST manufacturers are small, independent operations. The Company believes
that its quality of manufacturing, manufacturing control, product design,
testing procedures, history of performance and reliability, delivery capability,
customer responsiveness and experienced personnel are competitive advantages in
the UST market.


                                        2


<PAGE>   5




    The Company's steel ASTs are sold in highly fragmented and competitive
markets, with over 240 steel AST manufacturers operating in North America.
Several competitors of the Company are divisions or subsidiaries of larger
companies with financial and other resources greater than those of the Company.
However, the Company believes that the majority of its competitors in this
market are local, individually owned manufacturing facilities. The Company
believes that it is the only national manufacturing company in this market,
operating facilities in Maryland, Pennsylvania and California and having
subcontracting agreements with quality manufacturing companies in North
Carolina, Indiana, Kansas and Nebraska. The Company's national presence reduces
transportation costs for products relative to single plant competitors that
compete on a national basis. However, local manufacturers have a competitive
advantage in transportation costs. The Company believes that its broad product
lines, product design, delivery capability, customer responsiveness and
experienced personnel are competitive advantages in the steel AST market.

    With respect to engineered FRP products in the United States, the Company
participates in a highly fragmented market where it believes that most of its
competitors are small regional fabrication businesses, except for the corrosion
resistant pipe and piping systems which also compete with two large public
companies. The Company believes that its field-erection capabilities and its
performance warranty, together with its engineering capabilities, quality
reputation, history of performance and effective customer service, provide the
Company with competitive advantages in the engineered FRP products market.

    The market in which the Company competes for engineered metal products is
highly competitive and characterized by numerous small competitors in the
municipal market and several large, public companies with financial resources
greater than those of the Company in the industrial market. The Company believes
that it is able to achieve differentiation by taking advantage of the levels of
service, reliability and quality control afforded by vertical integration.
Generally, the Company's competitors in the engineered metal products industry
are reliant on outside suppliers and local contractors to fulfill the complete
scope of projects. The Company believes that this difference between the Company
and its competitors provides the Company major advantages in bidding, quality
control and scheduling.

    With respect to engineered FRP products in Europe, the Company participates
in a highly fragmented market where it believes that most of its competitors are
small regional fabrication businesses, except for the corrosion resistant pipe
and piping systems, which also compete with two large public companies. The
Company believes that its quality reputation and engineering capabilities
provide competitive advantages. The Company's distribution operation also
competes in a highly competitive market characterized by numerous small
independent operations. The Company believes that a competitive advantage is
achieved through its operations' product quality and service responsiveness.

MARKETING AND CUSTOMERS

    The Company takes a multifaceted approach to marketing its fiberglass
composite UST and steel AST products and services. The Company's sales staff
primarily supports an extensive network of Petroleum Equipment Industry ("PEI")
distributors and contractors. For significant national accounts, i.e. a major
oil company, the Company generally sells directly to the end user. The Company's
largest fiberglass composite UST customers are super-regional distribution
houses, hyper-markets and major oil companies; and typical customers for steel
ASTs include governments and quick-change lube centers. The Company has license
agreements with companies outside the United States to produce fiberglass
composite USTs using the Company's technology and continues to expand this
presence. The Company also has a joint venture in Venezuela to manufacture
fiberglass composite USTs.

    The Company generally sells its engineered FRP products in both the United
States and Europe through a combination of direct field sales and a sales
representative network. The scope of the work performed by the Company is large
in nature and, unless characterized as a special situation, has long lead times
to order. The experienced sales force works closely with the customer in
designing the correct solution for the customer's need. The customer base of the
Company varies from year to year due to the project-oriented nature of the
Company's work in this area.

                                        3


<PAGE>   6




    The Company's engineered metal product customer focus has been the municipal
water industry. It has been the Company's experience that most municipal
projects are awarded on a price-based bid with attendant requirements for bid
bonding. The municipal customers are generally broad based with no known
customers representing over 20% of the Company's business activity in this area.
Alternatively, the Company believes that industrial client contracts are awarded
based upon a combination of bids and private negotiations. The Company believes
that it can differentiate itself in all engineered metal product markets in its
region as a result of the extensive services it offers through vertical
integration of its services.

     The Company's distribution operation, through its inside sales staff,
markets its diverse products to an equally diverse customer base that ranges
from greenhouse agricultural producers to municipal incineration plants to pulp
and paper mills. This operation of the Company sells both into projects that
have long lead times and into the replacement market that has short lead times.
The customer base varies year to year due to the project-oriented nature of this
operation.

MATERIALS AND SUPPLIERS

    Owens Corning and the Company are parties to a supply contract pursuant to
which the Company purchases from Owens Corning the fiberglass used in the
Company's composite products. The Company entered into a supply contract with
Owens Corning beginning January 1, 1998, to supply at least 90% of the
fiberglass requirements for two of the Company's subsidiaries, Fluid Containment
and Ershigs, through December 31, 1998. Effective January 1, 1999, the contract
was modified to obtain more favorable pricing levels based on certain minimum
volume purchases for the calendar years ended December 31, 1999 and 2000. In
addition, this contract contains certain stabilizing pricing parameters. In
addition to Owens Corning, the Company continues to negotiate with other vendors
to ensure a continued supply of fiberglass to the Company for its production
needs.

    The Company is a significant purchaser of resin. Resin is available in
adequate supply from many sources. The Company does not depend upon any single
supplier or source. The Company has identified additional resin suppliers during
the last year, which will allow for competitive bidding should a future pricing
or supply imbalance occur. The Company's ability to operate and to grow is
partially dependent upon its ability to obtain an adequate supply of resin and
fiberglass. The Company believes current market conditions, the above actions
and contractual arrangements make significant raw material cost deviations
unlikely during the next 12 months.

    For the Company's steel fabrication businesses, the principal materials used
are standard steel shapes, steel plates, fittings, welding gases and paint which
are all currently available in adequate supply from many sources. The Company
does not depend upon any single supplier or source with respect to these
materials.

     The Company's distribution operation has products that are generally under
long-term exclusive contracts. The Company continues to expand and seek
alternatives for its product offerings.

PATENTS AND TRADEMARKS

    The Company owns numerous United States patents and has a number of
trademarks registered in the United States. Although the Company regards its
patents and trademarks to be of value, it believes that in most instances its
manufacturing and technical knowledge and experience are more important to its
competitive position than are its patents and trademarks. The Company does not
consider its business to be dependent on any one or more of such patents or
trademarks.





                                        4


<PAGE>   7



INSURANCE

    The Company maintains a comprehensive insurance program providing various
types of coverage for its operations including, without limitation, commercial
general liability, commercial automobile liability, workers' compensation and
employment practices liability, directors and officers liability, business
interruption and property and casualty insurance. All policies are subject to
deductibles and other coverage limitations and are at limits and amounts of
insurance that, based on the Company's operating experience and consultations
with its independent insurance risk advisors, it believes are consistent with
customary practices and standards of companies engaged in similar businesses.
Although the Company's management believes that the Company's insurance is
adequate, there can be no assurance that the Company will be able to maintain
adequate insurance at rates which management considers commercially reasonable,
nor can there be any assurance such coverage will be adequate to cover all
claims that may arise.

GOVERNMENT REGULATION

    The Company is subject to numerous foreign, federal, state and local laws
and regulations relating to the protection of health, safety and the
environment, including the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), the Clean Water Act, the Clean Air Act (including
the 1990 Amendments), the Resource Conservation and Recovery Act ("RCRA"), and
the Occupational Safety and Health Act ("OSHA"). Each of these statutes provides
for the imposition of substantial civil and criminal penalties, as well as the
possibility of permit revocation and corrective action orders, for violations of
its requirements. These laws may also provide for retroactive, strict liability,
rendering a party liable for environmental damage without regard to its
negligence or fault.

    The Company believes that it is in substantial compliance with such laws.
Nevertheless, risks of substantial costs and liabilities are inherent in certain
of its operations, and in certain products produced by the Company, as they are
with other enterprises engaged in similar businesses. Since its formation,
however, the Company's cost of complying with environmental and health and
safety laws and regulations has not been material, but the fact that such laws
or regulations are changed frequently makes predicting the cost or impact of
such laws and regulations on its future operations uncertain. Modification of
existing laws or regulations or the adoption of new laws or regulations
affecting the Company's operations could adversely affect the Company.

EMPLOYEES

    At July 3, 1999, the Company employed 1,789 employees. Four collective
bargaining agreements cover 226 employees in California, Pennsylvania, Texas and
Washington. All of these agreements expire between February 2000 and October
2001. The Company considers its employee relations to be good.

RISK FACTORS

    Dependence on Industry Spending. The prospects for the Company depend upon
the level of capital and maintenance expenditures by its industrial customers.
These industries historically have been cyclical in nature and vulnerable to
general downturns in the economy. No assurance can be given that the Company
will be able to increase or maintain its level of revenues in periods of
economic stagnation or downturn. Decreases in industry spending could have a
significant adverse effect upon the demand for the Company's products and
services and the Company's results of operations.

    Limited Operating History. The Company commenced operations in December 1994
and has only a limited operating history upon which investors may base an
evaluation of its performance. The likelihood of success of the Company must be
considered in light of the risks, expenses, difficulties and delays frequently
encountered in connection with the operation and development of new and
expanding businesses.


                                        5


<PAGE>   8



    Ability to Manage Growth and Achieve Business Strategy. Since 1994, the
Company has completed ten acquisitions of businesses in pursuit of its strategic
objectives. The Company plans to continue to pursue acquisitions that complement
its existing products and services. The Company expects to face competition for
acquisition candidates, which may limit the number of acquisition opportunities
and may lead to higher acquisition prices. There can be no assurance that the
Company will be able to identify, acquire or manage profitably additional
businesses or to integrate successfully any acquired businesses into the Company
without substantial costs, delays or other operational or financial
difficulties. Further, acquisitions involve a number of special risks, including
failure of the acquired business to achieve expected results, diversion of
management's attention, failure to retain key personnel of the acquired business
and risks associated with unanticipated events or liabilities, some or all of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
the businesses the Company has acquired or may acquire in the future will
achieve anticipated net revenues and earnings.

    Need for Additional Capital, Leverage and Liquidity. The Company has
experienced and expects to continue to experience substantial working capital
needs to fund its operations. Although the Company believes that based on its
current operations it will be able to meet the interest and principal
obligations on its indebtedness and to fund its capital expenditures and other
operating expenses out of cash flow from operations and available borrowings
under its principal credit facility over the next 12 months, there can be no
assurance that the Company's business will continue to generate cash flow at
levels sufficient to meet these requirements. Further, the Company plans to
effect future acquisitions to pursue its business strategy which may require
additional financing. No assurance can be given as to the availability or terms
of any such additional financing that may be required.

    Risks Related to Internal Growth Strategy. Key elements of the Company's
strategy are to improve the profitability of its businesses and any businesses
it may subsequently acquire and to continue to expand the net revenues of such
businesses. Although the Company intends to seek to improve the profitability of
such businesses by various means, including reducing administrative and other
costs, there can be no assurance that the Company will be able to do so. The
Company's ability to increase the net revenues of such businesses will be
affected by various factors, including demand for products, the Company's
ability to expand the range of products and services offered by each of such
businesses and the Company's ability to successfully enter new markets. Many of
these factors are beyond the control of the Company, and there can be no
assurance that the Company's strategies will be successful or that it will be
able to generate cash flow adequate for its operations and to support internal
growth.

    Competition. The markets for the Company's products are fragmented and
highly competitive. Although none of the Company's competitors are considered
dominant, there are competitors that have significantly greater resources than
the Company, which, among other things, could be a competitive disadvantage to
the Company in securing certain projects.

    International Expansion and Foreign Currency Transactions. The Company's
successful expansion into global markets has and will continue to depend on
numerous factors, many of which are beyond its control. In addition, global
expansion does increase the Company's exposure to certain risks inherent in
doing business outside the United States, including currency fluctuations,
restrictions on the repatriation of profits, compliance with foreign laws and
standards and political risks. Although the majority of the Company's contracts
with respect to international revenues historically have been denominated in
United States dollars, future contracts will be denominated in multiple
currencies because of our increased international presence; therefore, the
Company will be subject to foreign exchange risks in the future. The Company
does not presently hedge exchange rate fluctuations, but, in the future, may
hedge economic exposures.

    Potential for Product Liability Claims. Certain of the Company's products
are used in handling potentially hazardous materials. Based on the Company's
operating experience and consultation with its independent insurance risk
advisors, the Company carries insurance in amounts that it considers adequate.
However, catastrophic occurrences at locations where the Company's products are
used could in the future result in significant product liability claims against
the Company. In addition, a number of the Company's products are used to store
regulated substances such as petroleum. The release or leakage of such
substances from these products could also result in liability claims against the
Company.

                                        6


<PAGE>   9




    Governmental Regulation. The Company is subject to various foreign, federal,
state and local laws and regulations relating to the protection of health,
safety and the environment. The Company's business involves environmental and
health and safety management issues typically associated with manufacturing
operations. Since formation of the Company, the Company's cost of complying with
such laws and regulations has not been material. However, future laws and
regulations may become more stringent and may require the Company to incur
significant additional costs.

    Seasonality. The Company's operations are subject to seasonal variations in
weather conditions. Because most of the Company's customers' construction
activities take place outdoors, the number of projects in the United States
generally declines in the winter months due to an increase in rainy and cold
conditions. In addition, its customers in the United States often schedule the
completion of their projects during the summer months in order to take advantage
of the milder weather for the installation of their equipment and systems.
Conversely in Europe, the summer holiday season coincides with a decline in
business activity. As a result, a disproportionate amount of the Company's net
income, net revenues and gross profit has historically been earned during the
first and fourth quarters of the fiscal year. With the addition of Welna, some
of this seasonality will be modified. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

    Reliance on Principal Supplier. The principal raw materials used by the
Company in its manufacture of fiberglass composite USTs are fiberglass and
resin. Although resin is available in adequate supply from a variety of sources,
substantial manufacturers of fiberglass are more limited in number. Because of
this limited market supply, the Company entered into a supply contract with
Owens Corning. The Company entered into a new supply contract with Owens Corning
beginning January 1, 1998 to supply at least 90% of the fiberglass requirements
for two of the Company's subsidiaries, Fluid Containment and Ershigs, through
December 31, 1998. Effective January 1, 1999, the contract was modified to
obtain more favorable pricing levels based on certain minimum volume purchases
for the calendar years ended December 31, 1999 and 2000. In addition, this
contract contains certain pricing stabilization terms. As a result of this
arrangement, the Company remains significantly dependent upon Owens Corning to
deliver quality product in accordance with and, as required by, the Company's
needs.

         Dependence on Key Personnel. The Company is dependent upon a limited
number of key management, technical and sales personnel. The Company's future
success will depend, in part, upon its ability to attract and retain highly
qualified personnel. The Company faces competition for such personnel from other
companies and organizations, and there can be no assurance that the Company will
be successful in hiring or retaining qualified personnel. The Company does not
have written employment agreements with its officers providing for specific
terms of employment, and officers and other key personnel could leave the
Company's employ with little or no prior notice. The Company's loss of key
personnel, especially if the loss is without advance notice, or the Company's
inability to hire or retain key personnel, could have a material adverse effect
on the Company's business, financial condition or results of operations. The
Company does not carry any key man life insurance.








                                        7


<PAGE>   10


ITEM 2.  PROPERTIES

    The Company operates facilities throughout the United States and Europe and
considers them to be in good operating condition and adequate for their present
uses. The Company believes that it has sufficient capacity to meet its current
and anticipated manufacturing requirements for its operations. The following
table sets forth the Company's principal manufacturing plants and offices:

<TABLE>
<CAPTION>
                                                     Leased              Lease
                                     Approx. Area      or        Owned   Expiry
                                      (Sq. Ft.)      Owned      Acreage   Date       Uses
                                      ---------      -----      -------   ----       ----
<S>                                  <C>            <C>         <C>      <C>         <C>
Fiberglass Composite Underground
Storage Tanks
     Conroe, TX                       130,000          Owned         65    N/A        Manufacturing plant and
                                                                                      Containment Solutions Group
                                                                                      headquarters
     Mount Union, PA                  110,000          Owned         24    N/A        Manufacturing plant
     Bakersfield, CA(1)                73,000          Owned         20    N/A        Manufacturing plant
     Tualatin, OR                      48,000         Leased        N/A    2008       Manufacturing plant and
                                                                                      Administrative offices

Steel Aboveground Storage Tanks
     Baltimore, MD                     63,000         Leased        N/A    2004       Manufacturing plant and
                                                                                      administrative offices
     Bakersfield, CA(1)                73,000          Owned         20    N/A        Manufacturing plant
     Lebanon, PA                       97,850         Leased        N/A    2003       Manufacturing plant

Engineered Fiberglass Reinforced
Composite Products
     Bellingham, WA                    63,000          Owned          6    N/A        Manufacturing plant and
                                                                                      Administrative offices
     Wilson, NC                        47,000          Owned          4    N/A        Manufacturing plant
     Biloxi, MS                        29,000          Owned          5    N/A        Manufacturing plant
     Belton, TX                        87,400         Leased        N/A    2008       Manufacturing plant and
                                                                                      administrative offices

Engineered Field-erected Steel Tanks
     Tulsa, OK                         33,000          Owned         12    N/A        Manufacturing plant and
                                                                                      administrative offices
Fiberglass-reinforced Plastic Piping
Systems
     Sand Springs, OK                 244,058          Owned         16    N/A        Manufacturing plant and
                                                                                      Specialty Solutions Group
                                                                                      headquarters
Welna N.V.
     Welna Synthetics:
         Dinslaken, Germany            96,870          Owned          4    N/A        Manufacturing plant
         Gelsdorf, Germany              3,230         Leased        N/A    N/A        Sales office
         Frankfurt, Germany             5,380         Leased        N/A    2008       Sales office
         Haren, Germany                 2,150         Leased        N/A    N/A        Sales office
         Eschborn, Germany              2,150         Leased        N/A    N/A        Sales office
         Goteborg, Sweden               4,310         Leased        N/A    N/A        Sales office
         Krems, Germany                 2,150         Leased        N/A    N/A        Sales office
         Oldenzaal, Netherlands       107,640          Owned          4    N/A        Manufacturing plant
         Hengelo, Netherlands          64,580          Owned          4    N/A        Manufacturing plant
         Oldenzaal, Netherlands        21,530          Owned          1    N/A        Administrative offices
         Heerenveen, Netherlands       59,200          Owned          2    N/A        Manufacturing plant
         Tilburg, Netherlands          37,670          Owned          2    N/A        Manufacturing plant
</TABLE>


                                        8


<PAGE>   11



<TABLE>
<CAPTION>
                                                     Leased              Lease
                                     Approx. Area      or        Owned   Expiry
                                      (Sq. Ft.)      Owned      Acreage   Date       Uses
                                      ---------      -----      -------   ----       ----
<S>                                  <C>            <C>         <C>      <C>         <C>

         Torun, Poland                175,000          Owned          7    N/A        Manufacturing plant and administrative
                                                                                      offices
         La Roche-sur-Yon, France      96,870          Owned          9    N/A        Manufacturing plant and administrative
                                                                                      offices
         Beverly/Scunthorp, U.K.       32,290          Owned          1    N/A        Manufacturing plant and administrative
                                                                                      offices
         Bangpakong, Thailand          32,290         Leased        N/A    N/A        Manufacturing plant and administrative
                                                                                      offices
         Emmeloord, Netherlands           540         Leased        N/A    N/A        Sales office

     Welna Trade:
         Temse, Belgium                 2,150         Leased        N/A    N/A        Sales office
         Brussels, Belgium              2,150         Leased        N/A    2001       Sales office
         Brussels, Belgium              3,230          Owned         .1    N/A        Sales office
         Temse, Belgium                 8,070          Owned         .2    N/A        Sales office
         Hengelo, Netherlands          32,290          Owned          1    N/A        Administrative and sales offices
         Waddinxveen, Netherlands      12,920         Leased        N/A    2003       Sales office
         Geldermalsen, Netherlands      4,310         Leased        N/A    2004       Sales office
         Torun, Poland                 10,764          Owned         .3    N/A        Sales office
</TABLE>

(1)  Shared Facility

ITEM 3.           LEGAL PROCEEDINGS

    From time to time the Company is a party to what it believes is routine
litigation and proceedings that may be considered as part of the ordinary course
of its business. The Company is not aware of any current or pending litigation
or proceedings that could have a material adverse effect on the Company's
operations, financial condition or cash flow.

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

         None













                                        9


<PAGE>   12




                                     PART II



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

    The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "DNLI". The Company's Common Stock commenced trading on November 21,
1997. The high and low sales prices per share for the periods indicated were as
follows:

<TABLE>
<CAPTION>
                                                                        High              Low
                                                                        ----              ---
<S>                                                                   <C>              <C>
    Period from November 21, 1997 to December 27, 1997                 $13.500          $12.250
    Quarter Ended March 28, 1998                                       $17.000          $12.750
    Quarter Ended June 27, 1998                                        $18.250          $14.875
    Quarter Ended September 26, 1998                                   $16.500          $ 9.500
    Quarter Ended December 26, 1998                                    $13.500          $ 9.000
    Quarter Ended March 27, 1999                                       $14.000          $ 7.500
    Quarter Ended July 3, 1999                                         $ 9.500          $ 6.625
</TABLE>

    As of August 31, 1999, there were 47 holders of record of the outstanding
shares of Common Stock of the Company.

    The Company does not currently intend to declare or pay dividends on its
Common Stock and expects to retain funds generated by operations for the
development and growth of the Company's business. The Company's future dividend
policy will be determined by the Company's Board of Directors on the basis of
various factors, including among other things, the Company's financial
condition, cash flows from operations, the level of its capital expenditures,
its future business prospects, the requirements of Delaware law and any
restrictions imposed by the Company's credit facilities. Under the Company's
credit facilities, distributions in the form of dividends and stock repurchases
are allowed only in connection with a permitted acquisition in accordance with
terms disclosed in the Company's loan agreement.

USE OF PROCEEDS FROM THE SALE OF REGISTERED SECURITIES

SALES OF UNREGISTERED SECURITIES

     On November 23, 1998, the Company issued 60,866 shares of its common stock
to the former shareholders of Plasti-fab, Inc. as partial consideration for the
acquisition of all of the outstanding stock of Plasti-fab, Inc. This issuance
was exempt from the registration requirements of the Securities Act of 1933 as a
transaction not involving any public offering pursuant to Section 4(2) of that
act and Regulation D promulgated under that act.

     On February 3, 1999, the Company issued 44,417 shares of its common stock
to the former shareholders of Belco Manufacturing Company, Inc. as partial
consideration for the acquisition of all of the outstanding stock of Belco
Manufacturing Company, Inc. This issuance was exempt from the registration
requirements of the Securities Act of 1933 as a transaction not involving any
public offering pursuant to Section 4(2) of that act and Regulation D
promulgated under that act.

     On July 1, 1999, the Company issued 489,189 shares of its common stock to 9
investors, including 5 directors or affiliates of directors of the Company, for
cash consideration of $9.25 per share. The Company used the proceeds from this
issuance to fund a portion of the purchase price for the acquisition of Welna.
This issuance was exempt from the registration requirements of the Securities
Act of 1933 as a transaction not involving any public offering pursuant to
Section 4(2) of that act and Regulation D promulgated under that act.


                                       10


<PAGE>   13



     On July 1, 1999, the Company issued an aggregate of $15 million of its
senior subordinated notes and warrants to purchase 534,873 shares of its common
stock to 10 investors, including 5 directors or affiliates of directors of the
Company, for cash consideration of $1,000 per unit. Each unit consisted of
$1,000 principal amount of notes and warrants to purchase 35.66 shares. The
warrants have an exercise price of $7.54/share and expire on July 1, 2006. The
Company used the proceeds from this issuance to fund a portion of the purchase
price for the acquisition of Welna. This issuance was exempt from the
registration requirements of the Securities Act of 1933 as a transaction not
involving any public offering pursuant to Section 4(2) of that act and
Regulation D promulgated under that act.

ITEM 6.          SELECTED FINANCIAL DATA

    The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this document.

<TABLE>
<CAPTION>
                                                      For the period
                                                      December 19,
                                                      1994 (date of                             Year Ended
                                                      inception) to    ----------------------------------------------------------
                                                         July 1,        June 29,        June 28,        June 27,         July 3,
                                                          1995            1996            1997            1998            1999
                                                       ----------      ----------      ----------      ----------      ----------
                                                                         (In thousands, except per share data)
<S>                                                    <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenues .....................................     $   17,799      $   53,354      $   71,101      $   99,897      $  148,760
Cost of revenues .................................         13,473          43,518          57,268          77,273         110,957
                                                       ----------      ----------      ----------      ----------      ----------
Gross profit .....................................          4,326           9,836          13,833          22,624          37,803
Selling, general and administrative expenses .....          3,771           9,604          11,874          17,843          27,244
Non-recurring compensation expense ...............             --              --              --           2,312             682
                                                       ----------      ----------      ----------      ----------      ----------
Operating income .................................            555             232           1,959           2,469           9,877
Interest expense .................................            671           1,783           2,058           1,614           3,199
Interest income ..................................             --             (65)           (111)           (118)           (124)
Other income, net ................................            (72)           (206)           (598)           (489)           (453)
                                                       ----------      ----------      ----------      ----------      ----------
Income (loss) before income taxes ................            (44)         (1,280)            610           1,462           7,255
Income tax provision (benefit) ...................             (1)           (446)            293           1,352           2,854
                                                       ----------      ----------      ----------      ----------      ----------
Net income (loss) before extraordinary item ......            (43)           (834)            317             110           4,401
Extraordinary income (loss) on early
  extinguishment of debt, net of income tax ......             --              --              --             219            (281)
                                                       ----------      ----------      ----------      ----------      ----------
Net income (loss) ................................            (43)           (834)            317             329           4,120
Dividends on Series A Preferred Stock ............            (60)           (120)           (120)            (30)             --
                                                       ----------      ----------      ----------      ----------      ----------
Net income (loss) attributable to Common
  Stock ..........................................     $     (103)     $     (954)     $      197      $      299      $    4,120
                                                       ==========      ==========      ==========      ==========      ==========
Net income (loss) per common share - basic
  and diluted ....................................     $    (0.05)     $    (0.44)     $     0.09      $     0.08      $     0.84
                                                       ==========      ==========      ==========      ==========      ==========
Weighted average common shares outstanding
  assuming dilution ..............................          2,078           2,185           2,198           3,875           4,888
                                                       ==========      ==========      ==========      ==========      ==========

CASH FLOW DATA:
Net cash provided by (used in) operating
  activities .....................................     $    3,789      $     (109)     $      625      $    3,854      $    7,239
Net cash used in investing activities ............         (7,527)         (5,430)         (4,631)        (31,126)        (51,327)
Net cash provided by financing activities ........          4,737           4,664           4,212          27,117          45,737

OTHER DATA:
Depreciation and amortization ....................     $      354      $      913      $    1,221      $    1,692      $    3,260
EBITDA(2) ........................................            981           1,416           3,889           7,080          14,396
</TABLE>



                                       11

<PAGE>   14



<TABLE>
<CAPTION>
                                                                                        As of
                                                       ------------------------------------------------------------------------
                                                         July 1,       June 29,        June 28,        June 27,        July 3,
                                                          1995           1996            1997            1998           1999
                                                       ----------     ----------      ----------      ----------     ----------
                                                                                    (In thousands)
<S>                                                    <C>            <C>             <C>             <C>            <C>
BALANCE SHEET DATA:
Working capital ..................................     $    3,192     $    5,649      $    8,019      $   14,141     $   17,811
Total assets .....................................         21,814         30,318          41,084          80,382        176,575
Total debt .......................................         13,810         18,661          24,024          29,896         92,229
Series A Preferred Stock (redeemable) ............          1,200          1,200           1,200              --             --
Stockholders' equity (deficit) ...................     $      216     $     (738)     $     (541)     $   28,674     $   38,569
</TABLE>

(1) The Company uses a 52- or 53-week year-end ending on the Saturday closest to
    June 30. The fiscal year ended July 3, 1999 was a 53-week year.

(2) EBITDA represents consolidated net income before interest expense, income
    tax, depreciation and amortization, non-recurring compensation expense and
    extraordinary items. The Company believes that EBITDA is a meaningful
    measure of its operating performance; however, EBITDA should not be
    considered in isolation from or as a substitute for net income or cash flow
    measures prepared in accordance with generally accepted accounting
    principles or as a measure of a company's profitability or liquidity. In
    addition, EBITDA may not be comparable to similarly titled measures reported
    by other companies.










                                       12


<PAGE>   15




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

    The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this document.

OVERVIEW

    Denali Incorporated is a provider of products and services for handling
critical fluids, which are liquids, liquid mixtures, and slurries that are
economically valuable or potentially hazardous to the environment. The Company
is a manufacturer of fiberglass-composite underground storage tanks; steel
aboveground storage tanks; and engineered fiberglass-reinforced
plastic-composite products for corrosion-resistant applications.

    Since inception in 1994, the Company has acquired ten businesses. Due to the
magnitude of these acquisitions and the integration of the acquired operations
with the Company's existing businesses, results of operations for prior periods
are not necessarily comparable with or indicative of current or future periods.
Each of the acquisitions has been accounted for under the purchase method of
accounting. Accordingly, the acquired businesses have been included in the
Company's results of operations from the date of acquisition.

Containment Products Group - "Containment Solutions"

    The Company was formed in December 1994 to acquire certain assets and assume
certain liabilities of the fiberglass composite UST business of Owens Corning,
including five manufacturing facilities. The Company closed two of the
manufacturing facilities and significantly restructured the operations of this
business at the time of purchase.

    In October 1995, the Company acquired certain assets and assumed certain
liabilities of Hoover Containment Inc. ("Hoover"), a manufacturer of steel
rectangular ASTs. The Company eliminated certain operating costs through the
sharing of certain general and administrative functions within the acquired
businesses. The addition of the steel rectangular AST product line enabled the
Company to offer a broader line of containment products and to expand its
customer base.

    In November 1998, the Company acquired Plasti-Fab, Inc., a leader in
providing fiberglass-reinforced flumes and metering stations to the water and
wastewater industries. These three businesses form the Company's Containment
Products Group known as Containment Solutions.

Engineered Products Group - "Specialty Solutions"

    In February 1997, the Company acquired Ershigs, Inc., ("Ershigs") a
manufacturer of engineered FRP products, as the first of the Company's
Engineered Products Group. Substantial operational changes were made upon the
purchase of Ershigs, including the closing of one of Ershigs' three
manufacturing plants and the restructuring of most of Ershigs' sales, general
and administrative functions, which enabled the Company to enhance
profitability.

    In October 1997, the Company acquired SEFCO, Inc., ("Sefco"), a manufacturer
of engineered field-erected aboveground steel tanks, and also acquired
GL&V/LaValley Industries, Inc. ("LaValley") (subsequently named "Ershigs
Biloxi"), a manufacturer of engineered FRP products.

    In May 1998, the Company acquired CC&E, a leading North American field
constructor of fiberglass-reinforced plastic products and integrated the
operations into Ershigs.

    In June 1998, the Company acquired Fibercast Company, a leading manufacturer
of fiberglass-reinforced plastic piping systems specializing in highly corrosive
environments. Fibercast will remain an autonomous operation within the Specialty
Solutions Group.


                                       13

<PAGE>   16




    In February 1999, the Company acquired Belco Manufacturing Company, Inc. and
certain assets and assumed certain liabilities of S. Jones Limited Partnership
(collectively "Belco"). Belco manufactures engineered fiberglass-reinforced
plastic tanks, vessels and piping systems. Belco's products are sold primarily
into the water/wastewater and oil and gas industries where corrosion-resistant
products are needed. Belco, Fibercast, Ershigs and SEFCO form the Company's
Engineered Products Group known as Specialty Solutions.

    On July 1, 1999, the Company acquired Welna, N.V., a company which operates
through two divisions. Welna Synthetics designs, manufactures, and installs all
forms of FRP pipe systems, vessels and other related equipment requiring high
levels of corrosion resistance. Welna Trade is a distribution operation that
specializes in high quality products and engineered systems for power
generation, water treatment, and paper and chemical processing industries.
Welna's operations had no effect on the Company's operating results for fiscal
year 1999. Welna's balance sheet has been consolidated as of July 3, 1999.

    The following table indicates the Company's net revenues by segment for
fiscal 1997, 1998 and 1999 (in millions):

<TABLE>
<CAPTION>
                                       Year         Year          Year
                                      Ended        Ended         Ended
                                     June 28,     June 27,      July 3,
                                       1997         1998         1999
                                     --------     --------     --------
<S>                                  <C>          <C>          <C>
Net revenues by segment:
  Containment Solutions ........     $   64.8     $   71.5     $   93.8
  Specialty Solutions ..........          6.3         28.4         55.0
                                     --------     --------     --------
         Total net revenues ....     $   71.1     $   99.9     $  148.8
                                     ========     ========     ========
</TABLE>


RESULTS OF OPERATIONS

    The following table sets forth for fiscal 1997, 1998 and 1999, the
percentage relationship to net revenues of certain expenses and earnings:

<TABLE>
<CAPTION>
                                                          As a Percentage of Net Revenues
                                                       --------------------------------------
                                                         Year           Year           Year
                                                         Ended          Ended          Ended
                                                        June 28,       June 27,       July 3,
                                                         1997           1998           1999
                                                       --------       --------       --------
<S>                                                   <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
  Net revenues ...................................        100.0%         100.0%         100.0%
  Cost of revenues ...............................         80.5           77.4           74.6
                                                       --------       --------       --------
  Gross profit ...................................         19.5           22.6           25.4
                                                       --------       --------       --------
  Selling, general and administrative expenses ...         16.7           17.8           18.3
  Non-recurring compensation expense .............           --            2.3            0.5
                                                       --------       --------       --------
  Operating income ...............................          2.8            2.5            6.6
  Interest expense ...............................          2.9            1.6            2.1
  Interest income ................................         (0.2)          (0.1)          (0.1)
  Other income, net ..............................         (0.8)          (0.5)          (0.3)
                                                       --------       --------       --------
  Income before income taxes .....................          0.9            1.5            4.9
  Income tax provision ...........................          0.4            1.4            1.9
                                                       --------       --------       --------
  Net income before extraordinary item ...........          0.5%           0.1%           3.0%
                                                       ========       ========       ========
</TABLE>





                                       14

<PAGE>   17



FISCAL 1999 COMPARED WITH FISCAL 1998

     The Company's results of operations for fiscal 1999 were significantly
affected by the inclusion of acquired companies. The results of SEFCO and
LaValley were included for a full year in fiscal 1999 versus 34 weeks in fiscal
1998. CC&E and Fibercast were included for a full year in fiscal year 1999
compared to seven and three weeks in fiscal year 1998, respectively. The results
of Plasti-fab and Belco were included for 31 and 21 weeks in fiscal 1999,
respectively, following their purchases in November 1998 and February 1999. The
acquisition of Welna on July 1, 1999 had no impact on the current year results.

     In addition, the Company utilizes a 52- or 53-week year-end ending on the
Saturday closest to June 30. The fiscal year ended July 3, 1999 was a 53-week
year.

     Net revenues for fiscal 1999 increased $48.9 million, or 49%, to $148.8
million in fiscal 1999 from $99.9 million in fiscal 1998. Revenues from the
Specialty Solutions Group increased $26.6 million due primarily to the inclusion
of prior year acquisitions for a full fiscal year. The Containment Solutions
Group had an increase in revenues of $22.3 million, primarily from an increase
in UST demand from new construction and replacement.

     Gross profit increased $15.2 million, or 67%, to $37.8 million in fiscal
1999 from $22.6 million in 1998. Gross margins for the Containment Solutions
Group increased to 25.3% in fiscal 1999 as compared to 20.9% in fiscal 1998 due
primarily to operational improvements and volume efficiencies. The gross margin
at Specialty Solutions decreased slightly to 25.6% in fiscal 1999 from 27.1% in
fiscal 1998. This slight decrease is the result of changes in the product and
job mix from the prior year.

     Selling, general and administrative expenses increased $9.4 million, or
53%, to $27.2 million in fiscal 1999 from $17.8 million in fiscal 1998,
excluding non-recurring compensation charges of $682,000 and $2.3 million in
1999 and 1998, respectively. The increase is primarily attributable to
additional expenses from the acquired companies and increased sales expense due
to volume increases at Containment Solutions. Selling, general and
administrative expenses, as a percentage of net revenues, remained consistent at
18.3% for fiscal 1999 compared to 17.8% in fiscal 1998.

     In the current fiscal year, the Company recognized a $682,000 non-recurring
compensation charge in the second quarter relating to a salary continuation
agreement. In fiscal 1998, the Company recognized a $2.3 million non-recurring
compensation charge in the first quarter due to the exchange of subsidiary stock
options for Denali stock options.

     Interest expense in fiscal 1999 was $3.2 million compared to $1.6 million
in fiscal 1998. The increase was due to borrowings required to finance the
Company's acquisitions in late fiscal 1998 and fiscal 1999.

     The Company's provision for income taxes differs from the U.S. statutory
rate of 34% due to state taxes, non-deductible goodwill amortization and other
permanent differences. In fiscal 1998, the Company's provision for income taxes
differed from the U.S. statutory rate due to the non-recurring compensation
charge being non-deductible for income tax purposes.

    The Company recognized an extraordinary loss on the early extinguishment of
debt, net of income tax, of $281,000 in the third quarter of fiscal 1999.

     Due to the factors described above, net income attributable to common stock
for fiscal 1999 increased from $299,000 in fiscal 1998 to $4.1 million in fiscal
1999. Earnings per share, excluding the non-recurring compensation expense and
extraordinary items, increased 60% to $.99 in fiscal 1999 from $.62 in fiscal
1998 on a diluted basis. Including the non-recurring compensation expense,
fiscal 1999 earnings per diluted share were $.90 before extraordinary items and
$.84 after extraordinary items.



                                       15
<PAGE>   18
FISCAL 1998 COMPARED WITH FISCAL 1997

     The Company's results of operations for fiscal 1998 were significantly
affected by the inclusion of acquired companies. The results of Ershigs were
included for a full year in fiscal 1998 versus 17 weeks in fiscal 1997,
following the February 1997 acquisition by the Company. SEFCO and LaValley were
acquired in October 1997 and were included in the Company's results for 34 weeks
in fiscal 1998 and were not included in fiscal 1997 results. The results of CC&E
and Fibercast were included for seven and three weeks in fiscal 1998,
respectively, following the Company's purchases in May and June 1998.

     Net revenues for fiscal 1998 increased $28.8 million, or 41%, to $99.9
million in fiscal 1998 from $71.1 million in fiscal 1997. Revenues at Specialty
Solutions increased $22.1 million due to the inclusion of acquired companies'
results in fiscal 1998. Revenues at Containment Solutions increased 10%, or $6.7
million, due to continued strong demand for petroleum storage tanks.

     Gross profit increased $8.8 million, or 64%, to $22.6 million in fiscal
1998 from $13.8 million in fiscal 1997. Gross profit margins were 22.6% and
19.5% for fiscal 1998 and 1997, respectively. Gross profit margins at
Containment Solutions increased to 20.9% in fiscal 1998 as compared to 19.6% in
fiscal 1997 due to better throughput at the Company's manufacturing facilities.
The gross profit margin at Specialty Solutions improved to 27.1% in fiscal 1998
versus 18.2% in fiscal 1997 due to significant operating improvements at
Ershigs, purchased by the Company in fiscal 1997, and the additions of LaValley
and SEFCO to Specialty Solutions in fiscal 1998.

     Selling, general and administrative expenses increased $5.9 million, or
50%, to $17.8 million in fiscal 1998 from $11.9 million in fiscal 1997,
excluding the $2.3 million compensation charge taken in fiscal 1998. The
increase is attributable to additional expenses associated with the acquired
companies at Specialty Solutions and increased sales and marketing expenses at
Containment Solutions. Selling, general and administrative expenses increased as
a percentage of net revenues from 16.7% in fiscal 1997 to 17.8% in fiscal 1998.

     The Company recognized a $2.3 million non-recurring compensation charge in
the first quarter of fiscal 1998 due to the exchange of subsidiary stock options
for Denali stock options.

     Interest expense in fiscal 1998 was $1.6 million compared to $2.1 million
in fiscal 1997. The decrease in fiscal 1998 was due to the use of IPO proceeds
to pay down the Company's debt, partially offset by increased borrowings
required to finance the Company's acquisitions in fiscal 1998.

     The Company's provision for income taxes primarily differs from the U.S.
statutory rate of 34% due to the non-recurring compensation charge being
non-deductible for income tax purposes. In addition, the Company's provision for
income taxes differs from the U.S. statutory rate due to state income taxes and
other permanent differences.

    The Company recognized an extraordinary gain on the early extinguishment of
debt, net of income tax, of $219,000 in fiscal 1998.

     Due to the factors described above, net income attributable to common stock
for fiscal 1998 increased from $197,000 in fiscal 1997 to $299,000 in fiscal
1998. Earnings per share, excluding the non-recurring compensation expense and
extraordinary items, increased from $.09 in fiscal 1997 to $.62 in fiscal 1998
on a diluted basis. Including the non-recurring compensation expense, earnings
per diluted share were $.02 in fiscal 1998 before extraordinary items and $.08
after extraordinary items.



                                       16
<PAGE>   19




LIQUIDITY AND CAPITAL RESOURCES

    Working capital at July 3, 1999 was $17.8 million, as compared to $14.1
million at June 27, 1998. Cash provided by operating activities was $7.2 million
for fiscal 1999 and $3.9 million in fiscal 1998. The improvement in cash
provided by operating activities resulted primarily from a $1.5 million increase
in net income, adjusted to exclude the non-cash, non-recurring compensation
expense of $2.3 million in fiscal 1998. In addition, the Company had an increase
of $1.6 million in depreciation and amortization due to acquisitions made in
late fiscal 1998 and in fiscal 1999. Capital expenditures totaled $2.9 million
and $3.1 million in fiscal 1999 and fiscal 1998, respectively.

    As further described in Note 6 to the Denali Incorporated Consolidated
Financial Statements, the Company refinanced its credit facilities on January
12, 1999. In connection with the extinguishment of its old credit facility upon
funding of a new credit facility, the Company recorded an extraordinary loss of
$454,000 ($281,000 net of tax) related to unamortized debt origination costs for
the fiscal year ended July 3, 1999.

    The Company's Credit Facility with its principal lender provides for
revolving lines of credit and secured term loans of up to an aggregate of $75
million, including a $35 million acquisition term loan. As of July 3, 1999, the
Company had outstanding indebtedness of $36.2 million under the term loans and
$11 million under the revolving lines of credit. Borrowings under this Credit
Facility are secured by liens on substantially all of the Company's assets. See
Note 6 of Notes to the Consolidated Financial Statements for certain information
regarding the Credit Facility. The new revolving credit facility and term loan
provide for borrowings, at the Company's option, at either the bank's prime rate
plus a margin of 1.75% or varying rates of LIBOR plus 3.0%. The acquisition term
loan provides for borrowings, at the Company's option, at either the bank's
prime rate plus a margin of 2.25%, or at varying rates of LIBOR plus 3.5%. The
Credit Facility has a five-year term expiring in January 2004.

    This new senior credit facility provides availability for letters of credit
up to $10.0 million subject to availability of borrowing capacity under the
revolving credit notes. As of July 3, 1999, the Company had $2.0 million of
letters of credit outstanding. The new senior credit facility requires the
Company to maintain certain financial covenants and requires an annual fee of
 .50% on the unused portion of the revolving credit notes and .75% on the unused
portion of the acquisition term loan. As of July 3, 1999, the Company's unused
portion of the revolving credit line and acquisition term loan was $7.5 million
and $17.8 million, respectively. The Company was in compliance with all required
financial covenants at July 3, 1999. This new senior credit facility is secured
by substantially all of the assets of the Company's subsidiaries.

     In June 1999, the Company entered into a new senior credit facility with
two Netherlands financial institutions ("Senior Dutch Facility") to finance the
acquisition of Welna. The new Senior Dutch Facility provides for two term loans
for a total facility of Dutch guilders (NLG) 25 million. Term Loan A provides
for borrowings of NLG 15 million with quarterly payments of NLG 625,000
beginning October 1, 1999. Term Loan B provides for borrowings of NLG 10 million
with principal due at date of maturity (August 1, 2001). As of July 3, 1999, the
Company had outstanding indebtedness of NLG 25 million, or approximately $11.7
million. The term loans bear interest at Euribor plus 1.75%. The Senior Dutch
Facility requires the Company to maintain certain financial covenants. The
facility is secured by substantially all of Welna's assets.

     On July 1, 1999, the Company issued $15 million or $13.3 million net of
discount (of which $3,980,000 is to certain directors of the Company and is
classified separately as related party subordinated debt on the balance sheet)
in senior subordinated notes ("subordinated notes") bearing interest at 12% and
maturing in 2006. The subordinated notes were issued with detachable warrants
that enable the holder to purchase up to 534,873 common shares at $7.54 per
share. The warrants are exercisable immediately and expire in 2006. The warrants
or warrant shares also feature a put option that allows the holder to put up to
1/3 of the warrants or warrant shares each year at fair market value beginning
in year five and expiring in year ten. The Company has an option to terminate
the obligation to repurchase the warrants or warrant shares for a total fee not
to exceed $2.46 million. The warrants were recorded at fair value of $1,733,000
based on Black Scholes valuation model, which has been recorded as a liability,
and a related discount on the senior subordinated debt was recorded for the same
amount. This discount will be amortized over the seven year term of the note as
additional interest expense. The liability will be adjusted to the fair value of
the warrants in future periods not to exceed $2.46 million. The proceeds from
the subordinated debt issuance were used in the funding of the acquisition of
Welna.

    The Company assumed $1.0 million in Industrial Revenue Bonds ("IRBs") in
connection with its acquisition of the Owens Corning fiberglass composite UST
business. The IRBs bear interest at 9.875% per annum, mature in February 2001
and are secured by the Company's Conroe, Texas manufacturing facility. These
bonds were repaid during fiscal year 1999.



                                       17


<PAGE>   20



    The Company assumed $3.5 million of term debt with a financial institution
in connection with its acquisition of Fibercast in June 1998. The term debt
bears interest at prime plus .50%. Monthly principal payments of $58,500 plus
interest are due monthly beginning August 1998 and the facility expires in
February 2001. This note was refinanced under the terms of the new senior credit
facility on January 12, 1999.

    The Company also assumed approximately $15 million in debt, net of cash
acquired, with the acquisition of Welna on July 1, 1999. The debt bears interest
at an average of approximately 4.2% and is primarily line of credit facilities
with various financial institutions which are due on demand.

    The Company's capital requirements primarily relate to acquisitions of
businesses in the critical fluids handling industry. The Company has made cash
payments net of cash acquired for acquisitions of approximately $94.4 million in
the aggregate since inception in December 1994. The source of this cash
primarily has been bank debt along with proceeds from the sale of idle assets
and use of net working capital. The Company's acquisition program will require
significant additional capital. The Company intends to seek additional capital
as necessary to fund such acquisitions through one or more funding sources that
may include borrowings under the Credit Facility, or offerings of debt and/or
equity securities of the Company. Cash provided by operating activities may also
be used to fund a portion of future acquisitions. Although management believes
that the Company will be able to obtain sufficient capital to fund acquisitions,
there can be no assurances that such capital will be available to the Company at
the time it is required or on terms acceptable to the Company.

QUARTERLY RESULTS AND SEASONALITY

    The Company has experienced significant fluctuations in its quarterly
results of operations. These fluctuations have been attributable to timing of
acquisitions and seasonality. The Company's quarterly operating results are
affected by the annual construction season slowdown resulting from winter
weather especially in the period December through March. The fiberglass
composite UST business is especially impacted during the winter months. The
following table represents the Company's selected unaudited quarterly
consolidated statements of operations for each quarter in fiscal 1998 and 1999:

<TABLE>
<CAPTION>
                                   Fiscal Year ended June 27, 1998                      Fiscal Year ended July 3, 1999
                        --------------------------------------------------     -------------------------------------------------
                           1st           2nd           3rd          4th          1st          2nd           3rd           4th
                           Qtr.          Qtr.          Qtr.         Qtr.         Qtr.         Qtr.          Qtr.          Qtr.
                        --------       --------      --------     --------     --------     --------      --------      --------
                                                       (In thousands, except per share data)
<S>                     <C>            <C>           <C>          <C>          <C>          <C>           <C>           <C>
Net revenues            $ 21,979       $ 24,914      $ 21,587     $ 31,417     $ 35,535     $ 38,353      $ 36,328      $ 38,544
Gross profit               4,830          5,731         4,295        7,768        8,766       10,140         8,661        10,236
Operating income          (1,307)*        1,310           313        2,153        2,577        2,141*        1,596         3,563
  (loss)
Income (loss) before
  extraordinary item      (1,965)           580           135        1,360        1,285          916           476         1,724
Extraordinary item            --            (19)          238           --           --           --          (281)           --
                        --------       --------      --------     --------     --------     --------      --------      --------
Net income (loss)       $ (1,965)      $    561      $    373     $  1,360     $  1,285     $    916      $    195      $  1,724
</TABLE>

* Results for the first quarter of fiscal 1998 and the second quarter of fiscal
1999 include non-recurring compensation expenses of $2.3 million and $682,000,
respectively. In addition, the Company uses a 52- or 53-week year-end ending on
the Saturday closest to June 30. The fiscal year ended July 3, 1999 was a
53-week year.


<TABLE>
<CAPTION>
                                  Fiscal Year ended June 27, 1998                     Fiscal Year ended July 3, 1999
                        ------------------------------------------------     -----------------------------------------------
                           1st          2nd          3rd          4th          1st          2nd          3rd          4th
                           Qtr.         Qtr.         Qtr.         Qtr.         Qtr.         Qtr.         Qtr.         Qtr.
                        --------      --------     --------     --------     --------     --------     --------     --------
                                                      (In thousands, except per share data)
<S>                     <C>           <C>          <C>          <C>          <C>          <C>          <C>          <C>
Basic-net income
  (loss) per share
  before extra-
  ordinary item         $  (0.91)     $   0.18     $   0.03     $   0.28     $   0.27     $   0.19     $   0.10     $   0.35
Diluted-net income
  (loss) per share
  before extra-
  ordinary item         $  (0.91)     $   0.17     $   0.03     $   0.28     $   0.27     $   0.19     $   0.10     $   0.35
</TABLE>


                                       18


<PAGE>   21

IMPACT OF YEAR 2000 ISSUES

    Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.

    The Company has completed the assessment of its computer software, hardware
and other systems, including embedded technology, relative to year 2000
compliance. The Company's domestic operations have completed the updating of
their software and hardware systems to improve the efficiency of their business
information systems. The Company's foreign subsidiaries are currently updating
their software and hardware in order to improve the timeliness and quality of
their business information systems. A byproduct of these improvements includes
year 2000 compliance software in certain operating subsidiaries that otherwise
are not year 2000 compliant today. Software selection at these subsidiaries has
been completed and implementation has begun with anticipated completion ranging
from October 1999 to December 1999. With this schedule, the year 2000 issue is
not expected to pose significant operational problems for the Company's computer
systems. Because conversions for business reasons are leading to year 2000
compliance, the Company does not expect incremental expense for year 2000
compliance.

    The Company has completed its assessment of key vendors, customers and other
third parties and based on this assessment, the Company does not anticipate that
year 2000 issues will have a material impact on the Company's operations or
financial results. With respect to suppliers, the Company relies on several key
suppliers for resin and fiberglass used in its operations, and interruptions in
these suppliers' operations resulting from year 2000 problems could impact the
Company's operations and financial results. However, there are alternative
suppliers for these materials, and the Company anticipates that it would be able
to obtain sufficient raw materials to continue to conduct its business.

    Because the Company anticipates that it will complete its year 2000
remediation efforts in advance of December 31, 1999, it has not made any
contingency plans with respect to its operations and systems. However, if the
software changes and modifications of existing software are not made, or are not
completed timely, the year 2000 issue could have a material impact on the
operations of the Company. With respect to key suppliers, the Company has begun
to identify potential alternative suppliers of raw materials in the event that
its key suppliers suffer business interruptions as a result of year 2000
problems.

EURO CONVERSION

     On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the Euro as their common legal currency and established fixed conversion
rates between their existing sovereign currencies and the Euro. The Company is
currently evaluating issues raised by the introduction and initial
implementation of the Euro on January 1, 2002. The Company does not expect costs
of system modifications to be material, nor does it expect the introduction and
use of the Euro to materially and adversely affect its financial condition or
results of operations. The Company will continue to evaluate the impact of the
Euro introduction.




                                       19


<PAGE>   22


INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

    This Form 10-K contains certain forward-looking statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management, as well as assumptions made by and information
currently available to the Company's management. When used in this report, the
words, "anticipate", "believe", "estimate", "expect" and "intend" and words or
phrases of similar import, as they relate to the Company or its subsidiaries or
Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitations, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
distribution networks, product introductions and acceptance, technological
change, changes in industry practices, onetime events and other factors
described herein. Based upon changing conditions, should any one or more of
these risks or uncertainties materialize, or should any underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended.

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

    The Company is subject to market risk exposure related to changes in
interest rates on its senior domestic and foreign credit facilities, which
includes revolving credit notes and term notes. These instruments carry interest
at a pre-agreed upon percentage point spread from either the prime interest
rate, LIBOR, or Euribor. Under its senior domestic credit facilities, the
Company may, at its option, fix the interest rate for certain borrowings based
on a spread over LIBOR for 30 days to 6 months. At June 27, 1998 and July 3,
1999, the Company had $28.7 million and $58.9 million, respectively, outstanding
under its senior credit facilities. Based on these balances, an immediate change
of one percent in the interest rate would cause a change in interest expense of
approximately $287,000 and $589,000, or $.05 and $.07, net of tax, per diluted
share, respectively, on an annual basis. The Company's objective in maintaining
these variable rate borrowings is the flexibility obtained regarding early
repayment without penalties and lower overall cost as compared with fixed-rate
borrowings.

    The Company also has working capital lines of credit with various financial
institutions for several foreign subsidiaries. These lines of credit are
denominated in the subsidiary's local currency. The majority of these
instruments carry interest at a percentage point spread from certain European
interest rates, such as LIBOR, PIBOR and STIBOR. At July 3, 1999, the Company
had $16.2 million outstanding under these facilities. Based on this balance, an
immediate change of one percent in the interest rate would cause a change in
interest expense of approximately $162,000, or $0.02, net of tax, per diluted
share, on an annual basis.

    Beginning in fiscal year 2000, the Company, through its subsidiary Welna,
will have manufacturing and sales activities in foreign jurisdictions. In 1999,
the Company manufactured its products in the United States. With the addition of
Welna, the Company will have manufacturing and sales facilities in The
Netherlands, Germany, Poland, France and the United Kingdom. In addition, the
Company will also have sales activities in Belgium and Thailand. As a result,
the Company's financial results could be significantly affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company distributes its products. The Company's
operating results are primarily exposed to changes in exchange rates between the
Dutch guilder and the Polish Zloty and Swedish Krona (non-Euro countries). When
the Dutch guilder strengthens against the Polish Zloty and Swedish Krona, the
value of non-functional currency sales decreases. When the Dutch guilder
weakens, the function currency amount of sales increases. The Company does not
currently hedge its net investment in foreign operations.

    The Company has exposure to price fluctuations associated with its primary
raw materials, including fiberglass, resin and steel. The Company's supply
agreement with a major supplier of fiberglass holds pricing constant for the
period from January 1, 1998 through June 30, 1999 and subsequently contains
certain stabilizing pricing parameters through its expiration on December 31,
2000. In addition, the Company does not have any long-term purchase agreements
nor does it depend upon any single supplier or source for its resin or steel
requirements.


                                       20


<PAGE>   23




ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.

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

    None




















                                       21


<PAGE>   24




                                    PART III


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information required by this item regarding directors is set forth in
the Proxy Statement under the caption entitled "Election of Directors" and is
incorporated herein by reference.

ITEM 11.          EXECUTIVE COMPENSATION

    The information required by this item is set forth in the Proxy Statement
under the caption "Executive Compensation" and is incorporated herein by
reference.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

    The information required by this item is set forth in the Proxy Statement
under the captions "Election of Directors" and "Executive Compensation" and is
incorporated herein by reference.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by this item is set forth in the Proxy Statement
under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.











                                       22


<PAGE>   25

                                     PART IV


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

    (a) The following documents are filed as part of this Annual Report or
incorporated by reference:

         1.    Financial Statements

               As to financial statements, reference is made to the Index to
               Financial Statements of this Annual Report.

         2.    Financial Statement Schedules

               Schedule II - Valuation and Qualifying Accounts

               All other schedules are omitted as the required information is
               inapplicable or the information is presented in the financial
               statements or notes thereto.

         3.    Exhibits

               The following exhibits are filed as part of this Annual Report.


<TABLE>
<CAPTION>
   Exhibit
   Number          Description of Exhibit
   ------          ----------------------
<S>             <C>
     3.1           Second Restated Certificate of Incorporation of the Company
                   (incorporated by reference to the Company's registration
                   statement on Form S-1, registration statement no. 333-36857
                   (the "Registration Statement")).

     3.2           Bylaws of the Company (incorporated by reference to the
                   Registration Statement).

     4.1           Specimen of Common Stock certificate (incorporated by
                   reference to the Registration Statement).

    10.1           The Company's 1996 Incentive Stock Option Plan, as amended
                   (incorporated by reference to the Registration Statement).

    10.2           The Company's 1997 Incentive Stock Option Plan (incorporated
                   by reference to the Registration Statement).

    10.3           Stock Purchase and Sale Agreement dated as of February 14,
                   1997, by and between the Company and Praxair, Inc.
                   (incorporated by reference to the Registration Statement).

    10.4           Asset Purchase Agreement dated October 12, 1995, by and
                   between the Company, Hoover Group, Inc., Hoover Containment
                   Systems, Inc. and Hoover Containment, Inc. (incorporated by
                   reference to the Registration Statement).

    10.5           Stock Purchase Agreement dated September 19, 1997, by and
                   between the Company and SEFCO, Inc., Craig T. Sutton
                   Revocable Trust, Cedric I. Sutton and Charlotte A. Shnurman
                   (incorporated by reference to the Registration Statement).

    10.6           Stock Purchase Agreement dated September 22, 1997, by and
                   between the Company and GL&V/LaValley Industries, Inc. and
                   GL&V LaValley Construction, Inc. (incorporated by reference
                   to the Registration Statement).

    10.7           Stock Purchase Agreement dated April 8, 1998 between
                   Reinforced Plastic Systems Inc., CC&E/RPS, Inc., and
                   Specialty Solutions, Inc. (incorporated by reference to the
                   Company's current report on Form 8-K dated May 8, 1998).
</TABLE>



                                       23


<PAGE>   26

<TABLE>
<S>             <C>
    10.8           Amendment to Stock Purchase Agreement dated May 8, 1998
                   between Reinforced Plastic Systems Inc., CC&E/RPS, Inc., and
                   Specialty Solutions, Inc. (incorporated by reference to the
                   Company's current report on Form 8-K dated May 8, 1998).

    10.9           Stock Purchase Agreement dated May 11, 1998 by and between
                   William I. Koch, Joan Granlund, Richard P. Callahan, as
                   Custodian for Wyatt I. Koch, under the Florida Uniform
                   Transfer to Minors Act, Richard A. Bird, Fibercast Company
                   and Denali Incorporated (incorporated by reference to the
                   Company's current report on Form 8-K dated June 5, 1998).

    10.10          Glass Fiber Reinforcement Products Purchase Agreement dated
                   December 23, 1994, by and between the Company and Owens
                   Corning (incorporated by reference to the Registration
                   Statement).

    10.11          Agreement dated November 3, 1997, by and between the Company
                   and Owens Corning (incorporated by reference to the
                   Registration Statement).

    10.12          Lease dated November 22, 1996, by and between the Company and
                   Baymeadow Limited Partnership (the "Baltimore Lease")
                   (incorporated by reference to the Registration Statement).

    10.13          First Amendment of Lease dated August 19, 1997, by and
                   between the Company and Baymeadow Limited Partnership
                   regarding the Baltimore Lease (incorporated by reference to
                   the Registration Statement).

    10.14          Salary Continuation Agreement dated September 5, 1997, by and
                   between the Company and Stephen T. Harcrow (incorporated by
                   reference to the Registration Statement).

    10.15          Letter to Lee W. Orr dated March 31, 1997, confirming offer
                   of employment (incorporated by reference to the Registration
                   Statement).

    10.16          Consulting Agreement dated effective as of April 1, 1997, by
                   and between the Company and Edward de Boer (incorporated by
                   reference to the Registration Statement).

    10.17          Confidentiality and Non-Competition Agreement dated September
                   5, 1997, by and between the Company and R. Kevin Andrews
                   (incorporated by reference to the Registration Statement).

    10.18          Confidentiality and Non-Competition Agreement dated September
                   5, 1997, by and between the Company and Melford S. Carter,
                   Jr. (incorporated by reference to the Registration
                   Statement).

    10.19          Confidentiality and Non-Competition Agreement dated September
                   5, 1997, by and between the Company and Cathy L. Smith
                   (incorporated by reference to the Registration Statement).

    10.20          Loan and Security Agreement dated December 21, 1994, by and
                   between the Company and Fleet Capital Corporation (successor
                   in interest to Barclay Business Credit, Inc.) regarding
                   $11,000,000 credit facility (incorporated by reference to the
                   Registration Statement).

    10.21          Loan and Security Agreement dated October 27, 1995, by and
                   between the Company and Fleet Capital Corporation (successor
                   in interest to Shawmut Capital Corporation) regarding
                   $6,500,000 credit facility (incorporated by reference to the
                   Registration Statement).

    10.22          Loan and Security Agreement dated February 28, 1997, by and
                   between the Company and Fleet Capital Corporation regarding
                   $6,500,000 credit facility (incorporated by reference to the
                   Registration Statement).

    10.23          Junior Subordinated Note of the Company dated December 23,
                   1994, in the original principal amount of $7.5 million,
                   payable to Owens Corning (incorporated by reference to the
                   Registration Statement).

    10.24          Loan and Security Agreement dated October 24, 1997, by and
                   between the Company and NationsBank of Texas, N.A.
                   (incorporated by reference to the Registration Statement).

    10.25          First Amendment to Loan and Security Agreement dated as of
                   October 31, 1997, by and between the Company and NationsBank
                   of Texas, N.A. (incorporated by reference to the Registration
                   Statement).

    10.26          Second Amendment to Loan and Security Agreement dated as of
                   October 31, 1997, by and between the Company and NationsBank
                   of Texas, N.A. (incorporated by reference to the Registration
                   Statement).

    10.27          Amended and Restated Credit Agreement dated March 23, 1998
                   among Denali Incorporated, Ershigs Biloxi, Inc., Ershigs,
                   Inc., Fluid Containment, Inc., and SEFCO, Inc., and
                   NationsBank of Texas, N.A., as agent, and the financial
                   institutions named therein (incorporated by reference to the
                   Company's quarterly report on Form 10-Q for the quarterly
                   period ending March 28, 1998 (the "3rd Quarter 1998 10-Q")).

    10.28          Form of Revolving Note of Denali Incorporated pursuant to
                   Amended and Restated Credit Agreement dated March 23, 1998
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).
</TABLE>



                                       24

<PAGE>   27

<TABLE>
<S>             <C>
    10.29          Guaranty dated March 23, 1998 of Denali Incorporated
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.30          Subsidiary Guaranty dated March 23, 1998 of Containment
                   Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
                   Inc., Ershigs, Inc., Fluid Containment Property, Inc.,
                   Instrumentation Solutions, Inc., Specialty Solutions, Inc.,
                   Fluid Containment, Inc., SEFCO, Inc. and Hoover Containment,
                   Inc. (incorporated by reference to the 3rd Quarter 1998
                   10-Q).

    10.31          Security Agreement dated March 23, 1998 between Denali
                   Incorporated and NationsBank of Texas, N.A., as agent
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.32          Security Agreement dated March 23, 1998 among Containment
                   Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
                   Inc., Ershigs, Inc., Fluid Containment Property, Inc.,
                   Instrumentation Solutions, Inc., Specialty Solutions, Inc.,
                   Fluid Containment, Inc., SEFCO, Inc., Hoover Containment,
                   Inc. and NationsBank of Texas, N.A., as agent (incorporated
                   by reference to the 3rd Quarter 1998 10-Q).

    10.33          Pledge Agreement dated March 23, 1998 between Denali
                   Incorporated and NationsBank of Texas, N.A., as agent
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.34          Form of Pledge Agreement dated March 23, 1998 between
                   NationsBank of Texas, N.A., as agent, and each of Specialty
                   Solutions, Inc., Fluid Containment, Inc., and Ershigs, Inc.
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.35          Amendment No. 1 and Consent to the Credit Agreement dated as
                   of June 5, 1998 among Denali Incorporated, Fluid Containment,
                   Inc., Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the
                   Banks party to and defined in the Credit Agreement, and
                   NationsBank, N.A., as agent (incorporated by reference to the
                   Company's annual report on Form 10-K for the fiscal year
                   ending June 27, 1998 (the "1998 10-K"))

    10.36          Assumption and Amendment to Loan Agreement dated as of June
                   5, 1998 among Bank of Oklahoma, N.A., Fibercast Company and
                   Denali Incorporated (incorporated by reference to the 1998
                   10-K)

    10.37          Amendment No. 2 to the Credit Agreement dated as of October
                   29, 1998 among Denali Incorporated, Fluid Containment, Inc.,
                   Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the Banks
                   party to and defined in the Credit Agreement, and
                   NationsBank, N.A., as agent (incorporated by reference to the
                   Company's quarterly report on Form 10-Q for the quarterly
                   period ending September 26, 1998 (the "1st Quarter 1999
                   10-Q"))

    10.38          Guaranty Reaffirmation dated October 29, 1998 of Containment
                   Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
                   Inc., Ershigs, Inc., Fibercast Company, Fluid Containment
                   Property, Inc., Instrumentation Solutions, Inc., Specialty
                   Solutions, Inc., Fluid Containment, Inc., SEFCO, Inc. and
                   Hoover Containment, Inc. (incorporated by reference to the
                   1st Quarter 1999 10-Q)

    10.39          Revolving Note dated October 29, 1998 for $26,000,000 payable
                   to NationsBank, N.A. (incorporated by reference to the 1st
                   Quarter 1999 10-Q)

    10.40          Credit Agreement (the "New Credit Agreement") among Denali
                   Incorporated, Canadian Imperial Bank of Commerce, as
                   administrative agent, and ING (U.S.) Capital LLC, as
                   documentation agent, dated as of January 12, 1999
                   (incorporated by reference to the Company's quarterly report
                   on Form 10-Q for the quarterly period ending March 27, 1999
                   (the "3rd Quarter 1999 10-Q))

    10.41          Stock Purchase Agreement dated February 3, 1999 by and
                   between Steve Jones, Belco Manufacturing Company, Inc. and
                   Containment Solutions, Inc. (incorporated by reference to the
                   Company's Form 8-K dated February 18, 1999)

    10.42          Asset Purchase Agreement dated February 3, 1999 by and
                   between Tiger Trucking LLC, S. Jones Limited Partnership and
                   Containment Solutions, Inc. (incorporated by reference to the
                   Company's Form 8-K dated February 18, 1999)

    10.43          Term Note pursuant to the New Credit Agreement between Denali
                   Incorporated and Bank of Oklahoma N.A. dated January 12, 1999
                   (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.44          Form of Term Note pursuant to the New Credit Agreement
                   between Denali Incorporated and each of Key Corporate Capital
                   Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated January 12,
                   1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.45          Acquisition Loan Note pursuant to the New Credit Agreement
                   between Denali Incorporated and Bank of Oklahoma N.A. dated
                   January 12, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)
</TABLE>

                                       25


<PAGE>   28

<TABLE>
<S>             <C>
    10.46          Form of Acquisition Loan Note pursuant to the New Credit
                   Agreement between Denali Incorporated and each of Key
                   Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
                   dated January 12, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.47          Revolving Credit Note pursuant to the New Credit Agreement
                   between Denali Incorporated and Bank of Oklahoma N.A. dated
                   January 12, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.48          Form of Revolving Credit Note pursuant to the New Credit
                   Agreement between Denali Incorporated and each of Key
                   Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
                   dated January 12, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.49          Pledge Agreement dated January 12, 1999 between Denali
                   Incorporated, Containment Solutions Services, Inc.,
                   Instrumentation Solutions, Inc., Denali Management Inc.,
                   Denali Holdings Management, L.L.C., Denali Operating
                   Management, Ltd., Containment Solutions, Inc., Specialty
                   Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
                   Company, Plasti-fab Inc. and Canadian Imperial Bank of
                   Commerce, as administrative agent and issuing lender
                   (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.50          Security Agreement dated January 12, 1999 between Denali
                   Incorporated, Containment Solutions Services, Inc.,
                   Instrumentation Solutions, Inc., Denali Management Inc.,
                   Denali Holdings Management, L.L.C., Denali Operating
                   Management, Ltd., Containment Solutions, Inc., Specialty
                   Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
                   Company, Plasti-fab Inc. and Canadian Imperial Bank of
                   Commerce, as administrative agent and issuing lender
                   (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.51          Guarantee dated January 12, 1999 between Containment
                   Solutions Services, Inc., Instrumentation Solutions, Inc.,
                   Denali Management Inc., Denali Holdings Management, L.L.C.,
                   Denali Operating Management, Ltd., Containment Solutions,
                   Inc., Specialty Solutions, Inc., Ershigs, Inc., SEFCO, Inc.,
                   Fibercast Company, Plasti-fab Inc. and Canadian Imperial Bank
                   of Commerce, as administrative agent and issuing lender
                   (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.52          Form of Assignment and Acceptance Agreement pursuant to the
                   New Credit Agreement between Denali Incorporated and Canadian
                   Imperial Bank of Commerce, as administrative agent and each
                   of Key Corporate Capital Inc., ING (U.S.) Capital LLC, and
                   CIBC Inc. dated March 15, 1999 (incorporated by reference to
                   the 3rd Quarter 1999 10-Q)

    10.53          Term Note pursuant to the New Credit Agreement between Denali
                   Incorporated and Southwest Bank of Texas, N.A. dated March
                   15, 1999 (incorporated by reference to the 3rd Quarter 1999
                   10-Q)

    10.54          Form of Term Note pursuant to the New Credit Agreement
                   between Denali Incorporated and each of Key Corporate Capital
                   Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated March 15,
                   1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.55          Acquisition Note pursuant to the New Credit Agreement between
                   Denali Incorporated and Southwest Bank of Texas, N.A. dated
                   March 15, 1999 (incorporated by reference to the 3rd Quarter
                   1999 10-Q)

    10.56          Form of Acquisition Note pursuant to the New Credit Agreement
                   between Denali Incorporated and each of Key Corporate Capital
                   Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated March 15,
                   1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.57          Revolving Credit Note pursuant to the New Credit Agreement
                   between Denali Incorporated and Southwest Bank of Texas, N.A.
                   dated March 15, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.58          Form of Revolving Credit Note pursuant to the New Credit
                   Agreement between Denali Incorporated and each of Key
                   Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
                   dated March 15, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.59          Offer Document by Denali Incorporated to shareholders of
                   Welna, N.V. (incorporated by reference to the Company's Form
                   8-K dated July 14, 1999)

    10.60*         Roll-over Loans Facility Agreement between Denali Welna
                   Europe B.V. and ABN AMRO Bank N.V. and ING Bank N.V. dated
                   June 11, 1999 for NLG 25,000,000

    10.61*         Credit Agreement between Welna, N.V., Welna Kunststoffen
                   B.V., B.V. Twentse Kunststoffenindustrie Plasticon, Plasticon
                   Haven B.V., Woodcap B.V., Kialite-Plasticon B.V.,
                   Onroerend-Goed Maatschappij Plasticon B.V., Hanwel B.V.,
                   Plasticon Projects B.V., Welna Handel B.V., Plasticon
                   Heerenveen B.V., B.V. van Delden, Gimex B.V. and ABN AMRO
                   Bank N.V. dated June 11, 1999 for NLG 40,000,000
</TABLE>


                                       26

<PAGE>   29

<TABLE>
<S>             <C>
    10.62*         Working Capital Credit Facility between Welna, N.V., Welna
                   Kunststoffen B.V., B.V. Twentse Kunststoffenindustrie
                   Plasticon, Plasticon Haven B.V., Woodcap B.V.,
                   Kialite-Plasticon B.V., Onroerend-Goed Maatschappij Plasticon
                   B.V., Hanwel B.V., Plasticon Projects B.V., Welna Handel
                   B.V., Plasticon Heerenveen B.V., B.V. van Delden, Gimex B.V.
                   and ING Bank dated June 11, 1999 for NLG 5,000,000

    10.63*         Amendment and Waiver dated June 30, 1999 to the Credit
                   Agreement dated January 12, 1999 among Denali Incorporated
                   and Canadian Imperial Bank of Commerce, as administrative
                   agent for the Lenders and ING (U.S.) Capital LLC, as
                   documentation agent

    10.64*         Note and Warrant Purchase Agreement dated as of June 30, 1999
                   between Denali Incorporated and the Variable Annuity Life
                   Insurance Company, A.G. Investment Advisory Services, Inc.,
                   EMC Equity Fund, L.P., Cockrell Investment Partners, L.P.,
                   Simmons Family Trust, Thomas Dudley Simmons, Jr. Marital
                   Trust, Thomas Dudley Simmons, Jr., Joel V. Staff, Symonds
                   Trust Co., Ltd., Anne Allen Symonds Revocable Trust, William
                   A. Monteleone, Jr., C. Richard Everett, Fred H. Levine and
                   Jay H. Golding Profit Sharing Plan

    10.65*         Form of Common Stock Registration Rights Agreement between
                   Denali Incorporated and the Variable Annuity Life Insurance
                   Company, A.G. Investment Advisory Services, Inc., EMC Equity
                   Fund, L.P., Cockrell Investment Partners, L.P., Simmons
                   Family Trust, Thomas Dudley Simmons, Jr. Marital Trust,
                   Thomas Dudley Simmons, Jr., Joel V. Staff, Symonds Trust Co.,
                   Ltd., Anne Allen Symonds Revocable Trust, William A.
                   Monteleone, Jr., C. Richard Everett, Fred H. Levine and Jay
                   H. Golding Profit Sharing Plan

    10.66*         Form of Subscription Agreement between Denali Incorporated
                   and the Variable Annuity Life Insurance Company, A.G.
                   Investment Advisory Services, Inc., EMC Equity Fund, L.P.,
                   Cockrell Investment Partners, L.P., Simmons Family Trust,
                   Thomas Dudley Simmons, Jr. Marital Trust, Thomas Dudley
                   Simmons, Jr., Joel V. Staff, Symonds Trust Co., Ltd., Anne
                   Allen Symonds Revocable Trust, William A. Monteleone, Jr., C.
                   Richard Everett, Fred H. Levine and Jay H. Golding Profit
                   Sharing Plan

    10.67*         Roll-over Loans Facility Agreement, as amended, between
                   Denali International Holdings B.V. and ABN AMRO Bank N.V.
                   and ING Bank N.V. dated July 1999 for NLG 25,000,000

    10.68*         Lease agreement between Steven Jones and Belco Manufacturing
                   Company, Inc. dated January 1, 1998

    10.69*         Amendment to lease agreement between Steven Jones and Belco
                   Manufacturing Company, Inc. dated February 3, 1999

    21.1*          Subsidiaries of the Company.

    23.1*          Consent of Ernst & Young LLP

    23.2*          Consent of Deloitte & Touche

    27.1*          Financial Data Schedule
</TABLE>

-------------------------------------------------------------------------------
* Filed herewith

    (b)  Reports on Form 8-K

         The Company filed the following reports on Form 8-K during the fourth
         quarter of fiscal year 1999:

            Form 8-K/A dated April 19, 1999 with respect to the acquisition of
            Belco Manufacturing Company, Inc. on February 3, 1999




                                       27


<PAGE>   30





                               DENALI INCORPORATED
                          INDEX TO FINANCIAL STATEMENTS




<TABLE>
<S>                                                                                                   <C>
Reports of Independent Auditors........................................................................F-1

Consolidated Balance Sheets as of  June 27, 1998 and July 3, 1999......................................F-3

Consolidated Statements of Operations for the Years Ended June 28, 1997, June 27, 1998
    and July 3, 1999...................................................................................F-4
Consolidated Statements of Stockholders' Equity as of June 28, 1997, June 27, 1998
    and July 3, 1999 ..................................................................................F-5
Consolidated Statements of Cash Flows for the Years Ended June 28, 1997, June 27, 1998
    and July 3, 1999 ..................................................................................F-6

Notes to Consolidated Financial Statements.............................................................F-7
</TABLE>



<PAGE>   31




                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Stockholders
Denali Incorporated

We have audited the accompanying consolidated balance sheets of Denali
Incorporated and subsidiaries (the "Company") as of June 27, 1998 and July 3,
1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended June 28, 1997, June 27,
1998 and July 3, 1999. Our audits also included the consolidated financial
statement schedule listed in the index at Item 14(a). These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits. We did not audit the
consolidated balance sheet of Welna N.V., a majority owned subsidiary acquired
on July 1, 1999, which statement reflects total assets of $59,105,000 as of July
3, 1999. That consolidated balance sheet was audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
balance sheet data included for Welna N.V., is based solely on the report of
other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and, as to the balance sheet at July 3,
1999, the report of other auditors, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Denali Incorporated and subsidiaries at June 27, 1998 and
July 3, 1999, and the consolidated results of its operations and its cash flows
for the years ended June 28, 1997, June 27, 1998 and July 3, 1999 in conformity
with generally accepted accounting principles. Also in our opinion, the related
consolidated 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.






                                                  ERNST & YOUNG LLP



Houston, Texas
August 16, 1999




                                       F-1


<PAGE>   32




                         REPORT OF INDEPENDENT AUDITORS



We have audited the accompanying consolidated balance sheet of Welna N.V.,
Enschede, the Netherlands, as of July 3, 1999. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating, the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Welna N.V.,
Enschede, the Netherlands, as of July 3, 1999, in conformity with US generally
accepted accounting principles.






                                DELOITTE & TOUCHE




Enschede, Netherlands
August 16, 1999








                                       F-2


<PAGE>   33



                               DENALI INCORPORATED
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                         June 27,         July 3,
                                                                                           1998            1999
                                                                                        ----------      ----------
                                                                                              (In thousands)
<S>                                                                                     <C>             <C>
        ASSETS
        Current assets:
          Cash ....................................................................     $      175      $    1,824
          Accounts receivable, net of allowances of $907,000 in
              1998 and $1,419,000 in 1999 .........................................         23,465          38,862
          Inventories .............................................................         10,489          26,175
          Prepaid expenses ........................................................          1,152           4,052
          Other receivables .......................................................             --           2,591
          Deferred tax assets .....................................................          1,242           1,135
                                                                                        ----------      ----------
              Total current assets ................................................         36,523          74,639
        Property, plant and equipment, net ........................................         20,270          46,938
        Goodwill, net .............................................................         19,435          50,651
        Other assets ..............................................................          1,758           3,898
        Deferred tax assets .......................................................          1,947              --
        Assets held for sale ......................................................            449             449
                                                                                        ----------      ----------
        Total assets ..............................................................     $   80,382      $  176,575
                                                                                        ==========      ==========

        LIABILITIES AND STOCKHOLDERS' EQUITY
        Current liabilities:
          Accounts payable ........................................................     $   13,140      $   19,047
          Accrued liabilities .....................................................          7,180          15,777
          Lines of credit .........................................................             --          16,217
          Income taxes payable ....................................................            620           1,757
          Current maturities of long-term debt ....................................          1,442           4,030
                                                                                        ----------      ----------
              Total current liabilities ...........................................         22,382          56,828
        Long-term debt, less current maturities ...................................         28,454          68,002
        Related party subordinated debt ...........................................             --           3,980
        Accrued pension costs .....................................................             --           2,109
        Minority interest .........................................................             --           1,571
        Deferred taxes ............................................................             --           1,692
        Other long-term liabilities ...............................................            872           3,824
        Series A Preferred Stock, redeemable at $250 per share, $.01 par value:
          Authorized shares -- 1,004,800
          Issued and outstanding shares -- none at June 27, 1998
             and none at July 3, 1999 .............................................             --              --
        Commitments and contingencies
        Stockholders' equity:
          Common stock, $.01 par value
             Authorized shares -- 30,000,000
             Issued and outstanding shares -- 4,828,743 at June 27,
                1998 and 5,423,215 at July 3, 1999 ................................             48              54
          Additional paid-in capital ..............................................         29,187          34,956
          Retained earnings (deficit) .............................................           (561)          3,559
                                                                                        ----------      ----------
        Total stockholders' equity ................................................         28,674          38,569
                                                                                        ----------      ----------
        Total liabilities and stockholders' equity ................................     $   80,382      $  176,575
                                                                                        ==========      ==========
</TABLE>

                             See accompanying notes.

                                       F-3


<PAGE>   34



                               DENALI INCORPORATED
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                                      ------------------------------------------
                                                                       June 28,        June 27,        July 3,
                                                                         1997            1998            1999
                                                                      ----------      ----------      ----------
                                                                       (In thousands, except per share amounts)
<S>                                                                   <C>             <C>             <C>
         Net revenues ...........................................     $   71,101      $   99,897      $  148,760
         Cost of revenues .......................................         57,268          77,273         110,957
                                                                      ----------      ----------      ----------
         Gross profit ...........................................         13,833          22,624          37,803
         Selling, general, and administrative expenses ..........         11,874          17,843          27,244
         Non-recurring compensation charge ......................             --           2,312             682
                                                                      ----------      ----------      ----------
         Operating income .......................................          1,959           2,469           9,877
         Interest expense .......................................          2,058           1,614           3,199
         Interest income ........................................           (111)           (118)           (124)
         Other income, net ......................................           (598)           (489)           (453)
                                                                      ----------      ----------      ----------
         Income before income taxes .............................            610           1,462           7,255
         Income tax expense .....................................            293           1,352           2,854
                                                                      ----------      ----------      ----------
         Net income before extraordinary item ...................            317             110           4,401
         Extraordinary income (loss) on early extinguishment
           of debt, net of income tax ...........................             --             219            (281)
                                                                      ----------      ----------      ----------
         Net income .............................................            317             329           4,120
         Dividends on Series A Preferred Stock ..................           (120)            (30)             --
                                                                      ----------      ----------      ----------
         Net income attributable to Common Stock ................     $      197      $      299      $    4,120
                                                                      ==========      ==========      ==========

         Net income per common share - basic and diluted:
           Income before extraordinary item .....................     $     0.09      $     0.02      $     0.90
           Extraordinary item ...................................             --            0.06            (.06)
                                                                      ----------      ----------      ----------
           Net income per common share ..........................     $     0.09      $     0.08      $     0.84
                                                                      ==========      ==========      ==========
</TABLE>




                             See accompanying notes.















                                       F-4


<PAGE>   35



                               DENALI INCORPORATED
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                            Common         Common                      Retained
                                                            Stock          Stock         Paid-In       Earnings
                                                            Shares         Amount        Capital       (Deficit)         Total
                                                          ----------     ----------     ----------     ----------      ----------
                                                                                      (In thousands)
<S>                                                      <C>            <C>            <C>            <C>             <C>
       Balance at June 29, 1996 .....................          2,185     $       22     $      297     $   (1,057)     $     (738)
         Dividends declared .........................             --             --             --           (120)           (120)
         Net income .................................             --             --             --            317             317
                                                          ----------     ----------     ----------     ----------      ----------
       Balance at June 28, 1997 .....................          2,185             22            297           (860)           (541)
         Exchange of employee stock options .........             --             --          2,312             --           2,312
         Issuance of common stock ...................          2,276             23         25,969             --          25,992
         Exercise of employee stock options .........            368              3            609             --             612
         Dividends declared .........................             --             --             --            (30)            (30)
         Net income .................................             --             --             --            329             329
                                                          ----------     ----------     ----------     ----------      ----------
       Balance at June 27, 1998 .....................          4,829     $       48     $   29,187     $     (561)     $   28,674
         Issuance of common stock for
            acquisitions ............................            105              1          1,108             --           1,109
         Issuance of common stock in a private
            placement ...............................            489              5          4,505             --           4,510
         Income tax benefit related to incentive
            stock option plans ......................             --             --            156             --             156

         Net income .................................             --             --             --          4,120           4,120
                                                          ----------     ----------     ----------     ----------      ----------
       Balance at July 3, 1999 ......................          5,423     $       54     $   34,956     $    3,559      $   38,569
                                                          ==========     ==========     ==========     ==========      ==========
</TABLE>

                             See accompanying notes.






                                       F-5


<PAGE>   36


                               DENALI INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                   Year Ended
                                                                       ------------------------------------
                                                                       June 28,      June 27,      July 3,
                                                                         1997          1998          1999
                                                                       --------      --------      --------
                                                                                  (In thousands)
<S>                                                                    <C>           <C>           <C>
         OPERATING ACTIVITIES
         Net income ..............................................     $    317      $    329      $  4,120
         Adjustments to reconcile net income to net cash
           provided by (used in) operating activities:
           Non-recurring compensation expense ....................           --         2,312            --
           Depreciation ..........................................        1,043         1,436         2,535
           Amortization ..........................................          178           256           725
           Provision for losses on accounts receivable ...........          176            93           397
           Deferred tax expense ..................................           25           236           248
           Gain on disposal of property, plant and
              equipment and assets held for sale .................         (447)          (89)          (31)
           Changes in operating assets and liabilities, net of
              effects of acquisitions:
              Accounts receivable ................................       (3,377)          (85)        2,163
              Inventories ........................................        1,238        (1,612)       (4,731)
              Prepaid expenses ...................................          (90)          (92)         (502)
              Other assets and liabilities .......................          (57)         (212)        1,720
              Accounts payable ...................................          886         1,223            39
              Accrued liabilities ................................          264          (652)          159
              Income tax payable .................................          469           711           397
                                                                       --------      --------      --------
         Net cash provided by operating activities ...............          625         3,854         7,239
         INVESTING ACTIVITIES
         Acquisitions net of cash acquired .......................       (4,825)      (29,770)      (48,518)
         Purchases of property, plant and equipment ..............         (600)       (3,071)       (2,886)
         Proceeds from sale of property, plant and equipment
           and assets held for sale ..............................          208           899            77
         Payments on notes receivable ............................           81           816            --
         Purchases of equity securities ..........................         (593)           --            --
         Proceeds from sale of equity securities .................        1,098            --            --
                                                                       --------      --------      --------
         Net cash used in investing activities ...................       (4,631)      (31,126)      (51,327)
         FINANCING ACTIVITIES
         Proceeds from common stock issuance .....................           --        25,992         4,525
         Proceeds from exercise of stock options .................           --           612            --
         Redemption of preferred stock ...........................           --        (1,200)           --
         Dividends paid ..........................................           --          (210)           --
         Net borrowings (repayments) under revolving lines
           of credit .............................................        2,848         8,990        (8,455)
         Proceeds from term notes and long-term debt .............        2,200        10,398        48,949
         Proceeds from subordinated debt .........................           --            --        15,000
         Principal payments on term notes and long-term
           debt ..................................................         (685)      (17,016)      (11,441)
         Debt origination costs ..................................         (151)         (449)       (2,841)
                                                                       --------      --------      --------
         Net cash provided by financing activities ...............        4,212        27,117        45,737
                                                                       --------      --------      --------
         Increase (decrease) in cash .............................          206          (155)        1,649
         Cash at beginning of period .............................          124           330           175
                                                                       --------      --------      --------
         Cash at end of period ...................................     $    330      $    175      $  1,824
                                                                       ========      ========      ========
</TABLE>

                             See accompanying notes.

                                       F-6


<PAGE>   37


                               DENALI INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 1999


1. THE COMPANY

ORGANIZATION AND BASIS OF PRESENTATION

    Denali Incorporated ("Denali" or the "Company"), a Delaware corporation, was
incorporated on December 19, 1994, and through its wholly and majority owned
subsidiaries is primarily engaged in the design, manufacture, installation and
sale of fiberglass composite underground storage tanks, steel aboveground
storage tanks, and engineered fiberglass reinforced plastic products for
corrosion resistant applications. During fiscal 1999, the Company's products
were primarily marketed in the United States. On July 1, 1999, the Company
acquired Welna, N.V. ("Welna"), which is headquartered in The Netherlands. Welna
is a provider of engineered fluid handling products to the chemical,
petrochemical, pulp and paper, water/wastewater, microelectronics and
environmental process industries. Beginning in fiscal 2000, the addition of
Welna will expand the Company's products and services globally, primarily to
Europe.

    The Company uses a 52- or 53-week year ending on the Saturday closest to
June 30. The fiscal year ended July 3, 1999 was a 53-week year.

    Certain prior year amounts have been reclassified to conform to current year
presentation.

2. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

    The Consolidated Financial Statements include the accounts of Denali and its
wholly and majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.

USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by management.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

    The Company considers all cash accounts and money market accounts with an
original maturity less than 90 days to be cash and cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    The carrying amounts of cash, prepaid expenses, accounts receivable, and
other current assets and accounts payable approximate fair values due to the
short-term maturities of these instruments. The carrying value of the Company's
revolving lines of credit and notes payable approximates fair value because the
rates on such lines are primarily variable, based on current market.

STOCK-BASED COMPENSATION

    The Company accounts for stock-based compensation arrangements using the
intrinsic value method under the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees.


                                       F-7

<PAGE>   38




INVENTORIES

    Inventories are determined using actual cost or a standard cost method based
on a first-in, first-out ("FIFO") basis. Inventory is stated at the lower of
cost or market.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment are stated at cost. Depreciation is computed
by the straight-line method using rates based on the estimated useful lives of
the related assets. Estimated useful lives used for depreciation purposes are as
follows:

<TABLE>
<S>                                                      <C>
                     Buildings and improvements          20 to 30 years
                     Machinery and equipment             3 to 10 years
</TABLE>

GOODWILL

    Goodwill represents the excess cost of companies acquired over the fair
value of their tangible assets. Goodwill is being amortized on a straight-line
basis over 40 years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced by the estimated
shortfall of the discounted cash flows. The Company also has negative goodwill
of approximately $1.1 million resulting from the acquisition of Ershigs in
February 1997. The negative goodwill is being amortized primarily over the
estimated life of the related assets, which is estimated to be 15 years.
Accumulated amortization was $168,000 and $616,000 for the years ended June 27,
1998 and July 3, 1999, respectively. Amortization expense was $42,000, $99,000
and $448,000 for the years ended June 28, 1997, June 27, 1998 and July 3, 1999.

REVENUES FROM LICENSE ARRANGEMENTS

    The Company has certain license agreements whereby it receives royalties
equal to the greater of a certain percentage of the licensee's sales for
products based on the Company's proprietary technology and processes or a
guaranteed amount as specified in the agreements. The agreements expire between
1999 and 2011. The Company recognizes the actual royalties due or the guaranteed
amount under these license agreements in the period of the licensee's sales.

REVENUE RECOGNITION

    Revenues from sales of products fabricated at plant locations are recognized
using the units-of-delivery method of accounting.

    Revenues from certain long-term construction contracts, usually performed on
job sites, are recognized on the percentage-of-completion method. Earned revenue
is based on the percentage that incurred costs to date are to total estimated
costs after giving effect to the most recent estimates of total cost. The
cumulative impact of revisions in total cost estimates during the progress of
work is reflected in the period in which these changes become known. Earned
revenue reflects the original contract price adjusted for agreed-upon claim and
change order revenue, if any.

    Losses expected to be incurred on jobs in process, after consideration of
estimated minimum recoveries from claims and change orders, are charged to
income as soon as such losses are known. Selling and administrative expenses are
charged to income in the period incurred and are not allocated to contracts in
progress.



                                       F-8

<PAGE>   39




ADVERTISING

    The Company expenses all advertising costs as incurred. Advertising costs
incurred were $402,000, $582,000 and $748,000 for the years ended June 28, 1997,
June 27, 1998 and July 3, 1999, respectively.

INCOME TAXES

    The Company uses the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
reverse.

RESEARCH AND DEVELOPMENT COSTS

    The costs of materials and equipment that are acquired for research and
development activities, and which have alternative future uses, are capitalized
and depreciated over the period of future benefit. All other research and
development costs are charged against earnings in the period incurred. Research
and development costs expensed were $319,000, $458,000 and $798,000 for the
years ended June 28, 1997, June 27, 1998 and July 3, 1999, respectively.

CONCENTRATION OF CREDIT RISK

    Financial instruments that could potentially subject the Company to
concentrations of credit risk are accounts receivable. The Company periodically
evaluates the creditworthiness of its customers and generally does not require
collateral. The Company's customer base consists of major commercial
organizations and independent sub-contractors. No customer accounted for 10% or
more of revenues for the years ended June 28, 1997, June 27, 1998 and July 3,
1999.

PER SHARE INFORMATION

    The following table sets forth the weighted average shares outstanding for
the computation of basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                                               Years Ended
                                                                    ----------------------------------
                                                                     June 28,     June 27,     July 3,
                                                                      1997         1998         1999
                                                                    --------     --------     --------
                                                                         (Share data in thousands)
<S>                                                                 <C>          <C>          <C>
           Weighted average common shares outstanding .........        2,185        3,736        4,886
           Dilutive securities - employee stock options and
             warrants .........................................           13          139            2
                                                                    --------     --------     --------
           Weighted average common shares outstanding
             assuming full dilution ...........................        2,198        3,875        4,888
                                                                    ========     ========     ========
</TABLE>

CAPTIVE INSURANCE PROGRAM

    In January 1996, the Company entered into a captive insurance program for
its workers' compensation and automobile coverages. The program provides for
certain reinsurance on claims over $250,000 and aggregate insurance for the
total claims exposure of the captive company. The Company uses actuarial
determined information provided by the captive insurance company to determine
its estimated liability.




                                       F-9


<PAGE>   40

ACCOUNTING CHANGES

    Effective June 28, 1998, the Company adopted SFAS No. 132, Employers'
Disclosures about Pension and Other Postretirement Benefits. This statement
standardizes the disclosure requirements for pension and other postretirement
benefits. The adoption of SFAS No. 132 did not have an effect on the Company's
financial position or results of operations.

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("FAS 133"). The Company is required to adopt FAS 133 effective the beginning of
fiscal year 2001. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. The Company does not anticipate
that the adoption of this Statement will have a significant effect on its
results of operations or financial position.

3.  ACQUISITIONS

    Effective February 28, 1997, the Company acquired all of the issued and
outstanding stock of Ershigs, Inc. ("Ershigs"), a manufacturer of
fiberglass-reinforced plastic composites for corrosion-resistant applications.
The acquisition was accounted for under the purchase method of accounting
whereby the assets and liabilities of Ershigs were adjusted to their estimated
fair values at the acquisition date, which exceeded the purchase price by
approximately $1.3 million. Accordingly, the excess amount was allocated to
reduce the basis of property, plant and equipment (except for assets held for
sale) with the remaining amount of $1.1 million allocated to negative goodwill.
The negative goodwill is being amortized primarily over the estimated life of
the related deferred tax assets, which is estimated to be 15 years.

    Effective October 1997, the Company acquired all of the issued and
outstanding stock of SEFCO, Inc. ("SEFCO"), a manufacturer of engineered
field-erected steel tanks and accessories for use in the municipal, agrochemical
and petroleum industries. Effective October 1997, the Company acquired all of
the issued and outstanding stock of GL&V/LaValley Construction, Inc.
("LaValley"), a manufacturer and installer of fiberglass-reinforced plastic
products. Effective May 1998, the Company purchased all of the issued and
outstanding stock of CC&E/RPS, Inc. ("CC&E"), a leading North American field
constructor of fiberglass-reinforced plastic products. Effective June 1998, the
Company acquired 100% of the issued and outstanding stock of Fibercast Company
("Fibercast"), a leading manufacturer of fiberglass-reinforced plastic piping
systems specializing in highly corrosive environments.

    In connection with the fiscal 1998 acquisitions, the Company acquired net
assets of $9.8 million in exchange for $28.5 million in cash, which is net of
$700,000 cash acquired, and incurred approximately $450,000 in acquisition costs
resulting in the recording of goodwill of approximately $19 million. The Company
also paid down $1.1 million of bank and seller debt and assumed $3.5 million of
bank debt in connection with the Fibercast acquisition. During fiscal 1999, the
seller in the CC&E acquisition received contingent payments of $202,000 based on
an increase in the level of bookings, which was recorded as an increase to
goodwill. In addition, approximately $919,000 of purchase price adjustments were
recorded, resulting in an increase to goodwill.

    Effective November 23, 1998, the Company acquired all of the issued and
outstanding stock of Plasti-fab, Inc. ("Plasti-fab"), a manufacturer of FRP
gates, metered manholes and flumes for use in the waste/wastewater industries.
Effective February 3, 1999, the Company acquired all of the outstanding stock of
Belco Manufacturing Company, Inc. and certain assets and assumed certain
liabilities of S. Jones Limited Partnership (collectively "Belco"). Belco
manufactures FRP tanks, ducting, piping, scrubbers and dampers primarily for the
industrial water/wastewater industries.

    Effective July 1, 1999, the Company completed its tender offer for the
publicly held shares of Welna N.V. ("Welna"), a Dutch company listed on the
Official Market of the Amsterdam Stock Exchange. Denali purchased 99.8% of the
outstanding stock of Welna. The consolidated balance sheet includes the effect
of the acquisition of Welna, however, there was no effect on the income
statement in fiscal year 1999. The consolidated balance sheet includes minority
interest, which represents minority ownership in certain Welna subsidiaries.


                                      F-10


<PAGE>   41



    Welna currently operates through two major divisions. Welna Synthetics
designs, manufactures and installs all forms of FRP pipe systems, vessels and
other related equipment requiring high levels of corrosion resistance. Welna
Trade is a distribution operation that specializes in high quality products and
engineered systems for power generation, water treatment and paper and chemical
processing industries. Welna markets its products through its subsidiaries in
The Netherlands, Germany, United Kingdom, Belgium, Sweden, France, Poland and
Thailand.

    In connection with the fiscal 1999 acquisitions, the company acquired net
assets of $37.6 million in exchange for $47.2 million in cash, which is net of
$2.6 million cash acquired, and incurred approximately $2.1 million in
acquisition costs resulting in the recording of goodwill of approximately $30.2
million. The allocation of the purchase price to assets and liabilities acquired
for the acquisitions are based on preliminary estimates of fair market value.
Upon determination of the fair market value of the purchased assets and
liabilities, the purchase price allocation may be adjusted. The Company issued
594,189 common shares for the fiscal 1999 acquisitions valued at $5.6 million.
The Company also assumed approximately $15 million of bank debt, net of cash
acquired, in connection with the Welna acquisition.

    All of the acquisitions described above were accounted for under the
purchase method of accounting whereby the assets and liabilities were adjusted
to their estimated fair values at the acquisition date. The consolidated
financial statements reflect all operations for the acquired companies since the
date of acquisition.

    The following unaudited results of operations have been prepared assuming
the acquisitions had occurred as of the beginning of the periods presented.
Those results are not necessarily indicative of results of future operations nor
of results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented.

<TABLE>
<CAPTION>
                                                                        June 27,        July 3,
                                                                         1998            1999
                                                                      ----------      ----------
                                                                 (In thousands except per share data)
<S>                                                                   <C>             <C>
       Net revenues .............................................     $  206,623      $  222,422
       Net income (loss) before extraordinary item ..............         (1,319)          1,746
       Net income (loss) ........................................         (1,100)          1,465
       Net income (loss) per common share - basic and diluted ...          (0.26)           0.26
</TABLE>

ASSETS HELD FOR SALE

    Assets held for sale are recorded on the balance sheet at amounts equal to
estimated net realizable values adjusted for anticipated earnings or losses,
interest and other carrying costs until sale.

    Assets held for sale of $3.6 million were identified in December 1994, the
date of acquisition of the tank group from Owens Corning, consisting primarily
of two manufacturing facilities and related manufacturing equipment. The two
manufacturing facilities were closed in early 1995 and had insignificant
operations after the date of acquisition. One manufacturing facility was sold in
December 1995 at its previously recorded net realizable value. The other
manufacturing facility was sold in June 1996, with the Company recognizing a
loss of $208,000 due to a decline in the market value of the property during
1996. Certain of the manufacturing equipment was sold during the year ended June
28, 1997 under licensing arrangements with the Company recognizing a gain on the
sale of the equipment of $312,000. During fiscal year 1998, manufacturing
equipment with a book value of $250,000 was sold through an international joint
venture with the Company recognizing a gain of $107,000. These transactions have
been recorded as other income, net on the consolidated statement of operations.
At July 3, 1999, the remaining assets held for sale of $449,000 consist of
certain manufacturing equipment which the Company primarily expects to sell
under similar license arrangements or through an international joint venture.

    Assets held for sale of $820,000 were identified at the date of acquisition
of Ershigs consisting primarily of a manufacturing facility and related
manufacturing equipment. The manufacturing facility was closed in May 1997 with
operating losses of $68,000 eliminated from the Company's results of operations
for the year ended June 28, 1997. In January 1998, the assets were sold with the
Company recognizing no gain or loss.


                                      F-11


<PAGE>   42




4. INVENTORIES

    Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                                    June 27,           July 3,
                                                                      1998              1999
                                                                    --------          --------
                                                                          (In thousands)
<S>                                                                 <C>               <C>
                Finished goods..........................            $  4,748          $ 10,546
                Raw materials...........................               4,289             8,672
                Work in process.........................               1,452             6,957
                                                                    --------          --------
                                                                    $ 10,489          $ 26,175
                                                                    ========          ========
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                    June 27,           July 3,
                                                                      1998              1999
                                                                    --------          --------
                                                                          (In thousands)
<S>                                                                 <C>               <C>
                 Land......................................         $  2,110          $  6,678
                 Buildings and improvements................            6,966            22,198
                 Machinery and equipment...................           14,024            22,603
                 Construction in progress..................              769             1,330
                                                                    --------          --------
                                                                      23,869            52,809
                 Less accumulated depreciation.............           (3,599)           (5,871)
                                                                    --------          --------
                 Property, plant and equipment, net........         $ 20,270          $ 46,938
                                                                    ========          ========
</TABLE>

6. LONG-TERM DEBT

    Long-term debt is summarized below:

<TABLE>
<CAPTION>
                                                                                                  June            July
                                                                                                   27,             3,
                                                                                                  1998            1999
                                                                                                --------        --------
                                                                                                    (In thousands)
<S>                                                                                             <C>             <C>
      Revolving credit note with a financial institution, interest payable monthly
        at 30-day LIBOR plus 2.5% (8.16% at June 27, 1998), due October 31,
        2002, secured by substantially all assets of the Company's subsidiaries ..              $ 19,400         $    --

      Revolving credit note with a financial institution, interest payable
        quarterly at prime (8.5% at June 27, 1998), due October 31, 2002,
        secured by substantially all assets of the Company's subsidiaries ........                    55              --

      Term note with a financial institution, due in monthly installments of
        $51,816, plus interest at 30-day LIBOR plus 2.5% (8.16% at June 27,
        1998) through October 24, 2002, with remaining balance of $3,079 due
        October 24, 2002, secured by substantially all assets of the
        Company's subsidiaries ...................................................                 5,785              --

      Term note with a financial institution, due in monthly installments of
        $58,500, plus interest at prime plus 0.5% beginning August 1, 1998 (9.0%
        at June 27, 1998) through February 7, 2001, secured by property,
        plant and equipment of Fibercast .........................................                 3,500              --
</TABLE>



                                      F-12



<PAGE>   43

<TABLE>
<S>                                                                                             <C>             <C>
      Term note with a seller, due in monthly installments of $5,591, including
        interest at 8%, through January 16, 2001, secured by all assets of
        purchased facility .......................................................                   156              --

      Industrial Revenue Bonds with Montgomery County Industrial Development
        Corporation, interest payable semiannually on February 1 and August 1 at
        9.875%, principal due February 1, 2001, secured by FCI's Conroe, Texas,
        manufacturing facility ...................................................                 1,000              --

      Term note with a financial institution, due in quarterly installments of
        $500,000 the first year, $750,000 the second year, $1.0 million the
        third year; $1.25 million the fourth year and $1.5 million the fifth
        year, plus interest at LIBOR plus 3.0% (8.33% at July 3, 1999) through
        2004, secured by substantially all assets of the Company's subsidiaries ..                    --          19,000

      Acquisition note with a financial institution, due in quarterly payments
        starting September 30, 2000, with payments 1-6 equal to 5% of
        outstanding principal amount; payments 7-10 equal to 7.5% and payments
        11-14 equal to 10%, interest payable at LIBOR plus 3.5%
        (8.49% at July 3, 1999), secured by substantially all assets of the
        Company's subsidiaries ...................................................                    --          17,200

      Revolving credit note with a financial institution, interest payable
        monthly at LIBOR plus 3.0% (8.0% at July 3, 1999), principal due
        December 31, 2003,  secured by substantially all assets of the
        Company's subsidiaries ...................................................                    --           9,500

      Revolving credit note with a financial institution, interest payable
        monthly at prime plus 1.75% (9.75% at July 3, 1999), principal due
        December 31, 2003,  secured by substantially all assets of the
        Company subsidiaries......................................................                    --           1,500

      Senior subordinated notes, interest paid  quarterly at 12%, principal due
        July 1, 2006 .............................................................                    --          15,000

      Term loan with a financial institution, interest payable quarterly at
        Euribor plus 1.75% (4.389% at July 3, 1999) through August 2005,
        principal due in quarterly payments of NLG 625,000 beginning on October
        1, 1999 secured by Welna's assets ........................................                    --           7,049

      Term loan with a financial institution, interest payable quarterly at
        Euribor plus 1.75% (4.389% at July 3, 1999), principal due August 1,
        2001 secured by Welna's assets ...........................................                    --           4,700

      Various unsecured term notes with financial institutions, interest payable
        quarterly ranging from 5.5% to 8.5% with principal due between 2001
        and 2003 .................................................................                    --           3,796
                                                                                                --------        --------

      Subtotal ...................................................................                29,896          77,745

      Less current maturities ....................................................                 1,442           4,030

      Less discount on senior subordinated notes .................................                    --           1,733
                                                                                                --------        --------

      Long-term debt due after one year ..........................................              $ 28,454        $ 71,982
                                                                                                ========        ========
</TABLE>


         On January 12, 1999, the Company entered into a new senior credit
facility with a group of lenders to refinance its revolving and term credit
arrangements, as amended, to provide working capital and an acquisition line of
credit. This new senior credit facility provides for a maximum of $20.0 million
in revolving credit facility due in January 2004, and a term loan up to $20.0
million with equal quarterly payments plus interest of $500,000 the first year,
$750,000 the second year, $1.0 million the third year, $1.25 million the fourth
year, and $1.5 million the fifth year. The credit facility also provides for up
to a $35.0 million acquisition term loan with the first principal installment
due 21 months following the closing of the credit facility. As of July 3, 1999,
the Company had outstanding indebtedness of $19.0 million under the term loan,
$11.0 million under the revolving lines of credit and $17.2 million under the
acquisition term loan. The new revolving credit notes and term loans provide for
borrowings, at the Company's option, at either the lender's prime rate plus a
margin of 1.75% or varying rates of LIBOR plus 3.0%. The acquisition term loans
provide for borrowing, at the Company's option, at either the lender's prime
rate plus a margin of 2.25% or at varying rates of LIBOR plus 3.5%.



                                      F-13


<PAGE>   44



     This new senior credit facility provides availability for letters of credit
up to $10.0 million subject to availability of borrowing capacity under the
revolving credit notes. As of July 3, 1999, the Company had $2.0 million of
letters of credit outstanding. The new senior credit facility requires the
Company to maintain certain financial covenants and requires an annual fee of
 .50% on the unused portion of the revolving credit notes and .75% on the unused
portion of the acquisition term loan. As of July 3, 1999, the Company's unused
portion of the revolving credit line and acquisition term loan was $7.5 million
and $17.8 million, respectively. The Company was in compliance with all required
financial covenants at July 3, 1999. This new senior credit facility is secured
by substantially all of the assets of the Company's subsidiaries.

     In June 1999, the Company entered into a new senior credit facility
("Senior Dutch Facility") with two Netherland financial institutions to finance
the acquisition of Welna. The new Senior Dutch Facility provides for two term
loans for a total facility of Dutch guilders (NLG) 25 million. Term Loan A
provides for borrowings of NLG 15 million with quarterly payments of NLG 625,000
beginning October 1, 1999. Term Loan B provides for borrowings of NLG 10 million
with principal due at date of maturity (August 1, 2001). As of July 3, 1999, the
Company had outstanding indebtedness of NLG 25 million, or approximately $11.7
million. The term loans bear interest at Euribor plus 1.75%. The Senior Dutch
Facility requires the Company to maintain certain financial covenants. The
facility is secured by substantially all of Welna's assets.

    The Company assumed $1.0 million in Industrial Revenue Bonds ("IRBs") in
connection with its acquisition of the Owens Corning fiberglass composite UST
business in December 1994. In addition, the Company assumed $3.5 million of term
debt with a financial institution in connection with its acquisition of
Fibercast in June 1998. During the current fiscal year, the Company repaid both
notes.

     Also, in connection with the extinguishment of its old revolving and term
credit arrangements upon funding of the new senior credit facility in January
1999, the Company recorded an extraordinary charge of $454,000 ($281,000 net of
tax) related to unamortized debt origination costs.

     On July 1, 1999, the Company issued $15 million or $13.3 million net of
discount (of which $3,980,000 is to certain directors of the Company and is
classified separately as related party subordinated debt on the balance sheet)
in senior subordinated notes ("subordinated notes") bearing interest at 12% and
maturing in 2006. The subordinated notes were issued with detachable warrants
that enable the holder to purchase up to 534,873 common shares at $7.54 per
share. The warrants are exercisable immediately and expire in 2006. The warrants
or warrant shares also feature a put option that allows the holder to put up to
1/3 of the warrants or warrant shares each year at fair market value beginning
in year five and expiring in year ten. The Company has an option to terminate
the obligation to repurchase the warrants or warrant shares for a total fee not
to exceed $2.46 million. The warrants were recorded at fair value of $1,733,000
based on Black Scholes valuation model, which has been recorded as a liability,
and a related discount on the senior subordinated debt was recorded for the same
amount. This discount will be amortized over the seven year term of the note as
additional interest expense. The liability will be adjusted to the fair value of
the warrants in future periods not to exceed $2.46 million. The proceeds from
the subordinated debt issuance were used in the funding of the acquisition of
Welna.

     In the prior fiscal year, in connection with the extinguishment of a prior
revolving and term credit arrangement in October 1997, the Company paid
prepayment penalties of $323,000 and charged to expense unamortized debt
origination costs of $299,000. In addition, the Company realized gains of
$591,000 and $384,000 in November 1997 and March 1998, respectively, from the
prepayment of a seller note. As a result of these transactions, the Company
incurred a net extraordinary gain of $353,000 ($219,000 net of tax) for the
fiscal year ended June 27, 1998.

     Scheduled maturities of long-term debt at July 3, 1999 are as follows (in
thousands):

<TABLE>
<CAPTION>
                   Fiscal year:
<S>                                          <C>
                   2000................       $    4,030
                   2001................            9,030
                   2002................            9,961
                   2003................           12,681
                   2004................           42,043
                                              ----------
                             Total            $   77,745
                                              ==========
</TABLE>

                                      F-14


<PAGE>   45


    The Company paid interest on its long-term debt of $1,181,000, $1,662,000
and $3,118,000 during the years ended June 28, 1997, June 27, 1998 and July 3,
1999, respectively.

7.  LINES OF CREDIT

    In June 1999, the Company entered into a credit facility that provides
short-term borrowings for certain subsidiaries of Welna. The credit facility
provides for a maximum working capital line of credit of NLG 25 million, a term
loan of NLG 2.5 million and an acquisition line of NLG 12.5 million, for a total
facility of NLG 40 million. The facility bears interest quarterly at Euribor
plus .75% (3.389% at July 3, 1999). The Company has approximately NLG 25.4
million, or $11.8 million, outstanding under this facility at July 3, 1999. The
amount available under these facilities is approximately $6.8 million.

    The Company also has separate working capital facilities for their
subsidiaries in Germany, Poland and France. These facilities provide for
borrowings up to DM 14.75 million, SEK 3.5 million, and FFR 2.25 million. These
facilities bear interest at various fixed and variable interest rates, ranging
from approximately 4.5% to 10.75% at July 3, 1999. As of July 3, 1999, the
Company has approximately $4.4 million outstanding under these facilities. The
unused portion of these facilities is approximately $4.6 million. These
facilities are due on demand.

8. COMMITMENTS AND CONTINGENCIES

    The Company utilizes fiberglass, resin and steel as the primary raw
materials in its production processes. Fiberglass is occasionally in short
supply and subject to price fluctuations in response to market demands. The
Company entered into a supply agreement with a major supplier, which requires
two of the Company's subsidiaries, Fluid Containment and Ershigs, to purchase at
least 90% of their fiberglass requirements from the supplier. The contract
expires on December 31, 1998. Effective January 1, 1999, the contract was
modified to obtain more favorable pricing levels based on certain minimum volume
purchases for the calendar years ended December 31, 1999 and 2000. In addition,
the Company continues to negotiate with other vendors to ensure a continued
supply of fiberglass to meet the Company's production needs. The Company is also
a significant purchaser of resin and steel. The Company does not depend upon any
single supplier or source for steel or resin requirements.

    The Company has not encountered any significant difficulty to date in
obtaining raw materials in sufficient quantities to support its operations at
current or expected near-term future levels. However, any disruption in raw
material supply or abrupt increases in raw material prices could have an adverse
effect on the Company's operations.

    The Company and its subsidiaries are, from time to time, subject to various
lawsuits and claims and other actions arising out of the normal course of
business. The Company is also subject to contingencies pursuant to environmental
laws and regulations that in the future may require the Company to take action
to correct the effects on the environment of prior manufacturing and waste
disposal practices. Accrued environmental liabilities at July 3, 1999 were
$520,000 and, in management's opinion, such accruals are appropriate based on
existing facts and circumstances. Under more adverse circumstances, however,
this potential liability could be higher. Current year expenditures were not
material.

    While the effect on future results of these items is not subject to
reasonable estimation because considerable uncertainty exists, in the opinion of
management, the ultimate liabilities resulting from such claims will not
materially affect the consolidated financial position, results of operations or
cash flows of the Company.

    Upon the disability and subsequent resignation of Stephen T. Harcrow, the
Company's former president, during the second quarter of fiscal year 1999, the
Company has begun to make payments pursuant to the Salary Continuation Agreement
between the Company and Mr. Harcrow. The Company recognized a charge of $682,000
in the second quarter of fiscal year 1999 as a result of Mr. Harcrow's
disability triggering the payments under the Salary Continuation Agreement.



                                      F-15


<PAGE>   46




9. LEASES

    The Company leases certain manufacturing facilities, machinery and
equipment, and office space under operating leases. Future minimum payments on
operating leases are as follows (in thousands):

<TABLE>
<CAPTION>
                           Fiscal year:
<S>                       <C>                          <C>
                           2000....................     $1,721
                           2001....................      1,621
                           2002....................      1,534
                           2003....................      1,219
                           2004 and thereafter.....      1,179
                                                      --------

                                     Total.........   $  7,274
                                                      ========
</TABLE>

    Total rental expense was $1,028,000, $1,204,000 and $1,570,000 for the years
ended June 28, 1997, June 27, 1998 and July 3, 1999, respectively.

10. INCOME TAXES

    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:


<TABLE>
<CAPTION>
                                                                       June 27,         July 3,
                                                                         1998            1999
                                                                      ----------      ----------
                                                                            (In thousands)
<S>                                                                   <C>             <C>
       Deferred tax assets:
         Tax over financial reporting basis of net book value
            of property, plant and equipment ....................     $      564      $    1,672
         Expenses accrued for financial reporting not yet
            deductible for tax ..................................          1,775           2,364
         Net operating loss and other carryforwards .............          1,718           2,143
         Other ..................................................            219             206
                                                                      ----------      ----------
       Total deferred tax assets ................................          4,276           6,385

       Deferred tax liabilities:
         Book over tax basis of net book value of property,
           plant and equipment ..................................             --           5,081
         Expenses deducted for tax, but not accrued for
           book .................................................             --             552
         Financial reporting over tax basis of goodwill .........            310              94
         Other ..................................................             93             237
                                                                      ----------      ----------
       Total deferred tax liabilities ...........................            403           5,964
                                                                      ----------      ----------
       Valuation allowance ......................................           (684)           (978)
                                                                      ----------      ----------
       Net deferred tax assets (liabilities) ....................     $    3,189      $     (557)
                                                                      ==========      ==========
</TABLE>



                                      F-16

<PAGE>   47


    The Company has net operating loss carryforwards of approximately $7.9
million that expire through 2017 that are available to offset future taxable
income of certain acquired subsidiaries. These carryforwards are subject to
certain limitations that would limit the carryforwards to approximately $5.4
million. The July 3, 1999 valuation allowance primarily represents net operating
loss carryforwards acquired in May 1998 as a result of the CC&E acquisition, the
future realization of which is uncertain. Any benefits that are ultimately
realized will be recorded as a reduction of goodwill.

    The components of income tax expense are as follows:

<TABLE>
<CAPTION>
                                                         June 28,        June 27,        July 3,
                                                          1997            1998            1999
                                                       ----------      ----------      ----------
                                                                    (In thousands)
<S>                                                    <C>             <C>             <C>
        Current income tax expense:
          Federal ................................     $      231      $    1,025      $    2,378
          State ..................................             38              91             228
                                                       ----------      ----------      ----------
        Total current income tax expense .........            269           1,116           2,606
                                                       ----------      ----------      ----------
        Deferred income tax expense (benefit):
          Federal ................................             (3)            338             222
          State ..................................             27            (102)             26
                                                       ----------      ----------      ----------
        Total deferred income tax expense ........             24             236             248
                                                       ----------      ----------      ----------
        Total income tax expense .................     $      293      $    1,352      $    2,854
                                                       ==========      ==========      ==========
</TABLE>

    The reconciliation of income tax expense computed at U.S. federal statutory
tax rates to the reported tax expense is as follows:

<TABLE>
<CAPTION>
                                                          June 28,        June 27,        July 3,
                                                            1997           1998            1999
                                                         ----------     ----------      ----------
                                                                      (In thousands)
<S>                                                      <C>            <C>             <C>
       Expected income tax expense at 34% ..........     $      207     $      497      $    2,467
       State income taxes, net of federal benefit ..             48            116             254
       Non-recurring compensation charge ...........             --            786              --
       Other, net ..................................             38            (47)            133
                                                         ----------     ----------      ----------
       Reported total income tax expense ...........     $      293     $    1,352      $    2,854
                                                         ==========     ==========      ==========
</TABLE>

    The Company paid $236,000, $723,000 and $2,175,000 of income taxes during
the years ended June 28, 1997, June 27, 1998 and July 3, 1999, respectively.




                                      F-17


<PAGE>   48


11. STOCKHOLDERS' EQUITY

    On September 23, 1997, the Company effected a 1,715-for-1 stock split. All
stockholders' equity balances and disclosures in the accompanying financial
statements have been retroactively restated for the stock split. The effect of
the stock split was to transfer an amount equal to the par value of the new
shares issued from additional paid-in capital to common stock.

    The Company completed an initial public offering in November 1997. The net
proceeds to the Company from the sale of the 2,276,000 shares of common stock
offered by the Company (after deducting underwriting discounts and commissions
of $2.1 million) were $27.5 million. In addition, during the registration
process, the Company incurred approximately $1.5 million in legal, accounting,
printing and other costs, which were offset against the proceeds of the offering
as a component of additional paid-in capital. Of the approximately $26.0 million
of net proceeds to the Company from the offering, the Company repaid
approximately $15.6 million of the outstanding indebtedness under its credit
facilities, repaid $195,000 for a bank note payable, repaid $6.7 million of the
subordinated unsecured note payable to a seller, repaid a $1.1 million unsecured
note (including interest) to a seller and redeemed the outstanding shares of
preferred stock of the Company totaling approximately $1.4 million, including
accrued and unpaid dividends. The remaining $1.0 million of net proceeds was
used for general working capital purposes.

    During 1999, the Company received proceeds of $4.5 million from the issuance
of 489,189 common shares in a private placement. The proceeds were used to fund
the acquisition of Welna.

12. INCENTIVE STOCK OPTION PLAN

    Effective February 14, 1996, the Company adopted an incentive stock option
plan (the "Plan") for certain key employees. Denali reserved 367,833 shares of
common stock for purposes of the Plan, all of which have been granted and
exercised as of June 27, 1998.

    In September 1997, the Company adopted an incentive stock option plan (the
"1997 Plan"). The 1997 Plan permits the granting of both incentive stock options
and non-qualified stock option awards to all employees of the Company. Awards to
acquire up to an aggregate of 362,873 shares may be granted pursuant to the 1997
Plan. The Board of Directors selects the employees who will receive the awards,
determines the type and terms of the awards to be granted and interprets and
administers the 1997 Plan.

    In November 1997, the Company awarded options to acquire 171,030 shares of
the Company's common stock. An additional option for 7,700 shares was granted in
December 1997. The remaining 184,143 shares were granted during fiscal year
1999. Options for 142,113 shares vest 40% immediately and the remainder over a
four-year period. The remaining options for 220,760 shares vest ratably over
four years. All of the options were granted at fair market value. At July 3,
1999, all options available under the 1997 plan have been granted.

    Effective September 1997, the Company completed a reorganization of its
subsidiaries. As part of the reorganization, one of the Company's subsidiaries,
Containment Solutions, Inc. ("CSI") was merged into Denali. As a result, the
outstanding options to purchase common stock of CSI were exchanged for options
to purchase common stock of the Company. At June 28, 1997, the CSI stock option
plan had 1,400 options outstanding at an exercise price of $259. In September
1997, the Company exchanged the CSI options for a total of 254,643 options to
purchase the Company's common stock at an exercise price of $1.42. In connection
with the exchange, the Company recognized a compensation charge in the quarter
ended September 27, 1997 of approximately $2.3 million.



                                      F-18


<PAGE>   49


    A summary of Denali's stock option activity and related information for the
years ended June 28, 1997, June 27, 1998 and July 3, 1999 follows:

<TABLE>
<CAPTION>
                          Fiscal Year    Weighted         Fiscal Year      Weighted     Fiscal Year     Weighted
                             1997        Average             1998          Average         1999          Average
                           Options    Exercise Price       Options      Exercise Price   Options      Exercise Price
                          ---------   --------------       -------      --------------   -------      --------------
<S>                      <C>          <C>                 <C>           <C>             <C>           <C>
Outstanding-beginning
  of year                   113,190           2.22          113,190          2.22         178,730           12.99
     Granted                     --             --          433,373          6.19         184,143            9.95
     Exercised                   --             --         (367,833)         1.67              --             --
                          ---------          -----        ---------          ----        --------        -------
Outstanding-end of
  year                      113,190           2.22          178,730         12.99         362,873           11.45
Exercisable-end of
  year                      113,190           2.22           56,845         13.00          87,316           13.00
Weighted average
  grant date fair
  value per option        $      -0-                      $    6.94                      $   5.85
</TABLE>

    All options have five year terms and are exercisable based on four year
vesting terms. Exercise price per share for options outstanding at July 3, 1999
ranges from $8.56 - $14.50 and the average remaining contractual life was 3.5
years.

    Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, Accounting for Stock-Based Compensation
("FAS 123"), which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to July
1, 1995 under the fair value method of FAS 123. The fair value for options
granted prior to June 28, 1997 was estimated at the date of grant using a
minimum value option pricing model. The fair value of options granted subsequent
to June 28, 1997 was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions for June 27, 1998 and July 3, 1999,
respectively: risk-free interest rate of 5.3% and 5.6%, a dividend yield of 0%,
volatility factors of the expected market price of the Company's common stock of
26% and 74% and a weighted average expected life of the option of four years.

    The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the
Company's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information, as if the Company had accounted for its employee stock
options granted subsequent to July 1, 1995 under the fair value method
prescribed by FAS No. 123, follows:

<TABLE>
<CAPTION>
                                                                              Fiscal Year
                                                              ------------------------------------------
                                                                 1997             1998             1999
                                                              ---------         --------         -------
<S>                                                           <C>               <C>              <C>
    Pro forma net income (in thousands)..............         $    317          $     43         $  3,642
    Pro forma earnings per share - basic and
        diluted......................................         $  0.090          $  0.003         $  0.750
</TABLE>



                                      F-19


<PAGE>   50




13. GAIN SHARING PLAN

    The Company has a gain sharing plan that covers all employees of the Company
who have satisfied minimum employment standards. For the years ended June 28,
1997, June 27, 1998 and July 3, 1999, the Company made a gain sharing
contribution equally to all eligible employees totaling $144,000, $347,000 and
$762,000, respectively. Distributions are currently based on 5% of quarterly
operating earnings.

14. RETIREMENT PLANS

    During fiscal year 1995, the Company adopted a defined-contribution
retirement plan, Fluid Containment 401(k) Retirement Plan (the "Plan"), that
covers all eligible employees of the Company. Effective July 1, 1997, the Plan
was amended to include all eligible employees of Ershigs. Effective January 1,
1998, the Plan was amended to include all eligible employees of Ershigs Biloxi
and SEFCO. Effective January 1, 1999, the Plan was amended to include all
eligible employees of Fibercast and Plasti-fab. The Plan allows employees to
defer up to 15% of their compensation, with the Company matching 50% of the
first 6% of the participant's contribution. Participants are immediately and
fully vested in employer contributions. The Company's matching contribution was
$277,000, $444,000 and $640,000 for the years ended June 28, 1997, June 27, 1998
and July 3, 1999, respectively.

15.  PENSION PLANS

     The Company, through its Welna subsidiary, sponsors pension plans that
cover the majority of the employees of Welna. Generally, these plans provide
defined pension benefits based on years of service and final average pay.
Pension plan assets are invested primarily in government securities. Due to the
fact that all the pension plans relate to Welna, the plans had no effect on
current year results and thus, all disclosures relating to the income statement
have been omitted. The following aggregate pension plan items are included in
the July 3, 1999 consolidated balance sheet (in thousands):

<TABLE>
<S>                                                        <C>
     Pension obligation                                     $     8,770
     Fair value of plan assets                                   (8,123)
                                                            -----------
     Obligation greater than assets                                 647
     Obligation for early retirement - unfunded                   1,462
                                                            -----------
     Net liability recorded in the consolidated
       balance sheet                                        $     2,109
                                                            ===========
     Assumptions as of July 3, 1999:

     Discount rate                                                    5%
     Expected return on plan assets                                   6%
     Rate of compensation increase                                  3-5%
</TABLE>

16. SEASONALITY AND INFLATION

    The Company's operating results are affected by the annual construction
season slowdown resulting from winter weather especially in the period December
through March. The underground fiberglass tank products are especially impacted
during the winter months. The Company believes that the effects of seasonality
will be less severe in the future, as the Company continues to expand and
diversify its product offerings.

    The effect of inflation on the Company's operations were not significant
during the periods presented in the consolidated financial statements.



                                      F-20


<PAGE>   51



17. SEGMENT DATA

    The Company has adopted Statement of Financial Accounting Standards No. 131
- "Disclosures About Segments of an Enterprise and Related Information" that
requires disclosure of financial and descriptive information about the Company's
reportable operating segments. The operating segments presented are the segments
of the Company for which separate financial information is available and
operating performance is evaluated regularly by senior management in deciding
how to allocate resources and in assessing performance. The Company evaluates
the performance of its operating segments based on revenues and operating
income.

    The accounting policies of the segments are the same as those described in
Note 2 - 'Significant Accounting Policies'. All intersegment net revenues and
expenses are immaterial and have been eliminated in computing net revenues and
operating income.

    The Company operates in two industry segments: Containment Solutions and
Specialty Solutions. The Containment Solutions segment specializes in the
manufacture of fiberglass underground storage tanks and steel reinforced
aboveground storage tanks for fluids handling. The Specialty Solutions segment
provides engineered solutions for the containment of fluids, specializes in
fiberglass reinforced plastic products for corrosion resistant applications and
engineered metal products for the municipal and industrial markets. For fiscal
1999, except for certain revenues with respect to license agreements with
manufacturers located outside of the United States, which revenues are not
material as considered in relation to the Company's total net revenues, the
Company operates in only one geographic segment, the United States. Beginning in
fiscal year 2000, the Company, through its Welna subsidiary, will have global
operations, with a primary concentration in Europe. Welna is reported as an
additional segment for segment reporting. In the current year, Welna is included
in the presentation of the required asset information as Welna's assets and
liabilities are included in the July 3, 1999 consolidated balance sheet. The
following is a summary of the industry segment data for the years ended June 28,
1997, June 27, 1998 and July 3, 1999:

<TABLE>
<CAPTION>
                                                                                                           Depreciation
                                                   Net         Operating        Total         Capital          and
                                                Revenues        Income          Assets      Expenditures   Amortization
                                               ----------     ----------      ----------    ------------   ------------
                                                                            (In thousands)
<S>                                            <C>            <C>            <C>            <C>            <C>
    Year ended June 28, 1997:

    Containment Solutions ................     $   64,817     $    2,080      $   29,934     $      523     $    1,199
    Specialty Solutions ..................          6,284             81           9,791             33             13
    Corporate ............................             --           (202)          1,359             44              9
                                               ----------     ----------      ----------     ----------     ----------
    Consolidated .........................     $   71,101     $    1,959      $   41,084     $      600     $    1,221
                                               ==========     ==========      ==========     ==========     ==========

    Year ended June 27, 1998:

    Containment Solutions ................     $   71,487     $    3,822      $   33,564     $    2,108     $    1,257
    Specialty Solutions ..................         28,410          2,596          45,838            785            412
    Corporate ............................             --         (1,637)            980            178             23
    Non-recurring compensation charge ....             --         (2,312)             --             --             --
                                               ==========     ==========      ==========     ==========     ==========
    Consolidated .........................     $   99,897     $    2,469      $   80,382     $    3,071     $    1,692
                                               ==========     ==========      ==========     ==========     ==========

    Year ended July 3, 1999:

    Containment Solutions ................     $   93,791     $    9,131      $   37,420     $    1,526     $    1,486
    Specialty Solutions ..................         54,969          3,527          57,069          1,282          1,621
    Welna ................................             --             --          80,586             --             --
    Corporate ............................             --         (2,099)          1,500             78            153
    Non-recurring compensation charge ....             --           (682)             --             --             --
                                               ----------     ----------      ----------     ----------     ----------
    Consolidated .........................     $  148,760     $    9,877      $  176,575     $    2,886     $    3,260
                                               ==========     ==========      ==========     ==========     ==========
</TABLE>


                                      F-21


<PAGE>   52


    Operating income reconciles to income before income taxes as shown on the
consolidated statements of operations as follows (in thousands):

<TABLE>
<CAPTION>
                                        June 28,        June 27,         July 3,
                                          1997            1998            1999
                                       ----------      ----------      ----------
<S>                                    <C>             <C>             <C>
Total segment operating income         $    1,959      $    2,469      $    9,877
Interest expense                            2,058           1,614           3,199
Interest income                              (111)           (118)           (124)
Other income, net                            (598)           (489)           (453)
                                       ----------      ----------      ----------
Income before income taxes             $      610      $    1,462      $    7,255
                                       ==========      ==========      ==========
</TABLE>


    As noted above, for fiscal 1999 and prior, revenues were generated primarily
in the United States and thus no geographic disclosures are necessary. Due to
the acquisition of Welna on July 1, 1999, geographic information for long-lived
assets is presented below (in thousands):

<TABLE>
<CAPTION>
                                                                    Long-lived assets(1) at:
                                                            ---------------------------------------
                                                               June 27,                  July 3,
                                                                 1998                      1999
                                                            -------------             -------------
<S>                                                         <C>                       <C>
    United States                                           $      20,270             $      22,133
    International - Total                                                             $      24,805
      Significant countries included above:
        The Netherlands                                                               $      13,500
        Poland                                                                                2,826
        Germany                                                                               3,419
        United Kingdom                                                                        1,955
        France                                                                                2,845
</TABLE>

    (1) Long-lived assets include property, plant and equipment, net of
accumulated depreciation.

18.  SUBSEQUENT EVENTS (Unaudited)

     On September 3, 1999, the Company acquired 67.5% of the issued and
outstanding stock of Manantial Chile S.A., a company that designs, equips,
installs and commissions industrial and municipal water and wastewater treatment
plants and systems for approximately $1.1 million in cash and 27,139 shares of
common stock valued at $213,000.

     In addition, on September 1, 1999, the Company signed a letter of intent to
acquire all of the issued and outstanding stock of HP Valves, a valve
manufacturer located in Oldenzaal, The Netherlands.





                                      F-22


<PAGE>   53


                                   SIGNATURES


    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 14th
day of September, 1999.

<TABLE>
<S>                                               <C>
                                                     DENALI INCORPORATED
                                                     (Registrant)

By:  /s/ R. KEVIN ANDREWS                            R. Kevin Andrews
    ---------------------------------------          Chief Financial Officer
                                                            (Principal Financial Officer and
                                                             Principal Accounting Officer)
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated and on the 14th day of September, 1999:

<TABLE>
<CAPTION>
                  SIGNATURE                                 TITLE
                  ---------                                 -----
<S>                                                    <C>
        /s/   RICHARD W. VOLK                               Chairman of the Board
      -------------------------------------
             (Richard W. Volk)

        /s/   EDWARD DE BOER                                Director, President and Chief Executive Officer
      -------------------------------------                     (Principal Executive Officer)
             (Edward de Boer)

        /s/   R. KEVIN ANDREWS                              Chief Financial Officer
      -------------------------------------                     (Principal Financial Officer and
             (R. Kevin Andrews)                                  Principal Accounting Officer)

        /s/  PHILIP J. BURGUIERES                           Director
      -------------------------------------
            (Philip J. Burguieres)

        /s/  ERNEST H. COCKRELL                             Director
      -------------------------------------
            (Ernest H. Cockrell)

        /s/  BOB ELFRING                                    Director
      -------------------------------------
            (Bob Elfring)

        /s/  THOMAS D. SIMMONS, JR.                         Director
      -------------------------------------
            (Thomas D. Simmons, Jr.)

        /s/  JOEL V. STAFF                                  Director
      -------------------------------------
            (Joel V. Staff)

        /s/  J. TAFT SYMONDS                                Director
      -------------------------------------
            (J. Taft Symonds)

        /s/  STEPHEN M. YOUTS                               Director
      -------------------------------------
            (Stephen M. Youts)
</TABLE>




                                      F-23

<PAGE>   54
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
   Exhibit
   Number          Description of Exhibit
   ------          ----------------------
<S>             <C>
     3.1           Second Restated Certificate of Incorporation of the Company
                   (incorporated by reference to the Company's registration
                   statement on Form S-1, registration statement no. 333-36857
                   (the "Registration Statement")).

     3.2           Bylaws of the Company (incorporated by reference to the
                   Registration Statement).

     4.1           Specimen of Common Stock certificate (incorporated by
                   reference to the Registration Statement).

    10.1           The Company's 1996 Incentive Stock Option Plan, as amended
                   (incorporated by reference to the Registration Statement).

    10.2           The Company's 1997 Incentive Stock Option Plan (incorporated
                   by reference to the Registration Statement).

    10.3           Stock Purchase and Sale Agreement dated as of February 14,
                   1997, by and between the Company and Praxair, Inc.
                   (incorporated by reference to the Registration Statement).

    10.4           Asset Purchase Agreement dated October 12, 1995, by and
                   between the Company, Hoover Group, Inc., Hoover Containment
                   Systems, Inc. and Hoover Containment, Inc. (incorporated by
                   reference to the Registration Statement).

    10.5           Stock Purchase Agreement dated September 19, 1997, by and
                   between the Company and SEFCO, Inc., Craig T. Sutton
                   Revocable Trust, Cedric I. Sutton and Charlotte A. Shnurman
                   (incorporated by reference to the Registration Statement).

    10.6           Stock Purchase Agreement dated September 22, 1997, by and
                   between the Company and GL&V/LaValley Industries, Inc. and
                   GL&V LaValley Construction, Inc. (incorporated by reference
                   to the Registration Statement).

    10.7           Stock Purchase Agreement dated April 8, 1998 between
                   Reinforced Plastic Systems Inc., CC&E/RPS, Inc., and
                   Specialty Solutions, Inc. (incorporated by reference to the
                   Company's current report on Form 8-K dated May 8, 1998).

    10.8           Amendment to Stock Purchase Agreement dated May 8, 1998
                   between Reinforced Plastic Systems Inc., CC&E/RPS, Inc., and
                   Specialty Solutions, Inc. (incorporated by reference to the
                   Company's current report on Form 8-K dated May 8, 1998).

    10.9           Stock Purchase Agreement dated May 11, 1998 by and between
                   William I. Koch, Joan Granlund, Richard P. Callahan, as
                   Custodian for Wyatt I. Koch, under the Florida Uniform
                   Transfer to Minors Act, Richard A. Bird, Fibercast Company
                   and Denali Incorporated (incorporated by reference to the
                   Company's current report on Form 8-K dated June 5, 1998).

    10.10          Glass Fiber Reinforcement Products Purchase Agreement dated
                   December 23, 1994, by and between the Company and Owens
                   Corning (incorporated by reference to the Registration
                   Statement).

    10.11          Agreement dated November 3, 1997, by and between the Company
                   and Owens Corning (incorporated by reference to the
                   Registration Statement).

    10.12          Lease dated November 22, 1996, by and between the Company and
                   Baymeadow Limited Partnership (the "Baltimore Lease")
                   (incorporated by reference to the Registration Statement).

    10.13          First Amendment of Lease dated August 19, 1997, by and
                   between the Company and Baymeadow Limited Partnership
                   regarding the Baltimore Lease (incorporated by reference to
                   the Registration Statement).

    10.14          Salary Continuation Agreement dated September 5, 1997, by and
                   between the Company and Stephen T. Harcrow (incorporated by
                   reference to the Registration Statement).

    10.15          Letter to Lee W. Orr dated March 31, 1997, confirming offer
                   of employment (incorporated by reference to the Registration
                   Statement).

    10.16          Consulting Agreement dated effective as of April 1, 1997, by
                   and between the Company and Edward de Boer (incorporated by
                   reference to the Registration Statement).
</TABLE>
<PAGE>   55
<TABLE>
<S>             <C>
    10.17          Confidentiality and Non-Competition Agreement dated September
                   5, 1997, by and between the Company and R. Kevin Andrews
                   (incorporated by reference to the Registration Statement).

    10.18          Confidentiality and Non-Competition Agreement dated September
                   5, 1997, by and between the Company and Melford S. Carter,
                   Jr. (incorporated by reference to the Registration
                   Statement).

    10.19          Confidentiality and Non-Competition Agreement dated September
                   5, 1997, by and between the Company and Cathy L. Smith
                   (incorporated by reference to the Registration Statement).

    10.20          Loan and Security Agreement dated December 21, 1994, by and
                   between the Company and Fleet Capital Corporation (successor
                   in interest to Barclay Business Credit, Inc.) regarding
                   $11,000,000 credit facility (incorporated by reference to the
                   Registration Statement).

    10.21          Loan and Security Agreement dated October 27, 1995, by and
                   between the Company and Fleet Capital Corporation (successor
                   in interest to Shawmut Capital Corporation) regarding
                   $6,500,000 credit facility (incorporated by reference to the
                   Registration Statement).

    10.22          Loan and Security Agreement dated February 28, 1997, by and
                   between the Company and Fleet Capital Corporation regarding
                   $6,500,000 credit facility (incorporated by reference to the
                   Registration Statement).

    10.23          Junior Subordinated Note of the Company dated December 23,
                   1994, in the original principal amount of $7.5 million,
                   payable to Owens Corning (incorporated by reference to the
                   Registration Statement).

    10.24          Loan and Security Agreement dated October 24, 1997, by and
                   between the Company and NationsBank of Texas, N.A.
                   (incorporated by reference to the Registration Statement).

    10.25          First Amendment to Loan and Security Agreement dated as of
                   October 31, 1997, by and between the Company and NationsBank
                   of Texas, N.A. (incorporated by reference to the Registration
                   Statement).

    10.26          Second Amendment to Loan and Security Agreement dated as of
                   October 31, 1997, by and between the Company and NationsBank
                   of Texas, N.A. (incorporated by reference to the Registration
                   Statement).

    10.27          Amended and Restated Credit Agreement dated March 23, 1998
                   among Denali Incorporated, Ershigs Biloxi, Inc., Ershigs,
                   Inc., Fluid Containment, Inc., and SEFCO, Inc., and
                   NationsBank of Texas, N.A., as agent, and the financial
                   institutions named therein (incorporated by reference to the
                   Company's quarterly report on Form 10-Q for the quarterly
                   period ending March 28, 1998 (the "3rd Quarter 1998 10-Q")).

    10.28          Form of Revolving Note of Denali Incorporated pursuant to
                   Amended and Restated Credit Agreement dated March 23, 1998
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.29          Guaranty dated March 23, 1998 of Denali Incorporated
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.30          Subsidiary Guaranty dated March 23, 1998 of Containment
                   Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
                   Inc., Ershigs, Inc., Fluid Containment Property, Inc.,
                   Instrumentation Solutions, Inc., Specialty Solutions, Inc.,
                   Fluid Containment, Inc., SEFCO, Inc. and Hoover Containment,
                   Inc. (incorporated by reference to the 3rd Quarter 1998
                   10-Q).

    10.31          Security Agreement dated March 23, 1998 between Denali
                   Incorporated and NationsBank of Texas, N.A., as agent
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.32          Security Agreement dated March 23, 1998 among Containment
                   Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
                   Inc., Ershigs, Inc., Fluid Containment Property, Inc.,
                   Instrumentation Solutions, Inc., Specialty Solutions, Inc.,
                   Fluid Containment, Inc., SEFCO, Inc., Hoover Containment,
                   Inc. and NationsBank of Texas, N.A., as agent (incorporated
                   by reference to the 3rd Quarter 1998 10-Q).

    10.33          Pledge Agreement dated March 23, 1998 between Denali
                   Incorporated and NationsBank of Texas, N.A., as agent
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.34          Form of Pledge Agreement dated March 23, 1998 between
                   NationsBank of Texas, N.A., as agent, and each of Specialty
                   Solutions, Inc., Fluid Containment, Inc., and Ershigs, Inc.
                   (incorporated by reference to the 3rd Quarter 1998 10-Q).

    10.35          Amendment No. 1 and Consent to the Credit Agreement dated as
                   of June 5, 1998 among Denali Incorporated, Fluid Containment,
                   Inc., Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the
                   Banks party to and defined in the Credit Agreement, and
                   NationsBank, N.A., as agent (incorporated by reference to the
                   Company's annual report on Form 10-K for the fiscal year
                   ending June 27, 1998 (the "1998 10-K"))
</TABLE>
<PAGE>   56
<TABLE>
<S>             <C>
    10.36          Assumption and Amendment to Loan Agreement dated as of June
                   5, 1998 among Bank of Oklahoma, N.A., Fibercast Company and
                   Denali Incorporated (incorporated by reference to the
                   1998 10-K)

    10.37          Amendment No. 2 to the Credit Agreement dated as of October
                   29, 1998 among Denali Incorporated, Fluid Containment, Inc.,
                   Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the Banks
                   party to and defined in the Credit Agreement, and
                   NationsBank, N.A., as agent (incorporated by reference to the
                   Company's quarterly report on Form 10-Q for the quarterly
                   period ending September 26, 1998 (the "1st Quarter 1999
                   10-Q"))

    10.38          Guaranty Reaffirmation dated October 29, 1998 of Containment
                   Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
                   Inc., Ershigs, Inc., Fibercast Company, Fluid Containment
                   Property, Inc., Instrumentation Solutions, Inc., Specialty
                   Solutions, Inc., Fluid Containment, Inc., SEFCO, Inc. and
                   Hoover Containment, Inc. (incorporated by reference to the
                   1st Quarter 1999 10-Q)

    10.39          Revolving Note dated October 29, 1998 for $26,000,000 payable
                   to NationsBank, N.A. (incorporated by reference to the 1st
                   Quarter 1999 10-Q)

    10.40          Credit Agreement (the "New Credit Agreement") among Denali
                   Incorporated, Canadian Imperial Bank of Commerce, as
                   administrative agent, and ING (U.S.) Capital LLC, as
                   documentation agent, dated as of January 12, 1999
                   (incorporated by reference to the Company's quarterly report
                   on Form 10-Q for the quarterly period ending March 27, 1999
                   (the "3rd Quarter 1999 10-Q))

    10.41          Stock Purchase Agreement dated February 3, 1999 by and
                   between Steve Jones, Belco Manufacturing Company, Inc. and
                   Containment Solutions, Inc. (incorporated by reference to the
                   Company's Form 8-K dated February 18, 1999)

    10.42          Asset Purchase Agreement dated February 3, 1999 by and
                   between Tiger Trucking LLC, S. Jones Limited Partnership and
                   Containment Solutions, Inc. (incorporated by reference to the
                   Company's Form 8-K dated February 18, 1999)

    10.43          Term Note pursuant to the New Credit Agreement between Denali
                   Incorporated and Bank of Oklahoma N.A. dated January 12, 1999
                   (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.44          Form of Term Note pursuant to the New Credit Agreement
                   between Denali Incorporated and each of Key Corporate Capital
                   Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated January 12,
                   1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.45          Acquisition Loan Note pursuant to the New Credit Agreement
                   between Denali Incorporated and Bank of Oklahoma N.A. dated
                   January 12, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.46          Form of Acquisition Loan Note pursuant to the New Credit
                   Agreement between Denali Incorporated and each of Key
                   Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
                   dated January 12, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.47          Revolving Credit Note pursuant to the New Credit Agreement
                   between Denali Incorporated and Bank of Oklahoma N.A. dated
                   January 12, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.48          Form of Revolving Credit Note pursuant to the New Credit
                   Agreement between Denali Incorporated and each of Key
                   Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
                   dated January 12, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.49          Pledge Agreement dated January 12, 1999 between Denali
                   Incorporated, Containment Solutions Services, Inc.,
                   Instrumentation Solutions, Inc., Denali Management Inc.,
                   Denali Holdings Management, L.L.C., Denali Operating
                   Management, Ltd., Containment Solutions, Inc., Specialty
                   Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
                   Company, Plasti-fab Inc. and Canadian Imperial Bank of
                   Commerce, as administrative agent and issuing lender
                   (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.50          Security Agreement dated January 12, 1999 between Denali
                   Incorporated, Containment Solutions Services, Inc.,
                   Instrumentation Solutions, Inc., Denali Management Inc.,
                   Denali Holdings Management, L.L.C., Denali Operating
                   Management, Ltd., Containment Solutions, Inc., Specialty
                   Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
                   Company, Plasti-fab Inc. and Canadian Imperial Bank of
                   Commerce, as administrative agent and issuing lender
                   (incorporated by reference to the 3rd Quarter 1999 10-Q)
</TABLE>
<PAGE>   57
<TABLE>
<S>             <C>
    10.51          Guarantee dated January 12, 1999 between Containment
                   Solutions Services, Inc., Instrumentation Solutions, Inc.,
                   Denali Management Inc., Denali Holdings Management, L.L.C.,
                   Denali Operating Management, Ltd., Containment Solutions,
                   Inc., Specialty Solutions, Inc., Ershigs, Inc., SEFCO, Inc.,
                   Fibercast Company, Plasti-fab Inc. and Canadian Imperial Bank
                   of Commerce, as administrative agent and issuing lender
                   (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.52          Form of Assignment and Acceptance Agreement pursuant to the
                   New Credit Agreement between Denali Incorporated and Canadian
                   Imperial Bank of Commerce, as administrative agent and each
                   of Key Corporate Capital Inc., ING (U.S.) Capital LLC, and
                   CIBC Inc. dated March 15, 1999 (incorporated by reference to
                   the 3rd Quarter 1999 10-Q)

    10.53          Term Note pursuant to the New Credit Agreement between Denali
                   Incorporated and Southwest Bank of Texas, N.A. dated March
                   15, 1999 (incorporated by reference to the 3rd Quarter 1999
                   10-Q)

    10.54          Form of Term Note pursuant to the New Credit Agreement
                   between Denali Incorporated and each of Key Corporate Capital
                   Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated March 15,
                   1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.55          Acquisition Note pursuant to the New Credit Agreement between
                   Denali Incorporated and Southwest Bank of Texas, N.A. dated
                   March 15, 1999 (incorporated by reference to the 3rd Quarter
                   1999 10-Q)

    10.56          Form of Acquisition Note pursuant to the New Credit Agreement
                   between Denali Incorporated and each of Key Corporate Capital
                   Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated March 15,
                   1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)

    10.57          Revolving Credit Note pursuant to the New Credit Agreement
                   between Denali Incorporated and Southwest Bank of Texas, N.A.
                   dated March 15, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.58          Form of Revolving Credit Note pursuant to the New Credit
                   Agreement between Denali Incorporated and each of Key
                   Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
                   dated March 15, 1999 (incorporated by reference to the 3rd
                   Quarter 1999 10-Q)

    10.59          Offer Document by Denali Incorporated to shareholders of
                   Welna, N.V. (incorporated by reference to the Company's Form
                   8-K dated July 14, 1999)

    10.60*         Roll-over Loans Facility Agreement between Denali Welna
                   Europe B.v. and ABN AMRO Bank N.V. and ING Bank N.V. dated
                   June 11, 1999 for NLG 25,000,000

    10.61*         Credit Agreement between Welna, N.V., Welna Kunststoffen
                   B.V., B.V. Twentse Kunststoffenindustrie Plasticon, Plasticon
                   Haven B.V., Woodcap B.V., Kialite-Plasticon B.V.,
                   Onroerend-Goed Maatschappij Plasticon B.V., Hanwel B.V.,
                   Plasticon Projects B.V., Welna Handel B.V., Plasticon
                   Heerenveen B.V., B.V. van Delden, Gimex B.V. and ABN AMRO
                   Bank N.V. dated June 11, 1999 for NLG 40,000,000

    10.62*         Working Capital Credit Facility between Welna, N.V., Welna
                   Kunststoffen B.V., B.V. Twentse Kunststoffenindustrie
                   Plasticon, Plasticon Haven B.V., Woodcap B.V.,
                   Kialite-Plasticon B.V., Onroerend-Goed Maatschappij Plasticon
                   B.V., Hanwel B.V., Plasticon Projects B.V., Welna Handel
                   B.V., Plasticon Heerenveen B.V., B.V. van Delden, Gimex B.V.
                   and ING Bank dated June 11, 1999 for NLG 5,000,000

    10.63*         Amendment and Waiver dated June 30, 1999 to the Credit
                   Agreement dated January 12, 1999 among Denali Incorporated
                   and Canadian Imperial Bank of Commerce, as administrative
                   agent for the Lenders and ING (U.S.) Capital LLC, as
                   documentation agent

    10.64*         Note and Warrant Purchase Agreement dated as of June 30, 1999
                   between Denali Incorporated and the Variable Annuity Life
                   Insurance Company, A.G. Investment Advisory Services, Inc.,
                   EMC Equity Fund, L.P., Cockrell Investment Partners, L.P.,
                   Simmons Family Trust, Thomas Dudley Simmons, Jr. Marital
                   Trust, Thomas Dudley Simmons, Jr., Joel V. Staff, Symonds
                   Trust Co., Ltd., Anne Allen Symonds Revocable Trust, William
                   A. Monteleone, Jr., C. Richard Everett, Fred H. Levine and
                   Jay H. Golding Profit Sharing Plan

    10.65*         Form of Common Stock Registration Rights Agreement between
                   Denali Incorporated and the Variable Annuity Life Insurance
                   Company, A.G. Investment Advisory Services, Inc., EMC Equity
                   Fund, L.P., Cockrell Investment Partners, L.P., Simmons
                   Family Trust, Thomas Dudley Simmons, Jr. Marital Trust,
                   Thomas Dudley Simmons, Jr., Joel V. Staff, Symonds Trust Co.,
                   Ltd., Anne Allen Symonds Revocable Trust, William A.
                   Monteleone, Jr., C. Richard Everett, Fred H. Levine and Jay
                   H. Golding Profit Sharing Plan
</TABLE>
<PAGE>   58

<TABLE>
<S>             <C>
    10.66*         Form of Subscription Agreement between Denali Incorporated
                   and the Variable Annuity Life Insurance Company, A.G.
                   Investment Advisory Services, Inc., EMC Equity Fund, L.P.,
                   Cockrell Investment Partners, L.P., Simmons Family Trust,
                   Thomas Dudley Simmons, Jr. Marital Trust, Thomas Dudley
                   Simmons, Jr., Joel V. Staff, Symonds Trust Co., Ltd., Anne
                   Allen Symonds Revocable Trust, William A. Monteleone, Jr., C.
                   Richard Everett, Fred H. Levine and Jay H. Golding Profit
                   Sharing Plan

    10.67*         Roll-over Loans Facility Agreement between Denali
                   International Holdings B.V. and ABN AMRO Bank N.V. and ING
                   Bank N.V. dated July 1999 for NLG 25,000,000

    10.68*         Lease agreement between Steven Jones and Belco Manufacturing
                   Company, Inc. dated January 1, 1998

    10.69*         Amendment to lease agreement between Steven Jones and Belco
                   Manufacturing Company, Inc. dated February 3, 1999

    21.1*          Subsidiaries of the Company.

    23.1*          Consent of Ernst & Young LLP

    23.2*          Consent of Deloitte & Touche

    27.1*          Financial Data Schedule
</TABLE>

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

* Filed herewith

    (b)  Reports on Form 8-K

         The Company filed the following reports on Form 8-K during the fourth
         quarter of fiscal year 1999:

            Form 8-K/A dated April 19, 1999 with respect to the acquisition of
            Belco Manufacturing Company, Inc. on February 3, 1999




<PAGE>   59



                               DENALI INCORPORATED
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                         Balance at     Charged to         Other                        Balance at
                                         Beginning      Costs and       Accounts -      Deductions           End
                                         of Period       Expenses       Describe(B)     Describe(A)      of Period
                                         ---------      ----------      -----------     -----------     ----------
<S>                                      <C>           <C>              <C>            <C>            <C>
Fiscal Year Ended July 3, 1999
Allowance for Doubtful Accounts........       $907          $337              $567           $392         $1,419
Fiscal Year Ended June 27, 1998
Allowance for Doubtful Accounts........       $605          $ 93              $276           $ 67         $  907
Fiscal Year Ended June 28, 1997
Allowance for Doubtful Accounts........       $114          $176              $575           $260         $  605
</TABLE>

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

(A)  Uncollectible accounts written off, net of recoveries.
(B)  Allowance for doubtful accounts resulting from the acquisition of Ershigs
     during FY 1997, acquisitions of LaValley and Fibercast during FY 1998, and
     the acquisition of Belco and Welna during FY 1999.