##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|           |  |                                                                                                              
|---------- |  | -------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                              
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934                       
|          
|           |  | For the fiscal year ended December 31,
	2001.                                                                
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
	OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee
	Required)
|          
|           |  | For the transition period
	from           to          .                                                      

Commission File
Number 333-20095



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Atrium Companies, Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 75-2642488                           
|(State or other jurisdiction of
	incorporation or organization) |  | (IRS Employer
	Identification Number)

1341 W. Mockingbird Lane,
Suite 1200 West

Dallas, Texas 75247


(Address of executive offices, including zip
code)


(214) 630-5757

(Registrants telephone number, including
area code)


Securities registered pursuant to
Section 12(b) and (g) of the Act: NONE

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

State the aggregate market value of the voting
stock held by non-affiliates of the registrant  NONE

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.     þ

As of March 28, 2002, the registrant had
100 shares of Common Stock, par value $.01 per share
outstanding.



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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                             
|                                                   | Item 2. Properties                                                                           
|                                                   | Item 3. Legal Proceedings                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                           
|                                                   | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                                   | Item 6. Selected Financial Data                                                              
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|PART IV                                           
|SIGNATURES                                        
|INDEX TO FINANCIAL STATEMENTS                     
|EXHIBIT INDEX                                     
|EX-2.3 Agreement/Plan of Merger - R.G. Darby Comp.
|EX-2.4 Agreement/Plan of Merger - Total Trim Inc. 
|EX-2.5 Agreement/Plan of Merger - Door Holdings   
|EX-2.6 Agreement/Plan of Merger - H.I.G. Vinyl Inc
|EX-2.7 Agreement/Plan of Merger - Atrium Door     
|EX-2.8 Agreement/Plan of Merger - Atrium Door     
|EX-2.9 Agreement/Plan of Merger - Wing Industries 
|EX-10.7 Lease Agreement - Windough LP             
|Ex-10.13 Amendment No 1 to Consulting Agreement   
|EX-10.23 Employment Agreement - Cliff Darby       
|EX-10.30 Amendment No 2 to Credit Agreement       
|EX-10.31 Amendment/Waiver No 1 to Credit Agreement
|EX-10.47 Contribution Agreement                   
|EX-21.1 Subsidiaries of Atrium Companies, Inc.    



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

2001 FORM 10-K

TABLE OF CONTENTS

|         |  |                                                                                        |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------- |  | ---- | -- | 
|Item No. |  | Description                                                                            |  | Page
|         |  |                                                                                        |  |     
|PART I  
|ITEM 1.  |  | BUSINESS                                                                               |  |      | 2  | 
|ITEM 2.  |  | PROPERTIES                                                                             |  |      | 11 | 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                      |  |      | 12 | 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
	HOLDERS                                   |  |      | 12 | 
|PART II 
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND
	RELATED STOCKHOLDER MATTERS                 |  |      | 12 | 
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                |  |      | 12 | 
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  |      | 14 | 
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                            |  |      | 23 | 
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
	ACCOUNTING AND FINANCIAL DISCLOSURE  |  |      | 23 | 
|PART III
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                     |  |      | 24 | 
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                 |  |      | 25 | 
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
	AND MANAGEMENT                        |  |      | 30 | 
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                         |  |      | 32 | 
|PART IV 
|ITEM 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
	REPORTS ON FORM 8-K                       |  |      | 34 | 

1



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##### Table of Contents



CAUTIONARY STATEMENTS CONCERNING
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) relating to
the Registrant based on beliefs of management that involve
substantial risks and uncertainties. When used in this
Form 10-K, the words anticipate,
believe, estimate, expect,
intend, and similar expressions, as they relate to
the Registrant or the Registrants management, identify
forward-looking statements. Such statements reflect the current
views of the Registrant with respect to the risks and
uncertainties regarding the operations and results of operations
of the Registrant, as well as its customers and suppliers,
including as a result of the availability of credit, interest
rates, employment trends, changes in levels of consumer
confidence, changes in consumer preferences, national and
regional trends in new housing starts, raw material costs,
pricing pressures, shifts in market demand, and general economic
conditions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions or estimates prove
incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected
or intended. See Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations.




PART I




Item 1.     Business

The term Company refers to Atrium Companies,
Inc. (the Registrant) and its subsidiaries after our 1998
recapitalization described in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations. The term Wing refers to Wing Industries, Inc.
and its former parent, Wing Industries Holdings, Inc. and the
term Darby refers to R.G. Darby Company, Inc., Total Trim,
Inc. and their former direct parent, Door Holdings, Inc., which
entities were all contributed to us and became subsidiaries in
connection with our 1998 recapitalization.

All references to pro forma assume that the
acquisition during 2000 of the operations of Ellison Windows and
Doors and VES, Inc., since renamed Atrium Extrusion Systems,
Inc. (collectively, Ellison), and the divestitures
of certain assets of Wing and the Atrium Wood Patio Door
operations (Wood) during 2000 occurred on
January 1, 2000. The financial data for the year ended
December 31, 2000 is that of the Company and
Ellison.

All share amounts are adjusted for the
December 31, 2001 reverse stock split of 1,000 for one
effected by our parent, Atrium Corporation.

The Company

We were founded in 1948 and believe we are one of
the largest manufacturers and distributors of residential
non-wood windows and patio doors in the United States based on
our net sales for the year ended December 31, 2001. We
offer a complete product line of aluminum and vinyl windows and
patio doors to our customers, which include leading national
homebuilders and home center retailers such as Pulte/
Del Webb, Centex, The Home Depot and Lowes Companies
Inc. (Lowes). We have grown rapidly through a
combination of internal growth and complementary acquisitions.

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We have a balanced business mix, as measured by
managements estimates of the percentage of actual net
sales during 2001 and pro forma net sales during 2000 derived
from the market segments we serve and the material types we use
in our products:

|                                                                              |  |                |         |              |  |  |     |   |  |   |         |  |  |  |     |  
|----------------------------------------------------------------------------- |  | -------------- | ------- | ------------ |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                                                                              |  |               
|                                                                              |  | Year Ended    
|                                                                              |  |               
|                                                                              |  |                |         |             
|                                                                              |  | December 31,   |         | December 31,
|                                                                              |  | 2001           |         | 2000        
|                                                                              |  | Actual         |         | Pro Forma   
|                                                                              |  |                |         |             
|                                                                              |  |                |         |              |  |  |     |  
|                                                                              |  |               
|                                                                              |  | (In thousands)
|Market Segment                                                                |  |                |         |              |  |  |     |   |  |   |         |  |  |  |     |  
|Repair and remodeling                                                         |  | $              | 251,952 |              |  |  | 48  | % |  | $ | 229,444 |  |  |  | 46  | %
|New construction                                                              |  |                | 272,947 |              |  |  | 52  |   |  |   | 271,010 |  |  |  | 54  |  
|                                                                              |  |                |         |              |  |  |     |   |  |   |         |  |  |  |     |  
|                                                                              |  | $              | 524,899 |              |  |  | 100 | % |  | $ | 500,454 |  |  |  | 100 | %
|                                                                              |  |                |         |              |  |  |     |   |  |   |         |  |  |  |     |  
|Material Type                                                                 |  |                |         |              |  |  |     |   |  |   |         |  |  |  |     |  
|Vinyl                                                                         |  | $              | 288,490 |              |  |  | 55  | % |  | $ | 256,545 |  |  |  | 51  | %
|Aluminum                                                                      |  |                | 161,501 |              |  |  | 31  |   |  |   | 161,236 |  |  |  | 32  |  
|Other products and services, including sale of
	aluminum and vinyl extrusions |  |                | 74,908  |              |  |  | 14  |   |  |   | 82,673  |  |  |  | 17  |  
|                                                                              |  |                |         |              |  |  |     |   |  |   |         |  |  |  |     |  
|                                                                              |  | $              | 524,899 |              |  |  | 100 | % |  | $ | 500,454 |  |  |  | 100 | %
|                                                                              |  |                |         |              |  |  |     |   |  |   |         |  |  |  |     |  

Our balance between the repair and remodeling and
new construction market segments is particularly important as we
estimate that sales to the repair and remodeling market segment
represented approximately 67% of window and patio door industry
unit sales in 2001.

Our portfolio of products includes some of what
we believe are the industrys most recognized brand names,
including Atrium®. Our full product line of aluminum
and vinyl windows and patio doors enables us to differentiate
ourselves from our competition, leverage our multi-channel
distribution system and be well positioned to benefit from
shifts in product preferences. Regional product preferences
exist for aluminum and vinyl windows and patio doors, and a full
product line is important to serve our national customer base
effectively. We pride ourselves on our ability to provide to our
nationwide customers the most suitable material based on varying
regional product preferences.

We have 44 manufacturing facilities and
distribution centers strategically located in 22 states to
service customers on a nationwide basis. We distribute through
multiple channels, including direct distribution to large
homebuilders and independent contractors, one-step distribution
through home centers and lumberyards and two-step distribution
to wholesalers and dealers who subsequently resell to
lumberyards, contractors and retailers. We believe that our
multi-channel distribution network allows us to reach the
greatest number of end customers and provide nationwide service
to those customers.

We are vertically integrated with operations that
include:



| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The extrusion of aluminum and vinyl, which is
	utilized internally in our fabrication operations, or sold to
	third parties.                                                             
|
| |  | The manufacture and assembly of window and patio
	door units, the pre-hanging of doors, and the sale of such units
	to wholesalers, lumberyards, dealers, home centers and
	homebuilders.
|
| |  | A turn-key installation program for multi-family
	builders in which we supply and install many of our products,
	including windows and patio doors.                                      
|
| |  | The sale of finished products to homebuilders,
	remodelers and contractors through company-owned distribution
	centers located across the United States.                                 

We have completed nine acquisitions since 1996,
and we believe that we are well-positioned to be a leader in the
consolidation of the residential window and patio door industry
because of our size, rapid organic growth and our ability to
integrate acquisitions successfully.

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Competitive Strengths

We believe that we have a competitive advantage
in our markets due to our following competitive strengths:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Leading Market Positions.We are one of the largest suppliers of
	residential non-wood windows and patio doors in the United
	States with a domestic market share exceeding 6%. Based on
	management estimates, we believe that we have a leading market
	position in the residential aluminum and vinyl window and patio
	door product categories.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Strong Brand Name Recognition.Our brands are well recognized in the
	building trade and are a distinguishing factor in customer
	selection. The Atrium® brand of windows and patio
	doors has been in existence for over 25 years and is
	recognized for its quality and value. In addition, we believe
	Atrium® is among the most-recognized brand names in
	the aluminum and vinyl window market segments. We believe there
	are significant opportunities to leverage our existing brands by
	targeting cross-selling opportunities and by re-branding certain
	products.                                                                                                                                                                                                                       
|
| |  | Complete, High-Quality Product Offering.We are one of the few suppliers with a
	complete line of residential non-wood windows and patio doors in
	the United States. The ability to source windows and patio doors
	from a single supplier is a cost-saving opportunity for national
	homebuilders and home centers. This distribution flexibility and
	nationwide presence distinguishes us as a one-stop
	solution for customers window and patio door needs.                                                                                                                                                                                                                                                                                                                                 
|
| |  | Multi-Channel Distribution Network.We have a multi-channel distribution
	network that includes direct, one-step and two-step distribution
	as well as 28 company-owned distribution centers. Our
	distribution strategy maximizes our market penetration and
	reduces reliance upon any one distribution channel for the sale
	of our products. Furthermore, as a manufacturer and distributor
	of windows and doors for more than four decades, we have
	developed long-standing relationships with key distributors in
	our markets. In each instance, we seek to secure a leading
	distributor in each of our markets. If we cannot secure a
	top-tier distributor in a desired geographic market, we will
	consider the acquisition or start up of our own distribution
	center in that market.
|
| |  | Established and Diversified Customer Base.We have developed strong relationships
	with our current customer base, which includes over 15,000
	active accounts. We have strong relationships with some of the
	leading companies in home and multi-family building, including
	J.P.I., D.R. Horton, Pulte/ Del Webb and Centex, and
	home center retailing, including The Home Depot and Lowes.
	Our customers are geographically diversified and our sales are
	balanced between the repair and remodeling and new construction
	market segments, which provides increased stability to our
	business.                                                                                                                                                                                            
|
| |  | Low Cost, Vertically Integrated Manufacturer.We believe that we are one of the
	industrys lowest cost providers based on our strong
	operating margins relative to our competitors. Our vertically
	integrated structure enables us to control all facets of the
	production and sale of windows and patio doors, eliminating
	incremental outsourcing costs. For our window and patio door
	products, our integrated operations, including extrusion,
	fabrication and distribution enable us to reduce inventory,
	improve production scheduling and optimize quality control.                                                                                                                                                                                                                  

Business Strategy

Our goal is to increase revenue growth and
profitability and to strengthen our leadership position in the
residential non-wood window and patio door industry through the
following initiatives:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enhance National Presence.We will continue to focus our core
	efforts on maintaining and developing our nationwide market
	share, including enhancing our strong presence in our existing
	high growth markets such as the southern and western United
	States. Our recent acquisitions have helped to further our
	geographic coverage and, we believe, combined with the
	implementation of cross-selling initiatives, will continue to
	facilitate our growth. We will also seek to enhance our
	nationwide capabilities by

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | selectively starting or acquiring operations that
	complement our geographic coverage and product offerings.
	Additionally, we are exploring opportunities to extend our sales
	capabilities into Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Extend and Cross-Sell Product Offerings.We plan to take advantage of
	cross-selling opportunities by marketing vinyl windows and patio
	doors to our traditional aluminum window and patio door
	customers and aluminum windows and patio doors to our
	traditional vinyl window and patio door customers and adding
	additional styles and designs to address specific regional
	product preferences. We also maintain training and incentive
	programs to ensure that our divisional sales forces market our
	complete product line of windows and patio doors.                                                                                                                                                                                                                                                                                  
|
| |  | Capitalize on
	Atrium®Brand Name.We will seek to continue to leverage the
	strength of our nationally recognized Atrium® brand
	name that has been in existence for over 25 years. We
	believe that leveraging the Atrium® name across our
	products and on a nationwide scale will enhance our brand name
	recognition. For example, we see a significant opportunity in
	transferring the Atrium® brand to recently acquired
	product lines. Further, we will continue trade advertising
	initiatives to maintain our high brand awareness in the industry.                                                                                                                                                                                                                                                                                      
|
| |  | Continue to Pursue Operational Efficiencies.Our team of highly experienced
	managers seeks to achieve improvements by closely scrutinizing
	our operations and applying best practices and continuous
	improvement programs across all of our divisions. We have been
	successful in improving the efficiency and productivity of our
	operations by automating manufacturing processes, improving
	logistics, implementing a company-wide information system,
	successfully integrating acquisitions and leveraging working
	capital requirements. We continue to analyze additional
	opportunities to improve operational efficiencies, including
	consolidating and expanding our aluminum extrusion operations,
	increasing capacity utilization at all of our manufacturing
	facilities and leveraging our size to realize purchasing savings.
|
| |  | Refine Product Offering to Maximize
	Profitability.We plan to continually evaluate our
	product offering in terms of both customer needs and overall
	profitability. The result will be an offering of products that
	is diverse enough to satisfy varied regional product preferences
	while at the same time providing maximum profitability to us.
	For example, we made a decision during 2000 to divest Wing, our
	wood door manufacturing unit, and Wood, our wood patio door
	manufacturing unit. The divestitures resulted in an exit from
	the low margin commodity based business of wood doors, reduced
	our exposure to the sometimes volatile wood materials market
	and, we believe, should lead to an overall increase in our
	profitability.                                                                                       
|
| |  | Make Selective Strategic Acquisitions.We have successfully consummated and
	integrated nine acquisitions since 1996, in each case lowering
	operating costs. We intend to take advantage of the fragmented
	market for window and patio door manufacturers by acquiring
	companies that present identifiable cost savings opportunities
	and add to our existing product lines, market share and targeted
	geographic coverage. As we continue our acquisition program, we
	believe we can leverage our experience in integrating
	acquisitions and maximizing cost savings and productivity
	enhancements. Additionally, we believe our size and national
	presence will be attractive to companies looking to combine with
	an industry leader.                                                                                                  

Products

We are one of a few window and patio door
manufacturers that offer a complete product line that consists
of a full range of residential aluminum and vinyl windows and
patio doors. Our complete product line allows us to
differentiate ourselves from our competition, leverage our
multi-channel distribution system and be well-positioned to
benefit from shifts in product preference. As significant
regional product preferences exist among

5



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##### Table of Contents



aluminum and vinyl, a full product line is
important to serve a national customer base effectively. We
estimate that our product mix, as a percentage of actual net
sales in 2001 and pro forma net sales in 2000 is as follows:


|                                                                              |  |                   |     |                   |  |  |     |  
|----------------------------------------------------------------------------- |  | ----------------- | --- | ----------------- |  |  | --- | -
|                                                                              |  | Year Ended        |     | Year Ended       
|                                                                              |  | December 31, 2001 |     | December 31, 2000
|                                                                              |  | Actual            |     | Pro Forma        
|                                                                              |  |                   |     |                  
|Windows                                                                       |  |                   | 74  | %                 |  |  | 71  | %
|Patio Doors                                                                   |  |                   | 12  |                   |  |  | 12  |  
|Other products and services, including sale of
	aluminum and vinyl extrusions |  |                   | 14  |                   |  |  | 17  |  
|                                                                              |  |                   |     |                   |  |  |     |  
|                                                                              |  |                   | 100 | %                 |  |  | 100 | %
|                                                                              |  |                   |     |                   |  |  |     |  

Windows.We had
approximately $388 million in net sales from the sale of
windows in 2001. We estimate that our net sales from the sales
of windows in 2001 were comprised of 36% from the sale of
aluminum products and 64% from vinyl products. Our window
products include sliders, single hung, double hung and casement
products and are sold under the Atrium®,
H-R Windows, Thermal,
Ellison®, Best Built and
Kel-Star brand names, as well as private label
brand names. We sell our windows primarily to building
contractors and lumberyards through direct and one-step
distribution, as well as national home center chains.

The demand for our aluminum and vinyl products
vary by region:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Aluminum
	Aluminum windows are the product of choice in the southern
	United States due to the regions warmer weather and
	value-conscious customers. Aluminum is the most appropriate
	fenestration material for the region because thermal efficiency
	is less important and the product is sold at a lower cost than
	either vinyl or wood.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Vinyl
	Demand for vinyl windows, particularly in colder climates, has
	significantly increased over the last ten years as vinyl windows
	have gained acceptance as a substitute for wood windows. This
	trend has been strengthened as prices for vinyl windows have
	become more competitive with wood products and durability and
	energy efficiency have improved. We entered the vinyl window
	market in mid-1995 and have increased sales of vinyl windows by
	leveraging the Atrium® brand name, leveraging our
	distribution channels and through acquisitions. The acquisitions
	of Heat, Inc. and Champagne Industries, Inc. in 1999 and the
	Ellison acquisition in 2000 increased our presence in the vinyl
	window business such that sales of vinyl windows represent
	approximately 55% of our total net sales in 2001, as compared to
	approximately 32% of our total net sales in 2000.

Patio Doors.We had
approximately $62 million in net sales from the sale of
patio doors in 2001. Our patio door products are sold under the
Atrium®, Best Built,
H-R Windows and Ellison® brand
names. We sell our patio doors to home center retailers, direct
to builders and through one-step distribution.

Other Products and Services.We had approximately $75 million
in net sales from the sale of other products and services in
2001. Our other products include deck and dock products, patio
enclosures and extruded aluminum and vinyl profiles for a
variety of industries, including various competitors of our
window and door fabrication operations. The deck and dock
products are made of vinyl and serve as an alternative to the
more traditional wood counterpart. The enclosures are custom
built to any size and are made from aluminum and vinyl product.

We also offer a turn-key total installation
program for multi-family builders in which we supply and install
exterior, interior and patio doors, mouldings, locks, hardware,
wire shelving, bath accessories, plate glass mirrors, toilet
partitions and other products. This concept allows a developer
to transfer the risk associated with retaining reliable work
crews and provides protection from cost overruns. We believe
that developers view this as a value added service.

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Sales, Marketing and Distribution

One of the key components of our marketing
strategy is to capitalize on the complementary nature of our
distribution channels. We have a multi-channel distribution
network that includes direct, one-step and two-step distribution
as well as 28 company-owned distribution centers. Our
distribution strategy maximizes our market penetration and
reduces reliance upon any one distribution channel for the sale
of our products. Furthermore, as a manufacturer and distributor
of windows and patio doors for more than four decades, we have
developed long-standing relationships with key distributors in
each of our markets. In each instance, we seek to secure the
leading distributors in each market. If we cannot secure a
top-tier distributor in a desired geographic market, we will
consider the acquisition or start up of our own distribution
center in that market.

We also sell to major home center retailers and
smaller regional-based retail centers. Although home centers
have become more important to us because they target the repair
and remodeling market segment, they still accounted for less
than 15% of our total net sales during 2001 and total pro forma
net sales during 2000. One of our goals is to continue to
increase our window business market share in the repair and
remodeling market.

We utilize the following distribution channels:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Direct Distribution (approximately 35% of our
	net sales from the sale of windows and patio doors in
	2001).We sell our windows and patio
	doors directly to contractors, remodelers and other homebuilders
	without the use of an intermediary. By selling directly to
	builders, we are able to increase our profit margins while at
	the same time offering builders more favorable pricing.                                                                                                                                                                                                                                                                                                                                        
|
| |  | One-Step Distribution, Including Home Center
	Sales (approximately 60% of our net sales from the sale of
	windows and patio doors in 2001 with home center sales
	representing approximately 15%).We
	sell our finished windows to lumberyards, building products
	distributors, home centers and company-owned distribution
	centers, which will then sell to contractors, homebuilders or
	remodelers. While it is not required that lumberyards or
	building products distributors carry our products on an
	exclusive basis, it is not unusual for them to do so. In
	addition, they generally purchase based on orders, keeping
	little or no inventory. One-step distribution tends to be used
	most often in metropolitan areas.

We maintain 28 company-owned distribution
facilities in key markets where available independent
distributors are weak or where we have been unable to make
adequate arrangements with existing distributors. Company-owned
distribution centers essentially act as one-step distributors.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Two-Step Distribution (approximately 5% of our
	net sales from the sale of windows and patio doors in
	2001).Two-step distribution is the
	selling of completed windows and patio doors to a wholesaler or
	distributor who then sells the products to lumberyards, building
	products retailers and home centers. These intermediaries will
	in turn sell the windows and patio doors to the homebuilders,
	homeowners or remodelers. The wholesalers and distributors tend
	to maintain product inventory in order to service the needs of
	their client base for small quantities. Two-step distribution is
	more common where customers generally do not represent
	sufficient volume to purchase from us directly and because
	customers in urban areas are serviced by home centers and large
	lumberyards.

To enhance our market coverage and leverage our
brand equity, we currently market our windows and patio doors
under primarily six brand names, Atrium®,
Kel-Star, Best Built, Ellison®,
Thermal and H-R Windows. Due to
the fact that we enjoy national name recognition at both the
building trade and consumer levels, we have chosen to
consolidate a significant portion of our product line under the
Atrium name. We are currently in the process of
rolling our Best Built, Ellison® and
Kel-Star brand product lines into the
Atrium® brand. We have completed a transition of our
Skotty, Bishop, Champagne, Masterview and Gentek
brands into the Atrium® brand. We expect to extend
the Atrium® brand to other products, as well as to
appropriate product lines acquired in the future.

Our promotional efforts to our window and patio
door customers are focused on cooperative advertising programs
which are offered to certain of our major customers. This gives
us exposure in our customers local media, including
newspaper, radio and television, in order to generate sales at
individual locations. We also

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invest in in-store displays, hold product
knowledge classes for employees and use award winning packaging
and in-store signage to further generate awareness within the
stores.


We market our window and patio door products
through a sales force consisting of approximately
150 company salaried and commissioned sales representatives
and approximately 150 independent commissioned sales
representatives. Each of our divisions is supported by a sales
manager, direct sales representatives and independent
representatives. The sales managers coordinate marketing
activities among both company and independent representatives.
Our sales representatives focus primarily on direct sales to
homebuilders, remodelers and contractors, while independent
sales representatives sell to home centers, lumberyards and
wholesalers. In general, independent sales representatives carry
our window and patio door products on an exclusive basis,
although they may carry other building products from other
manufacturers.

Our full product line has also been an asset to
our sales force, especially when we are exploring a new
distribution channel opportunity. Distributors have come to
recognize that we have a complete line of vinyl and aluminum
windows and patio doors. The distributors frequently do not buy
the whole range of products since regional tastes vary and
distributors tend to work according to regions. However, we
believe, these distributors value our ability to provide these
products should they ever demand them.

We believe that customer service plays a key role
in the marketing process. On-time delivery of products, order
fill rate, consistency of service and flexibility in meeting
changing customer requirements have made it possible for us to
build a large and loyal customer base that includes companies
such as Centex Homes, one of the nations largest
home-builders, and Lowes, one of the nations largest
home center retailers.

Our pricing and product offering strategy focuses
on offering the end consumer lower price points at acceptable
margins. We have executed this strategy in two steps. First, we
have consolidated our product offerings to simplify the overall
offering and reduce inventory levels. Second, we offer the
market good, better and best options within our product offering
that provide customers a price point and product that meets
their needs. Certain of the products in the offering have been
redesigned (with particular emphasis on taking costs out of the
products) in order to have an offering with three distinct price
points. This promotes more trading up to our higher
quality products by the customer and displays a complete product
line.

Operations

We manufacture and sell our windows and patio
doors through a vertically integrated process that includes
extrusion, fabrication and distribution. We realize many
operational and cost benefits from our vertically integrated
window and patio door operations. By extruding aluminum and many
of our vinyl components in-house, we are able to secure a
low-cost, reliable source of extrusions, control product quality
and control inventory levels. The integration of extrusion and
fabrication operations gives us significantly more control over
our manufacturing costs. We continually work to achieve cost
savings through increased capacity utilization, adoption of best
practices, reduction of cost of materials, rationalization of
product lines and reduction of inventory.

We continue to build on what we believe is our
position as one of the industrys lowest cost
manufacturers. Because of the scale of our operations, we are
able to negotiate price concessions for our raw materials,
including glass and vinyl. This is an important consideration
because, historically, the total cost of materials typically
comprises approximately 40% to 45% of our total net sales.

We have been manufacturing products in Texas
since 1953 and today have six primary manufacturing facilities
in the state. While solidifying our national presence, we have
strategically established 16 manufacturing operations nationwide.

Industry Overview

In 2001, new construction spending in the United
States totaled over $668 billion. Of the total new
construction spending amount, residential spending totaled
approximately $397 billion. Within the residential
construction market, replacement spending totaled approximately
$165 billion. In 2001, new housing starts in the United
States totaled approximately 1.7 million units of which
approximately 1.3 million units were single-

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family homes and approximately 0.4 million
units were multi-family homes. Historical residential repair and
remodeling expenditures have demonstrated consistent growth
dynamics increasing from approximately $15 billion to
approximately $165 billion during the period from 1970 to
2001 and averaging a compound annual growth rate of 8.0%.


Windows.The
domestic window market has grown to approximately
59 million in unit sales in 2001, and has outpaced the
growth in the domestic building materials industry generally.
The residential window industry can be divided into two end-use
segments: new construction, with an estimated 19.4 million
windows sold in 2001, and repair and remodeling, with
approximately 39.6 million windows sold in 2001. We believe
that the repair and remodeling segment will continue to
experience strong growth due to the strength of sales of
existing homes and the increase in the average age of homes from
23 years to 28 years in the last decade.

Patio Doors.We
believe that the residential patio door market has grown to more
than 6.4 million units in 2001. The residential patio door
industry can be divided into two principal market segments: new
construction and repair and remodeling. We estimate that patio
doors sold to the repair and remodeling segment constituted 66%
of all patio door units sold in the United States in 2001.

We believe that the window and patio door
industry has experienced significant consolidation in the last
few years. We believe this consolidation trend favors companies
like ours, with nationwide capabilities to service large home
centers and home builders, strong brand names, the ability to
provide a complete product line and economies of scale in
manufacturing, distributing and marketing. In addition to
opportunities presented by consolidation of the industry,
industry growth has been driven by the growth in the home center
retailer category. The home center industry is one of the
fastest growing retail sectors in the United States. According
to National Home Center News, the U.S. retail home
improvement market is expected to grow to approximately
$184 billion by the year 2003.

Competition

The residential window and patio door industry is
highly fragmented. With few exceptions, competitors are
privately-owned, regional companies with annual sales under
$100 million. On a national basis we compete with a few
national companies in different regions, products, distribution
channels and price points, but do not compete against any single
company across all of these areas. We compete with various other
companies in specific regions within each market.

Our major competitors for the sale of aluminum
windows and patio doors are Alenco Windows and MI Home Products,
Inc. The market for vinyl windows and patio doors is comprised
primarily of local and regional manufacturers, as no dominant
manufacturer operates on a national basis. Historically, demand
for vinyl windows and patio doors has been concentrated in the
colder regions of the United States. Our major competitors for
the sale of vinyl windows and patio doors are Silver Line
Building Products and Nortek, Inc. in the Northeast, Simonton
Windows in the Mid-Atlantic and Southeast and Milgard
Manufacturing, Inc. in the Pacific Northwest. In addition, we
compete with a number of regional manufacturers that sell
directly to repair and remodeling contractors.

Inflation and Raw Materials

During the past several years, the rate of
general inflation has been relatively low and has not had a
significant impact on our results of operations. We purchase raw
materials, including aluminum, glass and vinyl, that are subject
to fluctuations in price that may not reflect the rate of
general inflation. These materials fluctuate in price based on
supply and demand. Historically, there have been periods of
significant and rapid aluminum price changes, both upward and
downward, with a concurrent short-term impact on our operating
margins. We historically mitigated the effects of these
fluctuations over the long-term by passing through price
increases to our customers and through other means, such as
hedging activities. The primary raw materials used in the
production of our windows and patio doors are readily available
and are procured from numerous suppliers.

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Seasonality

The new home construction market and the market
for external repairs and remodeling in northern climates are
seasonal, with increased related product sales in the second and
third quarters of the calendar year. Although this results in
seasonal fluctuations in the sales of certain of our products,
the overall impact of these fluctuations is mitigated to some
degree by our balanced national presence which reduces our
dependency on a single geographic area.

Cyclicality

Demand in the window and patio door manufacturing
and distribution industry is influenced by new home construction
activity. For the year ended December 31, 2001, we estimate
that approximately 52% of our net sales were related to new home
construction. Trends in the housing sector directly impact our
financial performance. Accordingly, the strength of the
U.S. economy, the age of existing home stock, job growth,
interest rates, consumer confidence and the availability of
consumer credit, as well as demographic factors, such as the
migration of the population within the United States, have a
direct impact on our business. Cyclical declines in new housing
starts may adversely impact our business, and we cannot assure
you that any such adverse effects would not be material.

Employees

We employ approximately 4,350 people, of
whom approximately 4,265 are employed at our manufacturing
facilities and distribution centers and approximately 85 are
employed at our corporate headquarters in Dallas, Texas.
Approximately 1,300 of our hourly employees are covered by
collective bargaining agreements. We entered into a new
three-year collective bargaining agreement in May 2001 with the
Union of Needletrades, Industrial and Textile Employees
(UNITE!) covering certain employees at the Atrium
Aluminum, Atrium Vinyl, H-R Windows and Extruders
manufacturing facilities. The collective bargaining agreement
expires in May 2004. In addition, we have a collective
bargaining agreement with the Sheet Metal International
Association covering certain employees at our Kel-Star facility.
Due to our recent decision to close this facility, we have
negotiated an agreement resulting in the termination of the
agreement. There are no union affiliations with any of our other
divisions or subsidiaries. We believe that our relationship with
our employees is good.

Backlog and Material Customers

We have no material long-term contracts. Orders
are generally filled within 7 to 14 days of receipt. Our
backlog is subject to fluctuation due to various factors,
including the size and timing of orders for our products and is
not necessarily indicative of the level of future sales.

Government Regulation and Environmental
Matters

Our past and present operations and our assets
are subject to extensive federal, state, local and foreign
environmental laws and regulations pertaining to the discharge
of materials into the environment, the handling and disposal of
wastes, including solid and hazardous wastes, or otherwise
relating to health, safety and protection of the environment. We
do not expect to make any expenditures with respect to ongoing
compliance with these environmental laws and regulations that
would have a material adverse effect on our capital
expenditures, results of operations or competitive position.
However, the applicable requirements under the law could change
at any time.

The nature of our operations and assets expose us
to the risk of claims under environmental, health and safety
laws and regulations. We cannot assure you that material costs
or liabilities will not be incurred in connection with such
claims. We have been subject to such claims in the course of our
operations, and have made expenditures to address known
conditions in a manner consistent with applicable laws and
regulations. Based on our experience to date, we do not believe
that existing claims will have any further material adverse
effect on our capital expenditures, earnings or competitive
position. We cannot assure you that the discovery of presently
unknown environmental conditions, changes in environmental
claims that may involve material

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health and safety laws and regulations or other
unanticipated events will not give rise to unforeseen
expenditures or liabilities.


Trademarks and Patents

We rely on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality and
non-disclosure agreements and other contractual provisions to
protect our propriety rights. We have registered and
non-registered trade names and trademarks covering the principal
brand names and product lines under which our products are
marketed.

We have a perpetual, irrevocable, exclusive and
royalty-free license to use a registered trademark under the
name Ellison®. This trademarks duration is
perpetual as long as it is renewed every five years.




Item 2.     Properties

Our operations are conducted at the owned or
leased facilities described below:

|                           |  |                                               |  |               |         |           |  |  |       | 
|-------------------------- |  | --------------------------------------------- |  | ------------- | ------- | --------- |  |  | ----- | 
|                           |  |                                               |  | Capacity      |         |          
|Location                   |  | Principal Use                                 |  | (Square) Feet |         | Own/Lease
|                           |  |                                               |  |               |         |          
|Dallas, Texas              |  | Fabrication of aluminum windows               |  |               | 200,000 |           |  |  | Lease | 
|Dallas, Texas              |  | Fabrication of aluminum windows               |  |               | 342,000 |           |  |  | Lease | 
|Dallas, Texas              |  | Fabrication of vinyl windows                  |  |               | 120,000 |           |  |  | Lease | 
|Irving, Texas              |  | Idle Facility                                 |  |               | 98,000  |           |  |  | Own   | 
|Wylie, Texas               |  | Extrusion of aluminum                         |  |               | 205,000 |           |  |  | Lease | 
|Carrollton, Texas          |  | Extrusion of vinyl                            |  |               | 25,200  |           |  |  | Lease | 
|Las Vegas, Nevada          |  | Distribution of aluminum windows              |  |               | 7,500   |           |  |  | Lease | 
|Phoenix, Arizona           |  | Fabrication of aluminum windows               |  |               | 220,000 |           |  |  | Lease | 
|Woodville, Texas           |  | Fabrication of aluminum windows               |  |               | 180,000 |           |  |  | Lease | 
|Anaheim, California        |  | Fabrication of vinyl windows                  |  |               | 80,000  |           |  |  | Lease | 
|Hayward, California        |  | Distribution of vinyl windows                 |  |               | 20,400  |           |  |  | Lease | 
|Portland, Oregon           |  | Distribution of vinyl windows                 |  |               | 10,080  |           |  |  | Lease | 
|Everett, Washington        |  | Distribution of vinyl windows                 |  |               | 6,000   |           |  |  | Lease | 
|Clinton, Massachusetts     |  | Fabrication of vinyl windows                  |  |               | 31,000  |           |  |  | Own   | 
|Bridgeport, Connecticut    |  | Fabrication of vinyl windows                  |  |               | 75,000  |           |  |  | Lease | 
|Greenville, Texas          |  | Idle Facility                                 |  |               | 180,000 |           |  |  | Lease | 
|Greenville, Texas          |  | Idle Facility (Sublet)                        |  |               | 30,000  |           |  |  | Own   | 
|Greenville, Texas          |  | Idle Facility (Sublet)                        |  |               | 300,000 |           |  |  | Lease | 
|Allentown, Pennsylvania    |  | Idle Facility                                 |  |               | 105,000 |           |  |  | Lease | 
|Orlando, Florida           |  | Door pre-hanging, warehouse                   |  |               | 50,000  |           |  |  | Lease | 
|Denver, Colorado           |  | Fabrication of vinyl windows                  |  |               | 108,000 |           |  |  | Lease | 
|Colorado Springs, Colorado |  | Distribution of vinyl windows                 |  |               | 14,700  |           |  |  | Lease | 
|Florence, Alabama          |  | Door pre-hanging; warehouse                   |  |               | 60,000  |           |  |  | Lease | 
|Murrysville, Pennsylvania  |  | Fabrication of vinyl windows                  |  |               | 166,000 |           |  |  | Lease | 
|Pittsburgh, Pennsylvania   |  | Distribution of vinyl windows                 |  |               | 68,000  |           |  |  | Lease | 
|Pittsburgh, Pennsylvania   |  | Fabrication of deck/dock and patio enclosures |  |               | 82,100  |           |  |  | Lease | 
|Welcome, North Carolina    |  | Fabrication of vinyl windows                  |  |               | 376,210 |           |  |  | Lease | 

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|                        |  |                              |       |               |        |           |  |  |       |  | 
|----------------------- |  | ---------------------------- | ----- | ------------- | ------ | --------- |  |  | ----- |  | 
|                        |  |                              |       | Capacity      |        |          
|Location                |  | Principal Use                |       | (Square) Feet |        | Own/Lease
|                        |  |                              |       |               |        |          
|Welcome, North Carolina |  | Extrusion of vinyl           |       |               | 51,300 |           |  |  | Lease | 
|Yakima, Washington      |  | Fabrication of vinyl windows |       |               | 58,000 |           |  |  | Lease | 
|                        |  |                              |       |               |        |           |  |  |       | 
|                        |  |                              | Total |               |        | 3,269,490 |  |  |       |  | 
|                        |  |                              |       |               |        |           |  |  |       | 

Additionally, our subsidiary, Thermal Industries,
Inc. leases 21 distribution warehouses in 14 states
for vinyl window distribution with sites averaging
8,000 square feet.

We maintain our corporate headquarters in Dallas,
Texas. The Dallas facility provides approximately
17,500 square feet and is leased for a seven-year term
expiring in 2004.

We believe that our manufacturing plants are
generally in good operating condition and are adequate to meet
future anticipated requirements.




Item 3.     Legal
Proceedings

We are involved from time to time in litigation
arising in the ordinary course of our business, none of which is
expected to individually, or in the aggregate, have a material
adverse effect on us.




Item 4.     Submission
of Matters to a Vote of Security Holders

Not applicable.




PART II






|        |                                                                       
|------- | ----------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
	and Related Stockholder Matters

There is no established public trading market for
our outstanding equity securities.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The selected income statement data set forth
below for the years ended December 31, 1997, 1998, 1999,
2000 and 2001, and the selected balance sheet data at
December 31, 1997, 1998, 1999, 2000 and 2001 were derived
from the audited consolidated financial statements as described
further below. The selected historical financial data should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and
the financial statements, related notes and other financial
information included elsewhere in this Form 10-K.

Prior to October 2, 1998, our historical
financial statements as filed with the Securities and Exchange
Commission included the operations of Atrium Companies, Inc.
(the previous registrant) and its subsidiaries prior to our 1998
recapitalization and the reverse acquisition of Wing. On
October 2, 1998, pursuant to our 1998 recapitalization,
D and W contributed the assets of Wing and Darby to us.

As Wing was determined to be the acquiror in a
reverse acquisition in connection with our 1998
recapitalization, the historical financial statements of Atrium
Companies, Inc. were replaced with the historical financial
statements of Wing. As a result, the statement of operations for
1998 only includes the operations of the Company and Darby from
October 3, 1998. The financial statements as of and for the
year ended December 31, 1997 only include the operations
and accounts of Wing. Additionally, the operations of Delta
Millwork, Inc. (renamed R.G. Darby Company-South and Total
Trim, Inc.-South, together, Darby-South, since
merged into Door Holdings, Inc.) are included since its date of
acquisition, January 27, 1999, the operations of Heat, Inc.
(Heat, renamed Atrium Vinyl, Inc.) and Champagne
Industries, Inc. (Champagne, renamed Atrium Door and
Window Company of the Rockies) are included since their
respective dates of acquisition, May 17, 1999, and the
operations of Ellison are included since its date of
acquisition, October 25, 2000. The December 31, 2001
and 2000 balance sheet data includes the accounts of

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the Company, Wing, Darby, Darby-South, Heat,
Champagne, Ellison and each of their respective subsidiaries.


|                                                            |  |                        |         |              |  |              |          |              |  |              |          |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------- |  | ---------------------- | ------- | ------------ |  | ------------ | -------- | ------------ |  | ------------ | -------- | - |  | - | ------- | - |  | - | ------- | -
|                                                            |  | Year Ended             |         | Year Ended   |  | Year Ended   |          | Year Ended   |  | Year Ended  
|                                                            |  | December 31,           |         | December 31, |  | December 31, |          | December 31, |  | December 31,
|                                                            |  | 1997                   |         | 1998         |  | 1999         |          | 2000         |  | 2001        
|                                                            |  |                        |         |              |  |              |          |              |  |             
|                                                            |  |                       
|                                                            |  | (Dollars in thousands)
|Income Statement Data:                                      |  |                        |         |              |  |              |          |              |  |              |          |   |  |   |         |   |  |   |         |  
|Net sales                                                   |  | $                      | 99,059  |              |  | $            | 211,059  |              |  | $            | 498,456  |   |  | $ | 496,247 |   |  | $ | 524,899 |  
|Income (loss) before income taxes and
	extraordinary charge |  |                        | 1,391   |              |  |              | (2,329   | )            |  |              | 10,795   |   |  |   | (75,266 | ) |  |   | (2,671  | )
|Net income (loss)                                           |  |                        | 696     |              |  |              | (2,819   | )            |  |              | 2,218    |   |  |   | (74,326 | ) |  |   | (4,866  | )
|Balance Sheet Data (end of period):                         |  |                        |         |              |  |              |          |              |  |              |          |   |  |   |         |   |  |   |         |  
|Total assets                                                |  | $                      | 55,383  |              |  | $            | 359,869  |              |  | $            | 484,136  |   |  | $ | 542,335 |   |  | $ | 484,207 |  
|Total debt                                                  |  |                        | 32,238  |              |  |              | 179,227  |              |  |              | 316,711  |   |  |   | 355,348 |   |  |   | 310,554 |  
|Other Data                                                  |  |                        |         |              |  |              |          |              |  |              |          |   |  |   |         |   |  |   |         |  
|EBITDA(1)                                                   |  | $                      | 5,836   |              |  | $            | 14,732   |              |  | $            | 55,394   |   |  | $ | 5,923   |   |  | $ | 65,195  |  
|Depreciation and amortization                               |  |                        | 1,492   |              |  |              | 4,158    |              |  |              | 14,061   |   |  |   | 16,483  |   |  |   | 24,415  |  
|Stock compensation expense                                  |  |                        |        |              |  |              | 3,851    |              |  |              | 128      |   |  |   |        |   |  |   | 582     |  
|Interest expense                                            |  |                        | 2,953   |              |  |              | 9,081    |              |  |              | 28,524   |   |  |   | 36,967  |   |  |   | 39,113  |  
|Securitization expense                                      |  |                        |        |              |  |              |         |              |  |              |         |   |  |   |        |   |  |   | 1,532   |  
|Cash Flows provided by (used in):                           |  |                        |         |              |  |              |          |              |  |              |          |   |  |   |         |   |  |   |         |  
|Operating activities                                        |  | $                      | 1,148   |              |  | $            | (10,253  | )            |  | $            | 8,835    |   |  | $ | (4,441  | ) |  | $ | 50,437  |  
|Investing activities                                        |  |                        | (11,763 | )            |  |              | (125,184 | )            |  |              | (108,480 | ) |  |   | (89,780 | ) |  |   | (10,596 | )
|Financing activities                                        |  |                        | 10,609  |              |  |              | 135,403  |              |  |              | 100,939  |   |  |   | 97,573  |   |  |   | (43,240 | )



---



|      |                                                                                                                                      
|----- | -------------------------------------------------------------------------------------------------------------------------------------
|Note: | EBITDA amounts presented above are not pro forma
	for the acquisitions and/or divestitures that occurred during
	the years presented.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | EBITDA represents income before interest,
	securitization expense, income taxes, extraordinary charge,
	depreciation and amortization, special charges, stock
	compensation expense, special writedown of inventory of $1,010
	in 2001 (included in cost of goods sold) related to the shutdown
	of our Woodville, Texas facility, and certain non-recurring
	expenses. The special charges of $1,213 during 2001 related to
	the shutdown of our Woodville, Texas facility and to
	non-capitalizable legal fees incurred to amend our credit
	agreement. The special charges of $27,739 in 2000 were primarily
	related to the divestitures of the Wing and Wood operations. The
	special charges of $1,886 in 1999 were related to severance paid
	to the former CEO. We believe it is appropriate to exclude these
	special charges to provide investors a more accurate
	understanding of our ongoing operations. While we do not intend
	for EBITDA to represent cash flow from operations as defined by
	GAAP and we do not suggest that you consider it as an indicator
	of operating performance or an alternative to cash flow or
	operating income (as measured by GAAP) or as a measure of
	liquidity, we include it herein to provide additional
	information with respect to our ability to meet our future debt
	service, capital expenditures and working capital requirements.
	See Managements Discussion and Analysis of Financial
	Condition and Results of Operations. We believe EBITDA
	provides investors and analysts in the building materials
	industry the necessary information to analyze and compare our
	historical results on a comparable basis with other companies on
	the basis of operating performance, leverage and liquidity.
	However, as EBITDA is not defined by GAAP, it may not be
	calculated on the same basis as other similarly titled measures
	of other companies within the building materials industry.

13



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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
	of Financial Condition and Results of Operations

The following discussion and analysis should be
read in conjunction with our Consolidated Financial Statements
which appear elsewhere in this Form 10-K.

The Recapitalization

On August 3, 1998,
D and W Holdings, Inc., our then ultimate parent,
referred to as D and W, entered into a Merger
Agreement with Atrium Corporation, our former parent, and
certain securityholders to acquire all of the outstanding
capital stock of Atrium Corporation for $225.0 million,
through a series of transactions described below and referred to
as our 1998 recapitalization. Atrium Corporation owned 100% of
our outstanding capital stock prior to the merger. In connection
with the merger, GE Investment Private Placement
Partners II, a Limited Partnership, referred to as
GEIPPPII, and Ardatrium L.L.C. formed D and W by
acquiring all of its outstanding common stock for an aggregate
purchase price of $50.0 million. GEIPPPII is a private
equity partnership affiliated with GE Investments, a
wholly-owned investment management subsidiary of the General
Electric Company. Ardatrium L.L.C. is an affiliate of Ardshiel,
Inc., referred to as Ardshiel, a private equity investment firm
based in Connecticut.

The acquisition of Atrium Corporation by
D and W was effected through a merger on
October 2, 1998 of a wholly-owned subsidiary of
D and W, with and into Atrium Corporation pursuant to
the terms of the Merger Agreement. Prior to the merger,
D and W contributed $50.0 million to Atrium
Corporation in exchange for all of its outstanding common stock.
As a result of the merger, Atrium Corporation became a direct
wholly-owned subsidiary of D and W, and we became an
indirect wholly-owned subsidiary of D and W.

In connection with the merger, GEIPPPII and an
affiliate of Ardshiel recapitalized Wing and Darby and
contributed them to us. As a part of our 1998 recapitalization,
GEIPPPII and an affiliate of Ardshiel contributed to us
$50.0 million from the sale of common stock of our ultimate
parent and approximately $52.0 million in the implied asset
value of the Wing and Darby businesses. In October 2000, Atrium
Corporation was merged into D and W and was
subsequently renamed Atrium Corporation. As a result of the
merger, we became a direct wholly-owned subsidiary of Atrium
Corportion.

Critical Accounting Policies and
Estimates

Managements discussion and analysis of its
financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, management evaluates its
estimates, including those related to revenue recognition,
recoverability of goodwill, allowance for doubtful accounts,
inventory reserves and actuarially determined insurance
reserves. Management bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.

Management believes the following critical
accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial
statements.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue recognition.Our revenue recognition policy is
	significant because our sales are a key component of our results
	of operations. In addition, our revenue recognition determines
	the timing of certain expenses, such as commissions, delivery
	expense and sales returns and allowances. Revenue is recognized
	from the sale of windows and patio doors and related components
	at the time of delivery to the customer. On contracts involving
	installation, revenue is recognized when the installation is
	complete. We offer our customers the right to return products
	that do not function properly or are defective. Estimates are
	used to derive sales returns and allowances, commissions,
	delivery expense, and allowances for doubtful accounts. We
	follow very specific and detailed guidelines in measuring

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | revenue. However, certain judgments affect the
	application of our revenue policy. Revenue results can be
	difficult to predict, and any shortfall in revenue or delay in
	recognizing revenue could cause our operating results to vary
	significantly from period to period.                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Goodwill and Long-Lived Assets.We assess the impairment of goodwill
	and other long-lived assets whenever events or changes in
	circumstances indicate that the carrying value may not be
	recoverable. In assessing the recoverability of our goodwill,
	management must make assumptions regarding the estimated cash
	flows and other factors to determine the fair value of the
	respective assets. If these estimates or their related
	assumptions change in the future, we may be required to record
	an impairment charge. Factors we consider important which could
	trigger an impairment review include the following:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | Significant underperformance relative to expected
	history or projected future operating results.            
|
| |  | Significant changes in the manner of our use of
	the acquired assets or the strategy of our overall business.
|
| |  | Significant negative industry or economic trends.                                                            



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Allowance for doubtful accounts.We maintain an allowance for doubtful
	accounts for estimated losses resulting from the inability of
	its customers to make required payments. Additionally, we take
	into consideration the current financial condition of our
	customers, historical experience and any specific customer
	collection issues we have identified. If the financial condition
	of our customers were to deteriorate, resulting in an impairment
	of their ability to make payments, additional allowances may be
	required.
|
| |  | Inventory reserves.Inventories are valued at the lower of
	cost (last-in, first-out) or market. We provide reserves for
	estimated obsolescence or unmarketable inventory equal to the
	difference between the cost of inventory and the estimated net
	realizable value using assumptions about future demand for its
	products and market conditions. If actual future demand or
	market conditions are less favorable than those projected by
	management, additional inventory reserves may be required.                               
|
| |  | Self-insurance
	reserves.We are self-insured and
	provide reserves for estimated medical and workers
	compensation claims and incurred but not reported claims. We
	take into consideration the status of current and historical
	claims and actuarial calculations of such claims to determine
	the reserve amounts. If current or future claims are higher than
	estimated, additional reserves may be required.                                                                                                                        

Results of Operations (in thousands, except
percentages)

The following table sets forth for the periods
indicated, information derived from our consolidated statements
of operations expressed as percentage of net sales.

|                                                                                                                                 |  |                         |       |      |  |      |       |   |  |  |       |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                                                                 |  |                        
|                                                                                                                                 |  | Year Ended December 31,
|                                                                                                                                 |  |                        
|                                                                                                                                 |  | 2001                    |       | 2000 |  | 1999
|                                                                                                                                 |  |                         |       |      |  |     
|NET SALES                                                                                                                        |  |                         | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|COST OF GOODS SOLD (includes special writedown of
	inventory of $1,010 in 2001 related to facility shutdown)                     |  |                         | 67.6  |      |  |      | 74.8  |   |  |  | 68.4  |  
|                                                                                                                                 |  |                         |       |      |  |      |       |   |  |  |       |  
|Gross profit                                                                                                                     |  |                         | 32.4  |      |  |      | 25.2  |   |  |  | 31.6  |  
|OPERATING EXPENSES:                                                                                                              |  |                         |       |      |  |      |       |   |  |  |       |  
|Selling, delivery, general and administrative
	expenses (excluding securitization, amortization and stock
	compensation expense) |  |                         | 22.1  |      |  |      | 25.4  |   |  |  | 21.6  |  
|Securitization expense                                                                                                           |  |                         | 0.3   |      |  |      |      |   |  |  |      |  
|Stock compensation expense                                                                                                       |  |                         | 0.1   |      |  |      |      |   |  |  | 0.1   |  
|Amortization expense                                                                                                             |  |                         | 2.7   |      |  |      | 2.0   |   |  |  | 1.7   |  
|                                                                                                                                 |  |                         |       |      |  |      |       |   |  |  |       |  

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|                                                                                                               |  |                         |      |      |  |      |       |    |  |  |      |  
|-------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ----- | -- |  |  | ---- | -
|                                                                                                               |  |                        
|                                                                                                               |  | Year Ended December 31,
|                                                                                                               |  |                        
|                                                                                                               |  | 2001                    |      | 2000 |  | 1999
|                                                                                                               |  |                         |      |      |  |     
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
	EXPENSES                                                        |  |                         | 25.2 |      |  |      | 27.4  |    |  |  | 23.4 |  
|Special Charges                                                                                                |  |                         | 0.2  |      |  |      | 5.6   |    |  |  | 0.4  |  
|                                                                                                               |  |                         |      |      |  |      |       |    |  |  |      |  
|                                                                                                               |  |                         | 25.4 |      |  |      | 33.0  |    |  |  | 23.8 |  
|                                                                                                               |  |                         |      |      |  |      |       |    |  |  |      |  
|Income (loss) from operations                                                                                  |  |                         | 7.0  |      |  |      | (7.8  | )  |  |  | 7.8  |  
|INTEREST EXPENSE                                                                                               |  |                         | 7.5  |      |  |      | 7.4   |    |  |  | 5.7  |  
|OTHER INCOME (LOSS), net                                                                                       |  |                         |     |      |  |      | 0.1   |    |  |  |     |  
|                                                                                                               |  |                         |      |      |  |      |       |    |  |  |      |  
|Income (loss) before income taxes and
	extraordinary charge                                                    |  |                         | (0.5 | )    |  |      | (15.1 | )  |  |  | 2.1  |  
|PROVISION (BENEFIT) FOR INCOME TAXES                                                                           |  |                         | 0.3  |      |  |      | (0.2  | )  |  |  | 1.3  |  
|                                                                                                               |  |                         |      |      |  |      |       |    |  |  |      |  
|Income (loss) before extraordinary charge                                                                      |  |                         | (0.8 | )    |  |      | (14.9 | )  |  |  | 0.8  |  
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
	(net of income tax benefit of $0 in 2001 and $1,142 in 1999) |  |                         | 0.2  |      |  |      |      |    |  |  | 0.4  |  
|                                                                                                               |  |                         |      |      |  |      |       |    |  |  |      |  
|NET INCOME (LOSS)                                                                                              |  |                         | (1.0 | )%   |  |      | (14.9 | )% |  |  | 0.4  | %
|                                                                                                               |  |                         |      |      |  |      |       |    |  |  |      |  



| |                                                                       
| | ----------------------------------------------------------------------
| | Year Ended December 31, 2001 Compared
	to Year Ended December 31, 2000

Net Sales.Net sales
increased by $28,652 from $496,247 in 2000 to $524,899 in 2001,
or approximately 5.8%. Net sales in 2001 increased principally
as a result of the acquisition of Ellison during the fourth
quarter of 2000. Ellisons net sales increased by $118,194
from $19,091 in 2000 to $137,285 in 2001. Additionally, the
increase during 2001 was partially due to increases from our
vinyl operations (excluding the Ellison acquisition) as a result
of increased demand for vinyl windows. Net sales at these
operations increased $8,414, or 5.6% compared to 2000. The
increase during 2001 was partially offset by the decrease from
the divestiture of the Wing and Wood operations during 2000.
Wings net sales decreased from $84,154 in 2000 to $0 in
2001 and the net sales of Wood decreased from $7,852 in 2000 to
$0 in 2001. The increase during 2001 was also offset by
decreases from our aluminum operations as a result of inclement
weather in the first quarter and softer demand related to its
aluminum extrusion operations in 2001. Net sales at these
operations decreased $11,636, or 4.8%, compared to 2000.

Cost of Goods Sold.Cost of goods sold improved from 74.8%
of net sales during 2000 to 67.6% of net sales during 2001. The
improvement as a percentage of net sales was primarily
attributable to the divestitures of the Wing and the Wood
operations. The cost of goods sold as a percentage of net sales
during 2000 for Wing and Wood was 82.1% and 128.4%,
respectively. This improvement was partially offset by increases
at our aluminum and vinyl operations. Cost of goods sold at the
aluminum operations increased from 74.6% of net sales during
2000 to 77.3% of net sales during 2001. The increase was due to
a number of factors including energy surcharges on materials,
higher insurance costs related to workers compensation and
health insurance, expenses associated with plant consolidations
and lease costs at new facilities. The increase was also due to
the special writedown of inventory of $1,010 related to the
closure of the Woodville, Texas facility and the associated
product line rationalization, compared to inventory writedowns
of $5,338 and $1,868 in 2000 related to the Wing and Wood
divestitures. Cost of goods sold at the vinyl operations
increased from 63.7% of net sales during 2000 to 64.7% of net
sales during 2001. The increase was primarily due to the
acquisition of Ellison during 2000. Ellison had cost of goods
sold of 66.2% of net sales during 2001. The LIFO benefit during
2001 was $1,116 and the LIFO expense during 2000 was $1,541.
Overall, changes in the cost of goods sold as a percentage of
net sales for one period as compared to another period may
reflect a number of factors, including changes in the relative
mix of products sold and the effects of changes in sales prices,
material costs and changes in productivity levels.

Selling, Delivery, General and Administrative
Expenses.Selling, delivery, general
and administrative expenses decreased $10,099 from $125,991
during 2000 (25.4% of net sales during 2000) to $115,892 during

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2001 (22.1% of net sales during 2001). The
decrease was primarily due to the divestitures of Wing and Wood
during 2000. Wings selling, delivery, general and
administrative expenses decreased from $32,067 during 2000 to $0
during 2001. The Wood operations selling, delivery,
general and administrative expenses decreased from $3,731 during
2000 to $0 during 2001. The decrease during 2001 was partially
offset by the acquisition of Ellison during the fourth quarter
of 2000. Ellisons selling, delivery, general and
administrative expenses increased $22,006 from $3,607 during
2000 to $25,613 during 2001. Excluding the Ellison acquisition
during 2000, the aluminum operations increased from 17.2% of net
sales during 2000 to 18.5% of net sales during 2001 and the
vinyl operations improved from 27.8% of net sales during 2000 to
26.5% of net sales during 2001. The general and administrative
expense includes $695 of gain on sale of assets during 2000 and
$1,798 of gain on sale of assets during 2001. The 2000 gain
includes $446 from the sale of idle facilities and the 2001 gain
includes $1,741 from the sale of our vinyl extrusion operation
of Thermal Industries, Inc.


Securitization Expense.During 2001, we incurred
securitization expense of $1,532 on the sale of our accounts
receivable, which included $878 of fees associated with the
placement of our accounts receivable securitization facility and
a loss on the sale of account receivable of $654, which
represented the interest expense component of the transaction.

Amortization Expense.Amortization increased $4,540 from
$9,870 during 2000 to $14,410 during 2001. The increase was
largely due to increased amortization of goodwill recorded in
connection with the acquisition of Ellison during October 2000.

Stock Compensation Expense.Stock compensation expense increased
from $0 during 2000 to $582 during 2001. The increase was due to
the repurchase of outstanding options from former employees
during 2001 and payment for services rendered in the form of
Atrium Corporation common stock to Ardshiel, Inc.

Special Charges.During 2001, we recorded one-time
charges of $1,213, of which $910 related to the shutdown of our
Kel-Star facility and $303 related to non-capitalizable legal
fees incurred to amend our credit agreement. During 2000, we
recorded a one-time charge of $27,739, of which $24,585 related
to the write-off of certain intangible assets and the writedown
of certain assets related to the sale of Wing and $1,251 related
to the writedown of certain assets and charges for idle
facilities at Wood. Special charges were recorded in the amount
of $539 for non-capitalizable legal fees associated with the
amendment of our credit agreement. Additionally, we recorded
$1,364 for severance benefits incurred in connection with the
separation agreement entered into between us and the former
Chief Executive Officer.

Interest Expense.Interest expense increased by $2,146
from $36,967 during 2000 to $39,113 during 2001. The increase in
interest expense was due primarily to the additional debt of
$38,000 incurred under our credit facility in connection with
the acquisition of Ellison. The increase in interest expense
includes the amortization of additional deferred financing costs
incurred in connection with the Ellison acquisition.

Extraordinary Charge.Extraordinary charge increased from $0
during 2000 to $837 during 2001. Extraordinary charge in 2001
consisted of the write-off of a pro-rata portion of deferred
financing costs of $837 in connection with the $20,000
prepayment of debt under our credit agreement from the proceeds
of our securitization of accounts receivable.



| |                                                                       
| | ----------------------------------------------------------------------
| | Year Ended December 31, 2000 Compared
	to Year Ended December 31, 1999

Net Sales.Net sales
decreased by $2,209 from $498,456 in 1999 to $496,247 in 2000,
or approximately 0.4%. Net sales in 2000 decreased principally
as a result of decreases at Wing and Wood during the year.
Wings net sales decreased by $68,002 from $151,841 during
1999 to $83,839 during 2000 and Woods net sales decreased
by $8,508 from $16,156 during 1999 to $7,648 during 2000. During
the second and third quarter of 2000, net sales from Wing
declined prior to its divestiture, as its largest customer, The
Home Depot, began shifting its business to other interior door
manufacturers. The declines at Wood prior to their divestiture
were due to our efforts to eliminate less-profitable sales
territories. The decrease during the year was also attributable
to a decline at Darby which was the result of eliminating
single-family installations and focusing exclusively on
multi-family installations. The decrease during 2000 was
partially offset by the increase from the acquisitions of Heat
and Champagne, which were acquired during the second quarter of
1999. During

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2000, these acquisitions had a combined increase
in net sales of $33,385, or 47.7%. On October 25, 2000, we
also acquired Ellison, which had net sales of $19,091 subsequent
to the acquisition. The decrease during 2000 was also partially
offset by increases (exclusive of the 1999 and 2000
acquisitions) that included approximately $18,880 from our
aluminum window operations, or a 9.8% growth rate, and $4,100,
or a 10.8% growth rate, at our vinyl window operations.


Cost of Goods Sold.Cost of goods sold increased from
68.4% of net sales during 1999 to 74.8% of net sales during
2000. The increase as a percentage of net sales was due largely
to increases at Wing and Wood. Wing experienced increases in
material costs, up from 58.7% of net sales during 1999 to 82.1%
of net sales during 2000, primarily the result of a $5,338
writedown of inventory that was recorded during the second and
third quarters of 2000. This writedown related to its
divestiture and $12,609 of price concessions made to move
remaining inventories. Woods cost of goods sold increased
from 79.5% of net sales during 1999 to 128.4% of net sales
during 2000. The increase at Wood was primarily due to material
costs relating to the $1,868 writedown of inventory and $1,277
of price concessions made to move remaining inventories. The
increase was also attributable to the aluminum and vinyl
operations. The aluminum operations had costs of goods sold of
71.3% of net sales during 1999 compared to 74.6% of net sales
during 2000. The increases at the aluminum operations were the
result of higher insurance and lease costs at new facilities.
The vinyl operations had costs of goods sold of 60.3% of net
sales during 1999 compared to 63.7% of net sales during 2000.
The increases at the vinyl operations were primarily due to the
acquisition of Ellison during 2000. Ellison had cost of goods
sold of 65.5% of net sales during 2000 from the date it was
acquired. The LIFO expense during 2000 was $1,541 and the LIFO
benefit was $75 during 1999. Overall, changes in the cost of
goods sold as a percentage of net sales for one period as
compared to another period may reflect a number of factors,
including changes in the relative mix of products sold and the
effects of changes in sales prices, material costs and changes
in productivity levels.

Selling, Delivery, General and Administrative
Expenses.Selling, delivery, general
and administrative expenses increased $18,290 from $107,701
(21.6% of net sales during 1999) to $125,991 (25.4% of net sales
during 2000). Wings selling, delivery, general and
administrative expenses were up from 20.7% of net sales during
1999 to 37.8% of net sales during 2000, due to increased labor,
freight expense and shut down expenses surrounding the
divestiture during 2000. The remaining increase was largely due
to the inclusion of selling, delivery, general and
administrative expenses of Heat and Champagne for the full year,
which have higher selling expenses as a percentage of net sales.
The combined Heat and Champagne selling, delivery, general and
administrative expenses were $30,747 (29.7% of net sales) during
2000, an increase of $11,636 over 1999 (27.3% of net sales).
Excluding the acquisitions during 1999 and 2000, the aluminum
operations improved from 21.0% of net sales during 1999 to 20.0%
of net sales during 2000 and the vinyl operations improved from
26.5% of net sales during 1999 to 26.2% of net sales during
2000. Additionally, delivery expenses increased due to increased
fuel costs.

Amortization Expense.Amortization expense increased
$1,153 from $8,717 during 1999 to $9,870 during 2000 due to
amortization of goodwill recorded in connection with the
acquisitions of Heat and Champagne in 1999 and Ellison in 2000.
The increase was partially offset by the write-off of
capitalized software costs and goodwill in connection with the
divestiture of Wing during 2000.

Special Charges.During 2000, we recorded a one-time charge of $27,739, of which
$24,585 related to the write-off of certain intangible assets
and the writedown of certain assets related to the sale of Wing
and $1,251 related to the writedown of certain assets and
charges for idle facilities at the Wood operations. During 2000,
special charges were recorded in the amount of $539 for
non-capitalizable legal fees associated with the amendment of
our credit facility. Additionally, we recorded $1,364 for
severance benefits incurred in connection with the separation
agreement entered into between us and the former Chief Executive
Officer hired in March 2000. During the first quarter of 1999,
we recorded a one-time charge of $1,886 for severance benefits
incurred in connection with the separation agreement entered
into between us and our former President and Chief Executive
Officer.

Interest Expense.Interest expense increased $8,443
from $28,524 during 1999 to $36,967 during 2000. The increase in
interest expense was due primarily to the $175,000 senior
subordinated notes we issued on

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##### Table of Contents



May 17, 1999. The notes were issued in
connection with the acquisitions of Heat and Champagne and are
due May 1, 2009. In addition, the increase in interest
expense includes the amortization of deferred financing,
accretion of the discount recorded in connection with the
issuance of the $175,000 senior subordinated notes, interest on
additional term loan borrowings and a higher average revolving
credit balance during 2000. The increase in interest expense was
partially offset from gains of $327 during 2000 from interest
rate collars.


Income Taxes.Our
effective tax rate was 1.2% during 2000 due largely to the
recording of a valuation allowance of $18,150, the write-off of
$13,060 of non-deductible goodwill related to the sale of Wing
and non-deductible goodwill amortization expense of
approximately $6,044. Excluding the effects of these items, our
effective tax rate would have been approximately 34.0% during
2000.

Liquidity and Capital Resources

Cash generated from operations, availability
under our credit facility and availability under our accounts
receivable securitization facility are our principal sources of
liquidity. During 2001, cash was primarily used for capital
expenditures and debt payments. Net cash provided by operating
activities was $50,437 during 2001 compared to cash used in
operating activities of $4,441 during 2000. The increase was
primarily related to the proceeds received from the accounts
receivable securitization facility of $27,400. The increase was
also due to improvements in working capital management. Cash
flows used in investing activities decreased from $89,780 during
2000 to $10,596 during 2001. The decrease was primarily due to
the acquisition of Ellison during 2000 of $99,276, which was
offset by the proceeds of $24,355 received from the sales of
Wing and Wood during 2000. Net cash used in financing activities
was $43,240 during 2001 compared to net cash provided by
financing activities of $97,573 during 2000. Cash used in
financing activities during 2001 consisted of a $20,000
prepayment of the term loans as a result of proceeds received
from the accounts receivable securitization facility, as well as
$19,000 of net payments on the revolving credit facility, paid
from cash provided by operating activities. Cash provided from
financing activities during 2000 included capital contributions
of $59,102 and term loan borrowings of $38,000, both of which
were necessary to fund the acquisition of Ellison.

The following table summarizes our contractual
obligations at December 31, 2001, and the effects such
obligations are expected to have on our liquidity and cash flow
in future periods.

Payments Due by Period

|                         |                                             |                                    |   |        |        |      |   |            |        |       |   |        |        |  |   |         |         |  |   |         |         | 
|------------------------ | ------------------------------------------- | ---------------------------------- | - | ------ | ------ | ---- | - | ---------- | ------ | ----- | - | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|                         |                                             |                                    |   |        |        |      |   | 2005 and   |        |      
|                         |                                             | 2002                               |   | 2003   |        | 2004 |   | thereafter |        | Total
|                         |                                             |                                    |   |        |        |      |   |            |        |      
|                         |                                             |                                   
|                         |                                             | (Dollars in thousands)            
|CONTRACTUAL OBLIGATIONS: |                                             |                                    |   |        |        |      |   |            |        |       |   |        |        |  |   |         |         |  |   |        
|                         | Long-term debt                              |                                    | $ | 6,191  |        |      | $ | 5,485      |        |       | $ | 3,904  |        |  | $ | 297,160 |         |  | $ | 312,740 |        
|                         | Interest rate swaps fair value              |                                    |   | 1,448  |        |      |   | 6,821      |        |       |   |       |        |  |   |        |         |  |   | 8,269   |        
|                         | Non-cancellable operating lease obligations |                                    |   | 13,414 |        |      |   | 12,871     |        |       |   | 11,688 |        |  |   | 65,554  |         |  |   | 103,527 |        
|                         | Letters of credit                           |                                    |   | 2,645  |        |      |   |           |        |       |   |       |        |  |   |        |         |  |   | 2,645   |        
|                         | Aluminum purchase commitments               |                                    |   | 18,124 |        |      |   |           |        |       |   |       |        |  |   |        |         |  |   | 18,124  |        
|                         |                                             |                                    |   |        |        |      |   |            |        |       |   |        |        |  |   |         |         |  |   |        
|                         |                                             | Total contractual cash obligations |   | $      | 41,822 |      |   | $          | 25,177 |       |   | $      | 15,592 |  |   | $       | 362,714 |  |   | $       | 445,305 | 
|                         |                                             |                                    |   |        |        |      |   |            |        |       |   |        |        |  |   |         |         |  |   |        

Long-term debt consists of borrowings under our
credit facility and the $175,000 senior subordinated notes. The
credit facility term borrowings require quarterly principal and
interest payments. The notes require semi-annual interest
payments only and are due in May 2009. We may, at our option,
prepay the revolving facility or term loans without premium or
penalty.

The credit agreement and senior subordinated
notes require us to comply with certain covenants which, among
other things, include limitations on indebtedness, liens and
further negative pledges, investments, contingent obligations,
dividends, redemptions and repurchases of equity interests,
mergers, acquisitions and

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asset sales, capital expenditures, sale-leaseback
transactions, transactions with affiliates, dividend and other
payment restrictions affecting subsidiaries, changes in business
conducted, amendment of documents relating to other indebtedness
and other material documents, creation of subsidiaries,
designation of Designated Senior Indebtedness in respect of the
senior subordinated notes, and prepayment or repurchase of other
indebtedness. The credit agreement requires us to meet certain
financial tests pertaining to interest coverage, fixed charge
coverage and leverage. As of December 31, 2001, we were in
compliance with all related covenants.


The credit agreement and senior subordinated
notes contain customary events of default, including, without
limitation, payment defaults, covenant defaults, breaches of
representations and warranties, bankruptcy and insolvency,
judgments, change of control and cross-default with certain
other indebtedness.

We have two interest rate swaps each of which
have negative fair values at December 31, 2001. The
notional amount, fair value and expiration dates of the swaps
are $37,500, ($1,448) and December 2002 and $100,000, ($6,821)
and November 2003.

We have various outstanding operating leases for
office and manufacturing space, automobiles and machinery and
equipment.

We have various letters of credit outstanding
related to certain of our insurance policies and facility leases.

In connection with our accounts receivable
securitization facility executed in 2001, we formed a special
purpose funding subsidiary to facilitate the sale of pools of
trade receivables. The special purpose entity is consolidated
with us. At December 31, 2001, we did not have any other
relationships with unconsolidated entities or financial
partnerships, such entities often referred to as structured
finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
As such, we are not materially exposed to any financing,
liquidity or market or credit risk that could arise if we had
engaged in such relationships.

Other Capital Resources

In connection with our 1998 recapitalization, we
entered into a Credit Agreement providing for a revolving credit
facility in the amount of $30,000, which was increased to
$40,000 in September 1999. In connection with the acquisition of
Ellison, the revolving credit facility was increased to $47,000,
which includes a $10,000 letter of credit sub-facility. The
revolving credit facility has a maturity date of June 30,
2004. Additionally, we have an accounts receivable
securitization facility which will make additional funds
available to us depending on our accounts receivable levels. At
December 31, 2001, we had $44,355 of availability under the
revolving credit facility, net of outstanding letters of credit
totaling $2,645. As of March 27, 2002, we had cash of $789
and $41,855 of availability under the revolving credit facility,
net of borrowings of $2,500 and outstanding letters of credit
totaling $2,645. At December 31, 2001, we had $22,600 of
availability under the accounts receivable securitization
facility, subject to borrowing base requirements, net of
securitizations of $27,400. As of March 27, 2002, we had
$26,200 available under the accounts receivable securitization
facility, net of securitizations of $23,800.

Capital Expenditures

We had net cash capital expenditures of $7,984
during 2001, compared to $11,689 and $8,111 during 2000 and
1999, respectively. The 2001 capital expenditures are net of
proceeds received from the sale of assets of $6,120. The
proceeds primarily related to the sale of two of our buildings
and the sale of our vinyl extrusion operation of Thermal
Industries, Inc. Capital expenditures during 2001 were largely a
result of our continued efforts to increase efficiency through
automation of our various divisions, as well as to increase
plant capacity at the Dallas-based aluminum and vinyl
operations. We expect capital expenditures (exclusive of
acquisitions, if any) in 2002 to be approximately $13,500,
however, actual capital requirements may change based on
management and strategic decisions.

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Moreover, our ability to meet debt service,
working capital obligations and capital expenditure requirements
is dependent upon our future performance which, in turn, will be
subject to general economic conditions and to financial,
business and other factors, including factors beyond our control.

Inflation, Trends and General
Considerations

We have evaluated and expect to continue to
evaluate possible acquisitions on an ongoing basis and at any
given time may be engaged in discussions or negotiations with
respect to acquisition candidates. Our performance is dependent
to a significant extent upon the levels of new residential
construction, residential replacement and remodeling and
non-residential construction, all of which are affected by such
factors as interest rates, inflation and unemployment. In the
near term, we expect to operate in an environment of relatively
stable levels of construction and remodeling activity. However,
increases in interest rates could have a negative impact on the
level of housing construction and remodeling activity. The
demand for our products is seasonal, particularly in the
Northeast and Midwest regions of the United States where
inclement weather during the winter months usually reduces the
level of building and remodeling activity in both the home
improvement and new construction markets. Our lower sales levels
usually occur during the first and fourth quarters of our fiscal
year. Since a high percentage of our manufacturing overhead and
operating expenses are relatively fixed throughout the year,
operating income and net earnings tend to be lower in quarters
with lower sales levels. In addition, the demand for cash to
fund the working capital of our subsidiaries is greater from
late in the first quarter of our fiscal year until early in the
fourth quarter of our fiscal year.

Market Risk

We are exposed to market risks related to changes
in interest rates and commodity pricing. We use derivative
financial instruments on a limited basis to hedge economic
exposures. We do not enter into derivative financial instruments
or other financial instruments for speculative trading purposes.



| |                   
| | ------------------
| | Interest Rate Risk

We are exposed to market risk from changes in
interest rates primarily through our investing and borrowing
activities. In addition, our ability to finance any future
acquisition transactions may be impacted if we are unable to
obtain appropriate financing at acceptable interest rates. We
manage our borrowing exposure to changes in interest rates by
utilizing a combination of fixed and variable rate debt
instruments. In addition, as of December 31, 2001, we
hedged our exposure on a portion of our variable rate debt by
entering into interest rate swap agreements to lock in a fixed
rate. At December 31, 2001, approximately 100% of the
carrying values of our long-term debt was either at fixed
interest rates or covered by interest rate swap agreements that
fixed the interest rates.

The following table presents principal cash flows
of variable rate debt by maturity date and the related average
interest rate. The table also presents the notional amount of
the swaps and their expected future interest rates. The notional
amount is used to calculate the contractual payments to be
exchanged. The

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interest rates are weighted between the various
loans based on debt outstanding and are estimated based on
implied forward rates using a yield curve at December 31,
2001.


Expected Maturities (dollars in
thousands)

|                          |  |      |        |      |  |      |         |      |  |      |       |       |  |            |        |   |  |   |        |   |  |   |         |  |  |   |         |  
|------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ----- | ----- |  | ---------- | ------ | - |  | - | ------ | - |  | - | ------- |  |  | - | ------- | -
|                          |  | 2002 |        | 2003 |  | 2004 |         | 2005 |  | 2006 |       | Total |  | Fair Value
|                          |  |      |        |      |  |      |         |      |  |      |       |       |  |           
|Liabilities               |  |      |        |      |  |      |         |      |  |      |       |       |  |            |        |   |  |   |        |   |  |   |         |  |  |   |         |  
|Variable  rate debt      |  | $    | 6,168  |      |  | $    | 5,480   |      |  | $    | 3,904 |       |  | $          | 57,440 |   |  | $ | 64,720 |   |  | $ | 137,712 |  |  | $ | 137,712 |  
|Average interest rate     |  |      | 6.70   | %    |  |      | 8.80    | %    |  |      | 9.51  | %     |  |            | 9.90   | % |  |   | 10.03  | % |  |   |        |  |  |   |        |  
|Interest Rate Derivatives |  |      |        |      |  |      |         |      |  |      |       |       |  |            |        |   |  |   |        |   |  |   |         |  |  |   |         |  
|Notional amount           |  |      |       |      |  | $    | 100,000 |      |  |      |      |       |  |            |       |   |  |   |       |   |  | $ | 100,000 |  |  | $ | (6,821  | )
|Average pay rate          |  |      | 6.66   | %    |  |      | 6.66    | %    |  |      |      |       |  |            |       |   |  |   |       |   |  |   |        |  |  |   |        |  
|Average receive rate      |  |      | 2.23   | %    |  |      | 3.33    | %    |  |      |      |       |  |            |       |   |  |   |       |   |  |   |        |  |  |   |        |  
|Notional amount           |  | $    | 37,500 |      |  |      |        |      |  |      |      |       |  |            |       |   |  |   |       |   |  | $ | 37,500  |  |  | $ | (1,448  | )
|Average pay rate          |  |      | 6.15   | %    |  |      |        |      |  |      |      |       |  |            |       |   |  |   |       |   |  |   |        |  |  |   |        |  
|Average receive rate      |  |      | 2.02   | %    |  |      |        |      |  |      |      |       |  |            |       |   |  |   |       |   |  |   |        |  |  |   |        |  



| |                       
| | ----------------------
| | Commodity Pricing Risk

We are subject to significant market risk with
respect to the pricing of our principal raw materials, which
include, among others, resins, compounds, glass, PVC and
aluminum. If prices of these raw materials were to increase
dramatically, we may not be able to pass such increases onto our
customers and, as a result, gross margins could decline
significantly. We manage some of our exposure to commodity
pricing risk through purchasing aluminum forward commitments.
The following is information related to aluminum forward
commitments at December 31, 2001:

|                                                     |                 |  |         |                   | 
|---------------------------------------------------- | --------------- |  | ------- | ----------------- | 
|Forward commitments, expected to mature during
	2002 |                 |  |         |                  
|Contract volumes:                                    |                 |  |         |                  
|                                                     | Fixed prices    |  |         | 23,825,000 pounds | 
|                                                     | Floating prices |  |         | 21,335,000 pounds | 
|Contract amount                                      |                 |  | $18,124 |                  
|Fair value                                           |                 |  | $17,525 |                  

Financial Accounting Standards

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), amended by
SFAS No. 137 and SFAS No. 138. SFAS No. 133
establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in a
derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivatives
gains and losses to offset related results on the hedged item in
the statement of operations, and requires that a company must
formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.

We adopted SFAS No. 133 and the
corresponding amendments under SFAS No. 138 on
January 1, 2001, as required, which required us to record
the market value of our swaps as an adjustment to equity (see
Financial Statements Note 4). SFAS No. 133, as
amended, is not expected to have a material impact on our future
consolidated results of operations, financial position or cash
flows.

In September 2000, the FASB issued SFAS
No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, a
replacement of SFAS No. 125, (SFAS
No. 140).

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SFAS No. 140 revised the standards for
accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures. SFAS
No. 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring
after June 30, 2001. We adopted SFAS No. 140 in the
third quarter upon consummation of the accounts receivable
securitization transaction (see Financial Statements
Note 5).


In July 2001, the FASB issued SFAS No. 141,
Business Combination (SFAS No. 141)
and SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 141). SFAS No. 141
requires all business combinations initiated after June 30,
2001 be accounted for using the purchase method. Additionally,
SFAS No. 141 establishes specific criteria for the
recognition of intangible assets separately from goodwill. We do
not expect the adoption of SFAS No. 141 to have any impact
on us. SFAS No. 142 primarily addresses the accounting for
goodwill and intangible assets subsequent to their acquisition
and is effective for us on January 1, 2002. The most
significant changes made by SFAS No. 142 require that
goodwill and indefinite lived intangible assets no longer be
amortized and be tested for impairment at least on an annual
basis. Additionally, the amortization period of intangible
assets with finite lives will no longer be limited to forty
years.

We are currently assessing the impact of SFAS
No. 142 and have not yet determined the full effect this
statement will have on our consolidated financial position or
results of operations. We have estimated that the pretax
reduction in annual amortization expense will be approximately
$11,725.

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS
No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
SFAS No. 143 is effective for us on January 1, 2003.
We are currently assessing the impact of SFAS No. 143 and
have not yet determined the effects, if any, it will have on our
consolidated financial position or results of operations.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144). SFAS
No. 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. SFAS
No. 144 became effective for the us on January 1,
2002. We are currently assessing the impact of SFAS No. 144
and have not yet determined the effects, if any, it will have on
our consolidated financial position or results of operations.






|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary
	Data

The financial statements are listed in the
accompanying Index to Financial Statements on page F-1 of
this report.






|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
	Accountants on Accounting and Financial Disclosure

Not applicable.

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PART III




Item 10.     Directors
and Executive Officers of the Registrant

The following table provides information
concerning our directors and the executive officers:

|                    |  |     |    |          |  |                                                                            
|------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|Jeff L. Hull        |  |     | 36 |          |  | President, Chief Executive Officer and Director                            
|Eric W. Long        |  |     | 33 |          |  | Executive Vice President, Chief Financial
	Officer, Treasurer and Secretary
|Robert E. Burns     |  |     | 36 |          |  | Executive Vice President and Co-Chief Operating
	Officer                   
|C. Douglas Cross    |  |     | 46 |          |  | Executive Vice President and Co-Chief Operating
	Officer                   
|Cliff Darby         |  |     | 37 |          |  | President of R.G. Darby Company, Inc. and
	Total Trim, Inc                 
|Daniel T. Morley    |  |     | 49 |          |  | Chairman of the Board of Directors                                         
|Roger A. Knight     |  |     | 42 |          |  | Director                                                                   
|Andreas Hildebrand  |  |     | 34 |          |  | Director                                                                   
|John C. Deterding   |  |     | 70 |          |  | Director                                                                   
|Nimrod Natan        |  |     | 38 |          |  | Director                                                                   
|John Ellison, Jr.   |  |     | 55 |          |  | Director                                                                   
|Dennis M. McCormick |  |     | 49 |          |  | Director                                                                   



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| | * | Christopher M.
	Unrathresigned from the position of
	Director effective as of August 28, 2001.
|
| | * | James G. Turnerresigned from the position of Director effective as of
	February 23, 2001.     

Jeff L. Hullhas
served as Chief Executive Officer of Atrium Corporation and
Atrium Companies, Inc. since 2000, and President and Director of
Atrium Corporation and Atrium Companies, Inc. since 1999. Prior
to 2000, Mr. Hull was the Chief Financial Officer of Atrium
Corporation and Atrium Companies, Inc. from 1996. Mr. Hull
also served as Executive Vice President of Atrium Corporation
and Atrium Companies, Inc. from 1998 to 1999, Secretary of
Atrium Corporation from 1998 to 2000, Secretary of Atrium
Companies, Inc. from 1996 to 2000 and Treasurer of Atrium
Corporation from 1998 to 2000 and of Atrium Companies, Inc. from
1996 to 2000. Prior to joining us, Mr. Hull was Director of
Asset/ Liability Management of AmVestors Financial Corporation
(NYSE:AMV) and he was a manager with the accounting firm of
Deloitte & Touche L.L.P. Mr. Hull is a certified
public accountant.

Eric W. Longhas
served as Executive Vice President of Atrium Corporation and
Atrium Companies, Inc. since 2001, Chief Financial Officer,
Treasurer and Secretary of Atrium Corporation and Atrium
Companies, Inc. since 2000. Mr. Long also served as
Corporate Controller of Atrium Corporation and Atrium Companies,
Inc. from 1996 to 2000. Prior to 2000, Mr. Long served as
Assistant Secretary of Atrium Corporation and Atrium Companies,
Inc. from 1996 and Vice President of Finance of Atrium
Corporation and Atrium Companies, Inc. from 1999 to 2000. Prior
to 1996, Mr. Long was a financial analyst with
Applebees International, Inc. and was with the accounting
firm of Deloitte & Touche L.L.P. Mr. Long is a
certified public accountant.

Robert E. Burnshas
served as Executive Vice President and Co-Chief Operating
Officer of Atrium Corporation and Atrium Companies, Inc. since
December 2001, Chief Operating Officer of Aluminum
Operations of Atrium Companies, Inc. since December 2000.
Mr. Burns joined Atrium Companies, Inc. in
January 2000 as Senior Vice President of Operations in
which capacity he served until December 2000. Prior to
that, Mr. Burns was Vice President of Operations of Baldwin
Hardware, a division of Masco Corp. (NYSE: MAS) from
March 1996. Prior to joining Masco Corp., Mr. Burns
was a management consultant with Universal Scheduling Company.

C. Douglas
Crosshas served as Executive Vice
President and Co-Chief Operating Officer of Atrium Corporation
and Atrium Companies, Inc. since December 2001 and Chief
Operating Officer of Vinyl Operations of Atrium Companies, Inc.
since October, 2000. Prior to October 2000, Mr. Cross was
President

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and Chief Operating Officer of Ellison Windows
and Doors since 1988. Mr. Cross had been with Ellison
Windows and Doors since 1985. Prior to that, he was a commercial
loan officer with First Union Bank.


Cliff Darbyhas
served as President of R.G. Darby, Inc. and Total Trim,
Inc. since 1997. Mr. Darby has worked for Darby since 1985,
holding numerous roles, including managerial, sales and
administrative positions.

Daniel T. Morleyhas
served as Chairman of the Board of Directors of Atrium
Corporation and Atrium Companies, Inc. since October 1998.
Mr. Morley has also been a Managing Partner of Ardshiel
since 1994. Mr. Morley has served as Co-President of
Ardshiel since 1997. Mr. Morley also serves as Chairman of
Astro Textiles Holdings, Inc. and HBG Building Products, Inc.,
is a Director of Infigen, Inc. and Avanti Petroleum, Inc., and
holds positions with several other privately held companies.

Roger A. Knighthas
served as a Director of Atrium Corporation and Atrium Companies,
Inc. since October 1998. Mr. Knight has been a principal of
Ardshiel since May 1998. Mr. Knight is also a Director
of Astro Textiles Holdings, Inc., HBG Building Products, Inc.,
Infigen, Inc. and Offshoots, Inc. Prior to joining Ardshiel, he
was Managing Director and a member of the Management Committee
of Coopers & Lybrand Securities, Inc., the wholly-owned
investment banking subsidiary of Coopers & Lybrand
L.L.P. (now known as PricewaterhouseCoopers LLP).

Andreas Hildebrandhas served as a Director of Atrium Corporation and Atrium
Companies, Inc. since October 1998. Mr. Hildebrand is
Vice President of GE Investments. He has served in other
capacities with GE Investments during the past five years.
Mr. Hildebrand is also a Director of Eagle Family Foods
Holdings, Inc., Astro Textiles Holdings, Inc., HBG Building
Products, Inc. and several other privately held companies.

John C. Deterdinghas served as a Director of Atrium Corporation and Atrium
Companies, Inc. since November 1998. Mr. Deterding has been
the owner of Deterding Associates, a real estate consulting
company, since June 1993. From 1975 until June 1993, he
served as Senior Vice President and General Manager of the
Commercial Real Estate division of General Electric Capital
Corporation. From November 1989 to June 1993,
Mr. Deterding served as Chairman of the General Electric
Real Estate Investment Company, a privately held REIT. He served
as Director of GECC Financial Corporation from 1986 to 1993.
Mr. Deterding is also a Director of Patriot American
Hospitality, BlackRock Asset Investors and AMRESCO Capital Trust
and a former member and trustee of the Urban Land Institute.

Nimrod Natanhas
served as a Director of Atrium Corporation and Atrium Companies,
Inc. since October 1998. Mr. Natan has been a principal of
Ardshiel since 1997. Mr. Natan also serves as Chief
Executive Officer of Astro Textiles Holdings, Inc. and is a
director of Infigen, Inc. Prior to joining Ardshiel in 1997,
Mr. Natan was a management consultant with Gemini
Consulting.

John Ellison, Jr.has served as a Director of Atrium
Corporation and Atrium Companies, Inc. since October 25,
2000. He has also held the position of President and Chief
Executive Officer of the Ellison Company, Inc. since 1972.
Mr. Ellison is also a director of First Union National Bank
of Greensboro and of Carolina Tractor, Inc.

Dennis M. McCormickhas served as a Director of Atrium Corporation and Atrium
Companies, Inc. since November 2000. In addition,
Mr. McCormick has served as Co-President of Ardshiel since
1994. Mr. McCormick has also served as Chairman of the
Board of Directors of Infigen, Inc. and Avanti Petroleum, Inc.
since 1994. Mr. McCormick also serves as a Director of
Astro Textiles Holdings, Inc. and HBG Building Products, Inc.
Mr. McCormick was Chairman of the Board of Directors of
Cellu Tissue Corporation from 1995 to 1997.

Item 11.     Executive
Compensation

Executive Compensation and Other
Information

Compensation of Named Executive Officers.The following table provides certain
summary information for each of the years ended
December 31, 2001, 2000 and 1999, concerning compensation
paid to or accrued

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by us for or on behalf of our Chief Executive
Officer and the four other most highly compensated persons whose
individual combined salary and bonus exceeded $100,000 during
such period:


Annual Compensation

|                               |                                |      |      |           |  |          |         |              |  |               |         |                 |  |  |   |   |  |  |   |       |  |  |   |        |    
|------------------------------ | ------------------------------ | ---- | ---- | --------- |  | -------- | ------- | ------------ |  | ------------- | ------- | --------------- |  |  | - | - |  |  | - | ----- |  |  | - | ------ | ---
|                               |                                |      |      |           |  |          |         |              |  | Long-Term     |         |                
|                               |                                |      |      |           |  |          |         |              |  | Compensation  |         |                
|                               |                                |      |      |           |  |          |         | Other Annual |  | Securities    |         |                
|                               |                                |      |      |           |  |          |         | Compensation |  | Underlying    |         | All Other      
|Name and Principal Position(1) |                                | Year |      | Salary($) |  | Bonus($) |         | ($)(1)       |  | Options(#)(2) |         | Compensation($)
|                               |                                |      |      |           |  |          |         |              |  |               |         |                
|Jeff L. Hull                   |                                |      | 2001 |           |  |          | 300,000 |              |  |               | 275,625 |                 |  |  |  |   |  |  |  |       |  |  |  |       
|                               | President, Chief Executive     |      |      | 2000      |  |          |         | 300,000      |  |               |         | 281,500         |  |  |   |  |  |  |   | 1,750 |  |  |   |       |    
|                               | Officer and Director           |      |      | 1999      |  |          |         | 250,000      |  |               |         | 150,000         |  |  |   |  |  |  |   | 425   |  |  |   | 75,000 | (3)
|Eric W. Long                   |                                |      | 2001 |           |  |          | 175,000 |              |  |               | 59,063  |                 |  |  |  |   |  |  |  |       |  |  |  |       
|                               | Executive Vice President,      |      |      | 2000      |  |          |         | 130,000      |  |               |         | 65,000          |  |  |   |  |  |  |   |      |  |  |   |       |    
|                               | Chief Financial Officer,       |      |      | 1999      |  |          |         | 120,000      |  |               |         | 50,000          |  |  |   |  |  |  |   |      |  |  |   | 20,000 | (3)
|                               | Treasurer and Secretary        |      |      |           |  |          |         |              |  |               |         |                 |  |  |   |   |  |  |   |       |  |  |   |        |    
|Robert E. Burns*               |                                |      | 2001 |           |  |          | 200,000 |              |  |               | 78,750  |                 |  |  |  |   |  |  |  |       |  |  |  |       
|                               | Executive Vice President       |      |      | 2000      |  |          |         | 160,000      |  |               |         | 100,000         |  |  |   |  |  |  |   | 200   |  |  |   | 30,000 | (4)
|                               | and Co-Chief Operating Officer |      |      | 1999      |  |          |         |             |  |               |         |                |  |  |   |  |  |  |   |      |  |  |   |       |    
|C. Douglas Cross**             |                                |      | 2001 |           |  |          | 200,000 |              |  |               | 78,750  |                 |  |  |  |   |  |  |  |       |  |  |  |       
|                               | Executive Vice President and   |      |      | 2000      |  |          |         | 30,000       |  |               |         | 25,000          |  |  |   |  |  |  |   | 500   |  |  |   |       |    
|                               | Co-Chief Operating Officer     |      |      | 1999      |  |          |         |             |  |               |         |                |  |  |   |  |  |  |   |      |  |  |   |       |    
|Cliff Darby                    |                                |      | 2001 |           |  |          | 186,000 |              |  |               | 130,000 |                 |  |  |  |   |  |  |  |       |  |  |  |       
|                               | Divisional President,          |      |      | 2000      |  |          |         | 186,000      |  |               |         | 100,000         |  |  |   |  |  |  |   |      |  |  |   |       |    
|                               | Darby Group of Companies       |      |      | 1999      |  |          |         | 156,000      |  |               |         | 135,000         |  |  |   |  |  |  |   |      |  |  |   |       |    



---



|  |                                                                                                       
|- | ------------------------------------------------------------------------------------------------------
|* | Mr. Burns joined us on January 24,
	2000. Accordingly, no compensation was paid to Mr. Burns in
	1999.



|   |                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------
|** | Mr. Cross joined us on October 25,
	2000. Accordingly, no compensation was paid to Mr. Cross
	during 1999.



|    |                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Perquisites related to insurance and benefit
	plans, automobile and expense allowances are excluded since the
	aggregated amounts are the lesser of $50,000 or 10% of the total
	annual salary.
|   
|(2) | All share amounts are adjusted for the
	December 31, 2001 reverse stock split of 1,000 for one.                                                                                                
|   
|(3) | Amount represents stay-on bonus paid for
	completing one year of service after our 1998 recapitalization.                                                                                      
|   
|(4) | Amount represents expenses reimbursed for moving
	costs, grossed-up for applicable taxes.                                                                                                      

Option Grants During 2001.No option grants were made to the
named executive officers during the year ended December 31,
2001.

Aggregated Option Exercises and
Fiscal-Year-End Option Values.The
following table sets forth option exercises by the named
executive officers and value of in-the-money unexercised options
held at December 31, 2001.

|                 |  |                |     |          |  |                         |         |                      |  |             |       |                  |  |  |       |  |  |   |         |  |  |   |        | 
|---------------- |  | -------------- | --- | -------- |  | ----------------------- | ------- | -------------------- |  | ----------- | ----- | ---------------- |  |  | ----- |  |  | - | ------- |  |  | - | ------ | 
|                 |  |                |     |          |  |                         |         |                     
|                 |  |                |     |          |  | Number of Securities    |         | Value of Unexercised
|                 |  |                |     |          |  | Underlying Unexercised  |         | In-the-Money        
|                 |  | Shares         |     |          |  | Options at FY-End(#)(1) |         | Options at FY-End   
|                 |  | Acquired       |     | Value    |  |                         |         |                     
|Name             |  | on Exercise(#) |     | Realized |  | Exercisable(2)          |         | Unexercisable        |  | Exercisable |       | Unexercisable(2)
|                 |  |                |     |          |  |                         |         |                      |  |             |       |                 
|Jeff L. Hull     |  |                | 150 |          |  | $                       | 195,000 |                      |  |             | 2,289 |                  |  |  | 1,044 |  |  | $ | 431,379 |  |  | $ | 31,021 | 
|Eric W. Long     |  |                |    |          |  |                         |        |                      |  |             | 112   |                  |  |  | 58    |  |  |   | 58,350  |  |  |   | 17,400 | 
|Robert E. Burns  |  |                |    |          |  |                         |        |                      |  |             | 80    |                  |  |  | 120   |  |  |   | 4,000   |  |  |   | 6,000  | 
|Cliff Darby      |  |                |    |          |  |                         |        |                      |  |             | 1,181 |                  |  |  | 117   |  |  |   | 160,250 |  |  |   | 34,950 | 
|C. Douglas Cross |  |                |    |          |  |                         |        |                      |  |             | 100   |                  |  |  | 400   |  |  |   |        |  |  |   |       | 



---



|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(1) | Represents options held by the named individual
	to purchase common stock of our parent, Atrium Corporation.

26



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##### Table of Contents





|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Based on the fair market value of the option
	shares at fiscal year end of $1,300 per share less the
	exercise price per share payable for such shares.

1998 Stock Option Plan

The D and W Holdings, Inc. 1998
Stock Option Plan, as amended, or the 1998 plan, which provides
for the grant of options to purchase our parents common
stock to our key employees and eligible non-employees, was
adopted in connection with our 1998 recapitalization. The 1998
plan provides for the grant of options to purchase up to
14,991 shares of our parents common stock. As of
December 31, 2001, a total of 9,008 options to purchase
shares of our parents common stock were outstanding under
the 1998 plan.

All options granted thus far are non-qualified
options, which do not qualify for favored tax treatment under
Section 422 of the Internal Revenue Code. Options granted
under the 1998 plan generally have a term of ten years from the
date of grant and vest in equal installments annually over three
to five years dependent on continued employment. No option is
exercisable until it has vested. Some of the options granted in
connection with our 1998 recapitalization, will vest only in
connection with a value event, which is defined in the 1998 plan.

Options are not transferable other than in
accordance with the laws of descent and distribution. Upon
termination for cause or voluntary termination by the optionee
without good reason all vested options automatically expire.
Upon termination of employment for any other reason, the
optionee has the right to exercise the vested portion of any
option. Also, upon termination of an optionees employment
for any reason, we have the right to purchase outstanding
options and any shares of our parents common stock held by
the optionee as a result of the exercise of an option.

Replacement Stock Option Plan

In addition to the 1998 plan, we adopted the
D and W Holdings, Inc. Replacement Stock Option
Plan, or replacement plan, relating to certain options to
purchase our parents common stock which were granted in
replacement of outstanding options of our former parent in
connection with our 1998 recapitalization. Under the replacement
plan, options to purchase an aggregate of 1,575 shares of
our parents common stock were granted in exchange for
outstanding options of our former parent which were not
exercised in our 1998 recapitalization. These options vest
ratably over a period of five years on each anniversary date of
the grant and have an exercise price of $10 per share. The
replacement plan was amended in connection with the consummation
of the Heat and Champagne acquisitions to increase the number of
shares of our parents common stock issuable upon the
exercise of options under the replacement plan to
2,575 shares. Options to purchase 531 shares of
our parents common stock were issued under the replacement
plan in exchange for outstanding options of Heat which were not
exercised. As of December 31, 2001, a total of
1,383 options to purchase shares of our parents
common stock were outstanding under the replacement plan.

Upon termination of an optionees
employment, we have the right to repurchase all or any portion
of the replacement options held by the optionee. Upon exercise
of any vested portion of a replacement option, we may require
the optionee to execute a buy-sell agreement containing
provisions similar to the repurchase provisions described above,
as a condition to the option exercise of that option.

The replacement plan provides that all options
granted are in the form of nonqualified options, which are
options that do not qualify for favored tax treatment under
Section 422 of the Internal Revenue Code. The replacement
options have a term of 20 years from the date of grant
subject to early termination in connection with termination of
employment. No option is exercisable until it is vested.
Replacement options are not transferable other than in
accordance with the laws of descent and distribution by an
optionee, except that options may be transferred to an
optionees family members or personal representative.

27



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##### Table of Contents



Bonus Plan

We maintain a bonus plan providing for annual
cash bonus awards to certain key employees. Bonus amounts are
based on us meeting certain performance goals established by our
board of directors.

Other Benefit Programs

Our executive officers also participate in other
employee benefit programs including health insurance, group life
insurance, and a 401(k) plan on the same basis as our other
employees.

Employment and Consulting Agreements



| |         
| | --------
| | Mr. Hull

Mr. Hull has entered into an employment
agreement with us pursuant to which he serves as our Chief
Executive Officer and President. Mr. Hulls employment
agreement has a three-year term, which commenced
December 31, 2000. The term is renewable for a series of
three year terms as mutually agreed to at least 30 days
prior to the end of the then current term. Under the terms of
Mr. Hulls employment agreement, he is entitled to
receive an annual base salary, as follows: during the period
beginning on December 31, 2000 and ending on
December 31, 2001, $300,000, during the period beginning on
December 31, 2001 and ending on December 31, 2002,
$325,000, and during the period beginning on December 31,
2002 and ending on December 31, 2003, $350,000.
Mr. Hulls salary is subject to increase at the
discretion of the board of directors. The agreement provides
that Mr. Hull may receive an annual target bonus of
$375,000, as adjusted, 50% of which will be payable contingent
on achievement of our EBITDA plan and 50% of which will be
payable contingent on achievement of certain other performance
targets set by the board of directors. The annual target bonus
is subject to increase at the discretion of the board of
directors.

The agreement also provides that we will make
certain payments to Mr. Hull in the event



| |   |                                                     
| | - | ----------------------------------------------------
| |  | Mr. Hull is terminated by us without cause,         
|
| |  | of a change of control, or                          
|
| |  | Mr. Hull terminates his employment for good
	reason.

Pursuant to the agreement, Mr. Hull has
agreed not to compete with us and our subsidiaries for certain
specified periods.



| |         
| | --------
| | Mr. Long

Mr. Long entered into an employment and
non-competition agreement with us pursuant to which he serves as
our Executive Vice President, Chief Financial Officer and
Treasurer. Mr. Longs employment agreement has a
three-year term, which commenced on January 1, 2001. Under
the terms of Mr. Longs employment agreement, he is
entitled to receive an annual base salary of $185,000, as
adjusted for 2002, which is subject to increase at the
discretion of the board of directors. The agreement provides
that Mr. Long is eligible to receive an annual incentive
bonus of $100,000, as adjusted, 50% of which will be payable
contingent on the achievement of our EBITDA plan and 50% of
which will be payable if we meet the performance targets set by
the board of directors.

The agreement also provides that we will make
certain payments to Mr. Long in the event



| |   |                                                     
| | - | ----------------------------------------------------
| |  | Mr. Long is terminated by us without cause,         
|
| |  | of a change of control, or                          
|
| |  | Mr. Long terminates his employment for good
	reason.

Pursuant to the agreement, Mr. Long agreed
not to compete with us and our subsidiaries for certain
specified periods.

28



---



##### Table of Contents





| |          
| | ---------
| | Mr. Burns

Mr. Burns entered into an employment and
non-competition agreement with us pursuant to which he serves as
our Co-Chief Operating Officer. Mr. Burns employment
agreement has a three year term, which commenced on
January 24, 2000. Under the terms of Mr. Burns
employment agreement, he is entitled to receive an annual base
salary of $225,000, as adjusted for 2002, which is subject to
increase at the discretion of the board of directors. The
agreement provides that Mr. Burns is eligible to receive an
annual incentive bonus of $125,000, as adjusted, 75% of which
will be payable contingent on the achievement of our EBITDA plan
and 25% of which will be payable contingent on achievement of
managements objectives to be set each fiscal year by our
senior officers and the board of directors.

The agreement also provides that we will make
certain payments to Mr. Burns in the event



| |   |                                                      
| | - | -----------------------------------------------------
| |  | Mr. Burns is terminated by us without cause,         
|
| |  | of a change of control, or                           
|
| |  | Mr. Burns terminates his employment for good
	reason.

Pursuant to the agreement, Mr. Burns agreed
not to compete with us and our subsidiaries for certain
specified periods.



| |          
| | ---------
| | Mr. Cross

Mr. Cross entered into an employment and
non-competition agreement with us pursuant to which he serves as
our Co-Chief Operating Officer. Mr. Cross employment
agreement has a three year term, which commenced on
October 25, 2000. Under the terms of Mr. Cross
employment agreement, he is entitled to receive an annual base
salary of $225,000, as adjusted for 2002, which is subject to
increase at the discretion of the board of directors. The
agreement provides that Mr. Cross is eligible to receive an
annual incentive bonus of $125,000, as adjusted, 75% of which
will be payable contingent on the achievement of our vinyl
operations EBITDA plan and 25% of which will be payable
contingent on achievement of managements objectives to be
set each fiscal year by our senior officers and the board of
directors.

The agreement also provides that we will make
certain payments to Mr. Cross in the event



| |   |                                                      
| | - | -----------------------------------------------------
| |  | Mr. Cross is terminated by us without cause,         
|
| |  | of a change of control, or                           
|
| |  | Mr. Cross terminates his employment for good
	reason.

Pursuant to the agreement, Mr. Cross agreed
not to compete with us and our subsidiaries for certain
specified periods.



| |          
| | ---------
| | Mr. Darby

On December 31, 2001, Mr. Cliff Darby
entered into an employment agreement with us for a term which
terminates on December 31, 2003, whereby he will serve as
Divisional President of R.G. Darby Company, Inc. and Total
Trim, Inc. Under the terms of Mr. Darbys employment
agreement, he is entitled to receive an annual base salary of
$225,000, subject to increase of 5% per annum.
Mr. Darby is entitled to an annual performance bonus
payable upon the achievement of Darbys EBITDA plan. The
agreement also provides that we will make certain payments to
Mr. Darby in the event Mr. Darby is terminated without
cause.

Under the agreement, Mr. Darby has agreed
not to compete with the business of Darby for a period of one
year from the date of termination.

29



---



##### Table of Contents



Consulting Agreement



| |            
| | -----------
| | Mr. Ellison

We entered into a consulting, non-competition and
non-solicitation agreement with Mr. Ellison. The term of
the agreement commenced on October 25, 2000, was amended
June 2001 and will continue through October 15, 2007. Under
this agreement, Mr. Ellison provides us with consulting
services with respect to the matters or transactions of Ellison,
as well as various strategies for expanding our customer base
and increasing our sales. During the term of his agreement,
Mr. Ellison will receive payments in the aggregate amount
of $2,600,100, payable in 18 installments of $12,500 each, on
the fifteenth and last day of each month beginning on
October 31, 2000 and continuing thereafter to and including
July 15, 2001, and 150 installments of $15,834 on the
15th and last day of each month beginning July 31, 2001 and
continuing thereafter to and including October 15, 2007.

Under the agreement, Mr. Ellison has agreed
not to engage in the making, marketing, assembling, selling or
distributing of the products of Ellison or any other windows or
doors for sale in the United States for the term of the
agreement. Mr. Ellison has also agreed not to solicit any
of our employees to work for any other person or solicit any of
our present or future customers during the term of the agreement.

Board of Directors



| |                                       
| | --------------------------------------
| | Employment and Compensation
	Committee

Daniel T. Morley, Andreas Hildebrand and Roger A.
Knight serve as our employment and compensation committee.



| |                
| | ---------------
| | Audit Committee

Roger A. Knight and Daniel T. Morley serve as our
audit committee.



| |                    
| | -------------------
| | Executive Committee

Roger A. Knight, Andreas Hildebrand and Jeff L.
Hull serve as our executive committee.



| |                                    
| | -----------------------------------
| | Non-Employee Director
	Compensation

Any member of our board of directors who is not
an officer or employee does not receive compensation for serving
on our board of directors. We anticipate compensating
non-employee directors not affiliated with GEIPPPII or Ardshiel
in the future for their service on our board.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
	Owners and Management

We are a wholly-owned subsidiary of Atrium
Corporation. The following table sets forth certain information
regarding the beneficial ownership of Atrium Corporation common
stock as of December 31, 2001, by each person who owns
beneficially more than 5% of the outstanding common stock of
Atrium Corporation and by the directors and certain executive
officers of Atrium Corporation. Unless otherwise indicated
below, to our knowledge, all persons listed below have sole
voting and investment power with respect to their shares of
common stock of Atrium Corporation.

|                                                                    |                         |           |         |            |  |  |      |   | 
|------------------------------------------------------------------- | ----------------------- | --------- | ------- | ---------- |  |  | ---- | - | 
|                                                                    |                         | Number of |         |           
|Name                                                                |                         | Shares(7) |         | Percentage
|                                                                    |                         |           |         |           
|GE Investment Private Placement
	Partners II, a Limited Partnership |                         |           | 135,655 | (9)        |  |  | 72.5 | %
|                                                                    | 3003 Summer Street      |           |         |            |  |  |      |   | 
|                                                                    | Stamford, CT 06984-7900 |           |         |            |  |  |      |   | 
|Ardshiel, Inc.                                                      |                         |           | 4,132   | (1)(7)(9)  |  |  | 2.2  | %
|                                                                    | 2 Greenwich Office Park |           |         |            |  |  |      |   | 
|                                                                    | Greenwich, CT 06831     |           |         |            |  |  |      |   | 

30



---



##### Table of Contents



|                                                                 |                                  |           |        |            |  |  |      |   | 
|---------------------------------------------------------------- | -------------------------------- | --------- | ------ | ---------- |  |  | ---- | - | 
|                                                                 |                                  | Number of |        |           
|Name                                                             |                                  | Shares(7) |        | Percentage
|                                                                 |                                  |           |        |           
|Merrill Lynch Capital Corporation                                |                                  |           | 9,696  | (8)        |  |  | 5.1  | %
|                                                                 | 250 Vessey Street                |           |        |            |  |  |      |   | 
|                                                                 | New York, NY 10281               |           |        |            |  |  |      |   | 
|The Ellison Company, Inc.                                        |                                  |           | 20,983 | (5)(6)(9)  |  |  | 11.2 | %
|                                                                 | 706 Green Valley Road            |           |        |            |  |  |      |   | 
|                                                                 | Suite 406                        |           |        |            |  |  |      |   | 
|                                                                 | Greensboro, North Carolina 27408 |           |        |            |  |  |      |   | 
|John Ellison, Jr.                                                |                                  |           | 20,983 | (5)(6)(9)  |  |  | 11.2 | %
|Jeff L. Hull                                                     |                                  |           | 2,439  | (7)(9)     |  |  | 1.3  | %
|Eric W. Long                                                     |                                  |           | 112    | (7)(9)     |  |  | *    |  
|Robert E. Burns                                                  |                                  |           | 80     | (7)(9)     |  |  | *    |  
|C. Douglas Cross                                                 |                                  |           | 1,580  | (7)(9)     |  |  | *    |  
|Cliff Darby                                                      |                                  |           | 2,240  | (7)(9)     |  |  | 1.2  | %
|Dennis M. McCormick                                              |                                  |           | 4,132  | (2)(3)(9)  |  |  | 2.2  | %
|Daniel T. Morley                                                 |                                  |           | 4,132  | (2)(3)(9)  |  |  | 2.2  | %
|Roger A. Knight                                                  |                                  |           |       |            |  |  |     |  
|Andreas Hildebrand                                               |                                  |           |       |            |  |  |     |  
|John C. Deterding                                                |                                  |           |       |            |  |  |     |  
|Nimrod Natan                                                     |                                  |           |       |            |  |  |     |  
|All directors and executive officers as a group
	(12 persons)(3) |                                  |           | 31,566 |            |  |  | 16.9 | %



---



| |   |              
| | - | -------------
| | * | Less than 1%.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes (1) 1,040 shares of common
	stock issuable upon exercise of warrants that are currently
	exercisable; (2) 3,092 shares of common stock held by
	Ardshiel, Inc., Ardatrium L.L.C., Arddoor L.L.C., Ardwing L.L.C.
	and Wing Partners, L.P. which are under common control with
	Ardshiel, and excludes all shares of common stock held by
	certain of our other stockholders who have granted proxies to
	Ardshiel or its affiliates to vote their shares.                                                                                                                                                                   
|   
|(2) | Mr. Morley and Mr. McCormick are each a
	50% stockholder of Ardshiel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(3) | Represents shares beneficially owned by Ardshiel
	and its affiliates. Mr. Morley is the Co-President and a
	stockholder of Ardshiel and a managing member of Arddoor L.L.C.,
	Ardatrium L.L.C. and Ardwing L.L.C., the general partner of Wing
	Partners, L.P. Mr. McCormick is the Co-President and a
	stockholder of Ardshiel and a member of Arddoor L.L.C.,
	Ardatrium L.L.C. and Ardwing L.L.C. and a limited partner of
	Wing Partners, L.P. Accordingly, Messrs. Morley and
	McCormick may be deemed to be the beneficial owner of these
	shares. Messrs. Morley and McCormick disclaim beneficial
	ownership of these shares.
|   
|(4) | The business address for these individuals is
	1341 West Mockingbird Lane, Suite 1200W, Dallas, Texas
	75247.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(5) | Represents 17,137 and 3,846 shares
	beneficially owned by The Ellison Company, Inc. and Ellison
	Capital, LLC, respectively. Mr. Ellison is the President
	and Chief Executive Officer of The Ellison Company, Inc. and
	holder of a majority membership interest in Ellison Capital,
	LLC. Mr. Ellison may be deemed to be the beneficial owner
	of these shares.                                                                                                                                                                                                                                                                   
|   
|(6) | John Ellison, Jr. holds directly or indirectly,
	the beneficial ownership in The Ellison Company, Inc. and
	Ellison Capital, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(7) | Includes 2,289, 112, 80, 400 and
	1,181 shares of common stock issuable upon exercise of
	options granted to Messrs. Hull, Long, Burns, Cross and
	Darby, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(8) | Includes 7,757 of Class A Common Stock and
	1,939 shares of Class B common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(9) | Represents shares of Class A common stock,
	unless otherwise stated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

31



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##### Table of Contents



Item 13.     Certain
Relationships and Related Transactions

The Stockholders Agreement

GEIPPPII, Ardshiel, and certain other
stockholders are parties to an amended and restated stockholders
agreement which sets forth their relative rights as stockholders
of our parent, Atrium Corporation.

Under the stockholders agreement, the
stockholders have agreed that the authorized number of directors
should consist of up to eleven directors. GEIPPPII has the right
to designate one director in the event there are less then seven
directors, and two directors in the event the board of directors
consists of seven or more members. In addition, (1) the
Chief Executive Officer of Atrium Corporation and (2) John
Ellison, Jr., as long as The Ellison Company is a stockholder,
each have the right to be nominated for election as a director.
Ardshiel and its affiliates, are entitled to designate up to six
directors.

Subject to certain exceptions, each of the
stockholders party to the agreement, except for GEIPPPII, has
agreed not to sell, transfer or otherwise dispose of its equity
securities in Atrium Corporation. These exceptions include,
among other things, transfer to affiliates and transfers
pursuant to a tag-along right, drag-along right and put option
that were granted to some of our stockholders. In the event that
GEIPPPII intends to transfer its equity securities, each of the
other stockholders party to the agreement will be entitled to
purchase a pro rata portion, based on its ownership of equity
securities, of the equity securities being transferred by
GEIPPPII. However, in the event that such sale, transfer or
disposition by GEIPPPII after October 2, 2002, GEIPPPII may
require that the other stockholders party to the agreement sell
all of their equity securities to the proposed transferee.

Pursuant to the agreement, Ardshiel and its
affiliates may propose or request that GEIPPPII sell or
otherwise dispose of its equity securities in Atrium Corporation
to any person who is not an affiliate of Ardshiel; provided,
however, that GEIPPPII has a right to refuse such transfer. If
GEIPPPII exercises its right of refusal, and subject to certain
conditions relating to the terms of Ardshiels proposal to
sell, Ardshiel and its affiliates may require that GEIPPPII
purchase all equity securities in Atrium Corporation owned by
Ardshiel and certain other stockholders. In addition, our parent
and/or GEIPPPII have the right to purchase from any selling
stockholder party to the agreement any or all of our
parents equity securities proposed to be sold to a third
party by the selling stockholder party to the agreement. This
right of first offer does not apply in the event of transfer
pursuant to, among other things, a tag-along right, drag-along
right, or put option or transfer to an affiliate.

Pursuant to the terms of the stockholders
agreement, we have granted our parents major stockholders
piggyback registration rights and demand registration rights
relating to the shares of our parents common stock held by
those stockholders.

The stockholders agreement provides that the
prior written consent of GEIPPPII is required for us to take
specified fundamental corporate actions. These actions include,
among other things:



| |   |                                                
| | - | -----------------------------------------------
| |  | electing members of our board of directors;    
|
| |  | amending charter documents;                    
|
| |  | changing our corporate and financial structure;
|
| |  | issuing securities.                            

Management Agreement

We are party to a management agreement dated
October 2, 1998, which was amended on May 17, 1999,
with Ardshiel. Under the management agreement, Ardshiel provides
advisory services to us with respect to business strategy,
operations and budgeting and financial controls in exchange for
an annual fee of $1.9 million plus expenses. Additionally,
the management agreement provides that we must offer Ardshiel
the opportunity to perform investment banking services in
connection with a sale or purchase of a business or any
financing prior to engaging another financial advisor. Ardshiel
has the right to receive a closing fee for its services in an
amount not be greater than 2% of the total purchase or sale
price for such a business. The consent of

32



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##### Table of Contents



GEIPPPII is required prior to the payment by us
of any closing fees to Ardshiel where we are paying similar fees
to other entities for similar services. Amounts paid under the
management agreement in 2001 were $2.1 million
($.3 million of which was paid in the form of Atrium
Corporation common stock).


The management agreement will remain in effect
until October 2, 2008. The agreement will be automatically
renewed for one-year periods thereafter unless either party
gives a written termination notice prior to the expiration of
the initial or any extended term.

Buy-Sell Agreements

We entered into buy-sell agreements with certain
members of our management under which we may repurchase from
those persons all or any portion of their shares of our common
stock for a purchase price specified in these agreements after
the termination of their employment. Each agreement also
provides for certain restrictions on transfer.

In addition, the buy-sell agreement entered into
with Mr. Cliff Darby provided that he will have the right
to require Atrium Corporation to repurchase his shares if he is
terminated for any other reason than for cause and Atrium
Corporation does not exercise its right to purchase the shares.

2001 Equity Issuance

On May 2, 2001, our parent, Atrium
Corporation, entered into subscription agreements with GEIPPPII,
The Ellison Company, Inc. and Ardatrium L.L.C under which Atrium
Corporation issued 1,153 shares of its common stock for an
aggregate purchase price of $1.5 million to each of
GEIPPPII and The Ellison Company, Inc., and 12 shares of
its common stock for an aggregate purchase price of $15,000 to
Ardatrium L.L.C. Atrium Corporation contributed to us
$3.0 million from the proceeds of the issuance.

On May 16, 2001, Atrium Corporation entered
into subscription agreements with GEIPPPII, Ellison Capital,
LLC, The Ellison Company, Inc. and Ardatrium L.L.C. under which
Atrium Corporation issued 2,692 shares of its common stock
for an aggregate purchase price of $3.5 million to each of
GEIPPPII and Ellison Capital, LLC, and 27 shares of its
common stock for an aggregate purchase price of $35,000 to
Ardatrium L.L.C. Atrium Corporation contributed to us $7,050,000
from the proceeds of the issuance. In addition, pursuant to the
assignment and subscription agreement of The Ellison Company,
Inc. and Ellison Capital, LLC, The Ellison Company, Inc.
assigned all the rights and obligations under its subscription
agreement of May 2, 2001 to Ellison Capital, LLC.
Mr. Ellison, one of our directors, is the President and
Chief Executive Officer of The Ellison Company, Inc. and holder
of a majority membership interest in Ellison Capital, LLC.

Indemnification Agreements

We entered into indemnification agreements with
Jeff L. Hull, Robert E. Burns, Cliff Darby, Eric W. Long, Daniel
T. Morley, Roger A. Knight, Andreas Hildebrand, John C.
Deterding, Nimrod Natan, John Ellison, Jr., C. Douglas Cross and
Dennis M. McCormick under which we agreed to indemnify them, if
any of them becomes a party to or other participant in any
threatened, pending or completed action, suit or proceeding
relating to the fact that the person is or was our director,
officer, employee, agent or fiduciary.

Facility Leases

VES, Inc. was party to a facility lease agreement
with Mr. Ellison, one of our directors, dated May 3,
1994. Pursuant to the terms of the lease, VES, Inc. paid to
Mr. Ellison minimum monthly rent of $15,860. The term of
the lease was ten years with three extension terms of five years
each. The amount paid under this lease totaled approximately
$174,460 in 2001. In addition, in connection with the Ellison
acquisition, we assumed the obligations of The Ellison Company,
Inc. under a facility lease agreement with Mr. Ellison
dated May 3, 1994. Under this lease, we paid to
Mr. Ellison minimum monthly rent of $113,176. The term of
the lease was ten years with three extension terms of five years
each. The amount paid under this lease totaled

33



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##### Table of Contents



approximately $1,244,936 in 2001. These leases
were terminated effective November 30, 2001 and replaced
with third-party unaffiliated leases.


Darby is party to a facilities lease agreement
with Mr. R.G. Darby, a former stockholder of Darby and
the father of Mr. Cliff Darby, President of Darby. Pursuant
to the terms of the lease, Darby pays rent to
Mr. R.G. Darby of approximately $21,700 (adjusted from
$16,904 in April 2001) per month, adjusted annually for
inflation. The term of the lease is fifteen years with three
extension terms of five years each. Rent expense paid to
Mr. R.G. Darby was approximately $246,000 in 2001.
Additionally, we lease property on a month to month basis from
Cliff Darby. Amounts paid under this arrangement were $21,600 in
2001.




PART IV



|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 14. | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K

(a) The following documents are included in
this report:

(1) FINANCIAL STATEMENTS:



| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | The financial statements are listed in the
	accompanying Index to Financial Statements on page F-1 of
	this report.



| |                                   
| | ----------------------------------
| | (2) FINANCIAL STATEMENT SCHEDULES:



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | The financial statement schedules are presented
	beginning on page S-1 of this report.



| |              
| | -------------
| | (3) EXHIBITS:



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | The exhibits filed with or incorporated by
	reference in this report are listed in the Exhibit Index
	beginning on page E-1 of this report.

(b) REPORTS ON FORM 8-K



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The following reports on Form 8-K were filed
	by the Registrant during the fourth quarter:

None.

34



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                       
| | ----------------------
| | ATRIUM COMPANIES, INC.



| |     |                 
| | --- | ----------------
| | By: | /s/ JEFF L. HULL

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Jeff L. Hull                                    
| | President, Chief Executive Officer and
	Director
| | (Principal Executive Officer)                   



| |     |                 
| | --- | ----------------
| | By: | /s/ ERIC W. LONG

| |                                                                            
| | ---------------------------------------------------------------------------
| |                                                                            
| | Eric W. Long                                                               
| | Executive Vice President, Chief Financial
	Officer, Treasurer and Secretary
| | (Principal Financial and Accounting
	Officer)                              

Date: March 28, 2002

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

|                                           |  |                                                                                                                           |  |                |  | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                           |  |                                                                                                                           |  |               
|Signature                                  |  | Capacity                                                                                                                  |  | Date          
|                                           |  |                                                                                                                           |  |               
|                                          
|/s/ JEFF L. HULLJeff L. Hull               |  | President, Chief Executive Officer and Director
	(Principal Executive Officer)                                            |  | March 28, 2002
|                                          
|/s/ ERIC W. LONGEric W. Long               |  | Executive Vice President, Chief Financial
	Officer, Treasurer and Secretary (Principal Financial and
	Accounting Officer) |  | March 28, 2002
|                                          
|/s/ DANIEL T. MORLEYDaniel T. Morley       |  | Director                                                                                                                  |  | March 28, 2002
|                                          
|/s/ ROGER A. KNIGHTRoger A. Knight         |  | Director                                                                                                                  |  | March 28, 2002
|                                          
|/s/ NIMROD NATANNimrod Natan               |  | Director                                                                                                                  |  | March 28, 2002
|                                          
|/s/ DENNIS M. MCCORMICKDennis M. McCormick |  | Director                                                                                                                  |  | March 28, 2002

35



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##### Table of Contents






INDEX TO FINANCIAL STATEMENTS

|                                           |                                                                                                                                     |      |     |     | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------- | ---- | --- | --- | 
|                                           |                                                                                                                                     | Page
|                                           |                                                                                                                                     |     
|Atrium Companies, Inc. and
	Subsidiaries   |                                                                                                                                     |      |     |    
|Report of Independent Accountants          |                                                                                                                                     |      | F-2 |    
|                                           | Consolidated Financial Statements:                                                                                                  |      |     |     | 
|                                           | Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                                                       |      |     | F-3 | 
|                                           | Consolidated Statements of Operations for the
	years ended December 31, 2001, 2000 and 1999                                         |      |     | F-4 | 
|                                           | Consolidated Statements of Stockholders
	Equity and Other Comprehensive Loss for the years ended
	December 31, 2001, 2000 and 1999 |      |     | F-5 | 
|                                           | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999                                         |      |     | F-6 | 
|Notes to Consolidated Financial Statements |                                                                                                                                     |      | F-8 |    

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder of

Atrium Companies, Inc.:


In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of stockholders equity and other comprehensive
loss and of cash flows present fairly, in all material respects,
the financial position of Atrium Companies, Inc. and its
subsidiaries at December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United
States of America. These financial statements are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 4 to the consolidated
financial statements, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, on
January 1, 2001.

PricewaterhouseCoopers LLP

Dallas, Texas


March 27, 2002


F-2



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share
amounts)


|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |         |         | 
|--------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                                                                                    |                                                                                           |                                           
|                                                                                                    |                                                                                           | December 31,                              
|                                                                                                    |                                                                                           |                                           
|                                                                                                    |                                                                                           | 2001                                       |         | 2000   
|                                                                                                    |                                                                                           |                                            |         |        
|ASSETS                                                                                             
|CURRENT ASSETS:                                                                                     |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    | Cash and cash equivalents                                                                 |                                            | $       | 1,247   |         |  | $       | 4,646   |        
|                                                                                                    | Accounts receivable, net of allowance of $153 and
	$3,510, respectively                   |                                            |         | 3,895   |         |  |         | 51,239  |        
|                                                                                                    | Retained interest in sold accounts receivable                                             |                                            |         | 14,373  |         |  |         |        |        
|                                                                                                    | Inventories                                                                               |                                            |         | 36,737  |         |  |         | 45,955  |        
|                                                                                                    | Prepaid expenses and other current assets                                                 |                                            |         | 4,819   |         |  |         | 2,958   |        
|                                                                                                    | Deferred tax asset                                                                        |                                            |         | 1,426   |         |  |         | 2,000   |        
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    |                                                                                           | Total current assets                       |         |         | 62,497  |  |         |         | 106,798 | 
|PROPERTY, PLANT AND EQUIPMENT, net of accumulated
	depreciation of $15,410 and $9,727, respectively |                                                                                           |                                            | 55,755  |         |         |  | 54,640  |        
|GOODWILL, net of accumulated amortization of
	$26,637 and $14,911, respectively                     |                                                                                           |                                            | 345,239 |         |         |  | 356,674 |        
|DEFERRED FINANCING COSTS, net of accumulated
	amortization of $7,415 and $4,570, respectively       |                                                                                           |                                            | 13,350  |         |         |  | 16,644  |        
|OTHER ASSETS, net of accumulated amortization of
	$6,948 and $4,263, respectively                   |                                                                                           |                                            | 7,366   |         |         |  | 7,579   |        
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    |                                                                                           | Total assets                               |         | $       | 484,207 |  |         | $       | 542,335 | 
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                   
|LIABILITIES AND STOCKHOLDERS
	EQUITY                                                              
|CURRENT LIABILITIES:                                                                                |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    | Current portion of notes payable                                                          |                                            | $       | 6,191   |         |  | $       | 6,211   |        
|                                                                                                    | Accounts payable                                                                          |                                            |         | 18,539  |         |  |         | 28,482  |        
|                                                                                                    | Accrued liabilities                                                                       |                                            |         | 29,671  |         |  |         | 33,104  |        
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    |                                                                                           | Total current liabilities                  |         |         | 54,401  |  |         |         | 67,797  | 
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|LONG-TERM LIABILITIES:                                                                              |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    | Notes payable                                                                             |                                            |         | 304,363 |         |  |         | 349,137 |        
|                                                                                                    | Deferred tax liability                                                                    |                                            |         | 1,426   |         |  |         | 2,000   |        
|                                                                                                    | Other long-term liabilities                                                               |                                            |         | 707     |         |  |         | 1,325   |        
|                                                                                                    | Swaps contract liability                                                                  |                                            |         | 6,821   |         |  |         |        |        
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    |                                                                                           | Total long-term liabilities                |         |         | 313,317 |  |         |         | 352,462 | 
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    |                                                                                           | Total liabilities                          |         |         | 367,718 |  |         |         | 420,259 | 
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|COMMITMENTS AND CONTINGENCIES                                                                       |                                                                                           |                                            |         |         |         |  |         |        
|STOCKHOLDERS EQUITY:                                                                               |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    | Common stock $.01 par value,
	3,000 shares authorized, 100 shares issued and
	outstanding |                                            |         |        |         |  |         |        |        
|                                                                                                    | Paid-in capital                                                                           |                                            |         | 203,552 |         |  |         | 196,004 |        
|                                                                                                    | Accumulated deficit                                                                       |                                            |         | (78,794 | )       |  |         | (73,928 | )      
|                                                                                                    | Accumulated other comprehensive loss                                                      |                                            |         | (8,269  | )       |  |         |        |        
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    |                                                                                           | Total stockholders equity                 |         |         | 116,489 |  |         |         | 122,076 | 
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        
|                                                                                                    |                                                                                           | Total liabilities and stockholders equity |         | $       | 484,207 |  |         | $       | 542,335 | 
|                                                                                                    |                                                                                           |                                            |         |         |         |  |         |        

The accompanying notes are an integral part of
the consolidated financial statements.

F-3



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Years Ended December 31, 2001,
2000 and 1999


(Dollars in thousands)


|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---- | ------- | ------- |  | ---- | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                                 |                                                                    | 2001 |         | 2000    |  | 1999
|                                                                                                                                 |                                                                    |      |         |         |  |     
|NET SALES                                                                                                                        |                                                                    | $    | 524,899 |         |  | $    | 496,247 |         |   | $ | 498,456 |        
|COST OF GOODS SOLD (includes special writedown of
	inventory of $1,010 in 2001 related to facility shutdown)                     |                                                                    |      | 354,808 |         |  |      | 371,195 |         |   |   | 340,909 |        
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|Gross profit                                                                                                                     |                                                                    |      | 170,091 |         |  |      | 125,052 |         |   |   | 157,547 |        
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|OPERATING EXPENSES:                                                                                                              |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|Selling, delivery, general and administrative
	expenses (excluding securitization, stock compensation and
	amortization expense) |                                                                    |      | 115,892 |         |  |      | 125,991 |         |   |   | 107,701 |        
|                                                                                                                                 | Securitization expense                                             |      |         | 1,532   |  |      |         |        |   |   |         |        | 
|                                                                                                                                 | Stock compensation expense                                         |      |         | 582     |  |      |         |        |   |   |         | 128     | 
|                                                                                                                                 | Amortization expense                                               |      |         | 14,410  |  |      |         | 9,870   |   |   |         | 8,717   | 
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE                                                                                    |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|                                                                                                                                 | EXPENSES                                                           |      |         | 132,416 |  |      |         | 135,861 |   |   |         | 116,546 | 
|Special charges                                                                                                                  |                                                                    |      | 1,213   |         |  |      | 27,739  |         |   |   | 1,886   |        
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|                                                                                                                                 |                                                                    |      | 133,629 |         |  |      | 163,600 |         |   |   | 118,432 |        
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|                                                                                                                                 | Income (loss) from operations                                      |      |         | 36,462  |  |      |         | (38,548 | ) |   |         | 39,115  | 
|INTEREST EXPENSE                                                                                                                 |                                                                    |      | 39,113  |         |  |      | 36,967  |         |   |   | 28,524  |        
|OTHER INCOME (LOSS), net                                                                                                         |                                                                    |      | (20     | )       |  |      | 249     |         |   |   | 204     |        
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|Income (loss) before income taxes and
	extraordinary charge                                                                      |                                                                    |      | (2,671  | )       |  |      | (75,266 | )       |   |   | 10,795  |        
|PROVISION (BENEFIT) FOR INCOME TAXES                                                                                             |                                                                    |      | 1,358   |         |  |      | (940    | )       |   |   | 6,641   |        
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|Income (loss) before extraordinary charge                                                                                        |                                                                    |      | (4,029  | )       |  |      | (74,326 | )       |   |   | 4,154   |        
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF                                                                                      |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|                                                                                                                                 | DEBT (net of income tax benefit of $0 in 2001 and
	$1,142 in 1999) |      |         | 837     |  |      |         |        |   |   |         | 1,936   | 
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        
|NET INCOME (LOSS)                                                                                                                |                                                                    | $    | (4,866  | )       |  | $    | (74,326 | )       |   | $ | 2,218   |        
|                                                                                                                                 |                                                                    |      |         |         |  |      |         |         |   |   |         |        

The accompanying notes are an integral part of
the consolidated financial statements.

F-4



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

AND OTHER COMPREHENSIVE LOSS


For the Years Ended December 31, 2001,
2000, and 1999


(Dollars in thousands, except share
amounts)


|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |         |  
|------------------------------------------ | --------------------------------------------------------------------------------------------- | ------------ | --- | ------- |  | ------------ | - | ------------- |  | ------------- | ------- | ------ |  | - | ------- | ------- | - | - | ------ | ------ | - | - | ------- | ------- | -
|                                           |                                                                                               |              |     |         |  |              |   |               |  | Accumulated   |         |       
|                                           |                                                                                               |              |     |         |  | Retained     |   | Other         |  |              
|                                           |                                                                                               | Common Stock |     |         |  | Earnings     |   | Comprehensive |  | Total        
|                                           |                                                                                               |              |     | Paid-in |  | (Accumulated |   | Income        |  | Stockholders
|                                           |                                                                                               | Shares       |     | Amount  |  | Capital      |   | Deficit)      |  | (Loss)        |         | Equity
|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |       
|Balance, December 31, 1998                 |                                                                                               |              | 100 |         |  | $            |  |               |  | $             | 134,852 |        |  | $ | (1,820  | )       |   | $ | 24     |        |   | $ | 133,056 |        
|Non-cash stock compensation expense        |                                                                                               |              |    |         |  |              |  |               |  |               | 128     |        |  |   |        |         |   |   |       |        |   |   | 128     |        
|Distribution to Atrium Corp, net           |                                                                                               |              |    |         |  |              |  |               |  |               | (25,356 | )      |  |   |        |         |   |   |       |        |   |   | (25,356 | )      
|Comprehensive income (loss):               |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|                                           | Net income (loss)                                                                             |              |     |        |  |              |   |              |  |               |         |       |  |   |         | 2,218   |   |   |        |       |   |   |         | 2,218   |  
|                                           | Unrealized loss on equity securities                                                          |              |     |        |  |              |   |              |  |               |         |       |  |   |         |        |   |   |        | (26    | ) |   |         | (26     | )
|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Total comprehensive income (loss)          |                                                                                               |              |    |         |  |              |  |               |  |               |        |        |  |   | 2,218   |         |   |   | (26    | )      |   |   | 2,192   |        
|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Balance, December 31, 1999                 |                                                                                               |              | 100 |         |  |              |  |               |  |               | 109,624 |        |  |   | 398     |         |   |   | (2     | )      |   |   | 110,020 |        
|Capital contribution from Atrium Corp, net |                                                                                               |              |    |         |  |              |  |               |  |               | 86,380  |        |  |   |        |         |   |   |       |        |   |   | 86,380  |        
|Comprehensive income (loss):               |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|                                           | Net income (loss)                                                                             |              |     |        |  |              |   |              |  |               |         |       |  |   |         | (74,326 | ) |   |        |       |   |   |         | (74,326 | )
|                                           | Unrealized loss on equity securities                                                          |              |     |        |  |              |   |              |  |               |         |       |  |   |         |        |   |   |        | 2      |   |   |         | 2       |  
|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Total comprehensive income (loss)          |                                                                                               |              |    |         |  |              |  |               |  |               |        |        |  |   | (74,326 | )       |   |   | 2      |        |   |   | (74,324 | )      
|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Balance, December 31, 2000                 |                                                                                               |              | 100 |         |  |              |  |               |  |               | 196,004 |        |  |   | (73,928 | )       |   |   |       |        |   |   | 122,076 |        
|Contribution from Atrium Corp, net         |                                                                                               |              |    |         |  |              |  |               |  |               | 7,248   |        |  |   |        |         |   |   |       |        |   |   | 7,248   |        
|Non-cash stock compensation expense        |                                                                                               |              |    |         |  |              |  |               |  |               | 300     |        |  |   |        |         |   |   |       |        |   |   | 300     |        
|Comprehensive income (loss):               |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|                                           | Net income (loss)                                                                             |              |     |        |  |              |   |              |  |               |         |       |  |   |         | (4,866  | ) |   |        |       |   |   |         | (4,866  | )
|                                           | Cumulative effect of change in accounting
	principle, net of tax of $0 (adoption of SFAS 133) |              |     |        |  |              |   |              |  |               |         |       |  |   |         |        |   |   |        | (2,319 | ) |   |         | (2,319  | )
|                                           | Net fair market value adjustment of derivative
	instruments, net of tax of $0                 |              |     |        |  |              |   |              |  |               |         |       |  |   |         |        |   |   |        | (5,623 | ) |   |         | (5,623  | )
|                                           | Accretion of deferred gain on terminated interest
	rate collars                               |              |     |        |  |              |   |              |  |               |         |       |  |   |         |        |   |   |        | (327   | ) |   |         | (327    | )
|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Total comprehensive income (loss)          |                                                                                               |              |    |         |  |              |  |               |  |               |        |        |  |   | (4,866  | )       |   |   | (8,269 | )      |   |   | (13,135 | )      
|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Balance, December 31, 2001                 |                                                                                               |              | 100 |         |  | $            |  |               |  | $             | 203,552 |        |  | $ | (78,794 | )       |   | $ | (8,269 | )      |   | $ | 116,489 |        
|                                           |                                                                                               |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        

The accompanying notes are an integral part of
the consolidated financial statements.

F-5



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2001,
2000, 1999


(Dollars in thousands)


|                                                      |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |         |        |          |  
|----------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------- | ------- | ------ | ------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | -------- | -
|                                                      |                                                                                          | 2001                                      |                                                      | 2000    |        | 1999   
|                                                      |                                                                                          |                                           |                                                      |         |        |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|                                                      | Net income (loss)                                                                        |                                           | $                                                    | (4,866  | )      |         | $     | (74,326 | )      |         | $     | 2,218   |       
|                                                      | Adjustments to reconcile net income (loss) to net
	cash flows from operating activities: |                                           |                                                      |         |        |         |       |         |        |         |       |         |       
|                                                      | Extraordinary charge, net of income tax benefit                                          |                                           |                                                      | 837     |        |         |       |        |        |         |       | 896     |       
|                                                      | Depreciation and amortization                                                            |                                           |                                                      | 24,415  |        |         |       | 16,483  |        |         |       | 14,061  |       
|                                                      | Non-cash stock compensation expense                                                      |                                           |                                                      | 300     |        |         |       |        |        |         |       | 128     |       
|                                                      | Amortization of deferred financing costs                                                 |                                           |                                                      | 2,945   |        |         |       | 2,390   |        |         |       | 1,902   |       
|                                                      | Accretion of discount on notes payable                                                   |                                           |                                                      | 185     |        |         |       | 166     |        |         |       | 95      |       
|                                                      | Accretion of gain from interest rate collars                                             |                                           |                                                      | (327    | )      |         |       | (327    | )      |         |       |        |       
|                                                      | Amortization of gain from sale/leaseback of
	building                                    |                                           |                                                      | (9      | )      |         |       | (6      | )      |         |       |        |       
|                                                      | Provision for bad debts                                                                  |                                           |                                                      | 1,666   |        |         |       | 4,009   |        |         |       | 1,123   |       
|                                                      | Special charges                                                                          |                                           |                                                      | 910     |        |         |       | 27,739  |        |         |       | 1,886   |       
|                                                      | Write down of inventory for shutdown and
	divestiture                                    |                                           |                                                      | 1,010   |        |         |       | 7,206   |        |         |       |        |       
|                                                      | (Gain)/loss on sales of assets                                                           |                                           |                                                      | (1,798  | )      |         |       | (695    | )      |         |       | (78     | )     
|                                                      | Gain on sales of equity securities                                                       |                                           |                                                      |        |        |         |       | (507    | )      |         |       |        |       
|                                                      | Deferred tax provision (benefit)                                                         |                                           |                                                      |        |        |         |       | (1,765  | )      |         |       | 4,445   |       
|                                                      | Changes in assets and liabilities, net of
	acquisitions and divestitures:                |                                           |                                                      |         |        |         |       |         |        |         |       |         |       
|                                                      |                                                                                          | Accounts receivable                       |                                                      |         | 2,999  |         |       |         | 14,620 |         |       |         | (4,710 | )       
|                                                      |                                                                                          | Sale of accounts receivable               |                                                      |         | 27,400 |         |       |         |       |         |       |         |       |         
|                                                      |                                                                                          | Inventories                               |                                                      |         | 8,208  |         |       |         | (2,947 | )       |       |         | (6,424 | )       
|                                                      |                                                                                          | Prepaid expenses and other current assets |                                                      |         | (1,962 | )       |       |         | 10,069 |         |       |         | (3,420 | )       
|                                                      |                                                                                          | Accounts payable                          |                                                      |         | (4,822 | )       |       |         | (7,354 | )       |       |         | (3,025 | )       
|                                                      |                                                                                          | Accrued liabilities                       |                                                      |         | (6,654 | )       |       |         | 804    |         |       |         | (262   | )       
|                                                      |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|                                                      |                                                                                          |                                           | Net cash provided by (used in) operating
	activities |         |        | 50,437  |       |         |        | (4,441  | )     |         |        | 8,835    |  
|                                                      |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|                                                      | Purchases of property, plant and equipment                                               |                                           |                                                      | (14,104 | )      |         |       | (14,518 | )      |         |       | (16,996 | )     
|                                                      | Proceeds from sales of assets                                                            |                                           |                                                      | 6,120   |        |         |       | 2,829   |        |         |       | 8,885   |       
|                                                      | Proceeds from the sales of Wing and the Atrium
	Wood Patio Door Division                 |                                           |                                                      |        |        |         |       | 24,355  |        |         |       |        |       
|                                                      | Acquisition of Ellison, net of cash acquired                                             |                                           |                                                      |        |        |         |       | (99,276 | )      |         |       |        |       
|                                                      | Acquisitions of Heat, Champagne and Delta
	Millwork, net of cash acquired                |                                           |                                                      |        |        |         |       |        |        |         |       | (95,327 | )     
|                                                      | Proceeds from the sale of investments in equity
	securities                              |                                           |                                                      |        |        |         |       | 620     |        |         |       |        |       
|                                                      | Other assets                                                                             |                                           |                                                      | (2,612  | )      |         |       | (3,790  | )      |         |       | (5,042  | )     
|                                                      |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|                                                      |                                                                                          |                                           | Net cash used in investing activities                |         |        | (10,596 | )     |         |        | (89,780 | )     |         |        | (108,480 | )
|                                                      |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|                                                      | Proceeds from issuance of senior subordinated
	notes                                     |                                           |                                                      |        |        |         |       |        |        |         |       | 172,368 |       
|                                                      | Proceeds from borrowings under term notes                                                |                                           |                                                      |        |        |         |       | 38,000  |        |         |       |        |       
|                                                      | Payments of notes payable and capital lease
	obligations                                 |                                           |                                                      | (251    | )      |         |       | (309    | )      |         |       | (15,000 | )     
|                                                      | Payment of senior subordinated notes previously
	outstanding                             |                                           |                                                      |        |        |         |       |        |        |         |       | (29,070 | )     
|                                                      | Net borrowings/(payments) under revolving credit
	facility                               |                                           |                                                      | (19,000 | )      |         |       | 3,730   |        |         |       | 11,152  |       
|                                                      | Deferred financing costs                                                                 |                                           |                                                      | (388    | )      |         |       | (1,326  | )      |         |       | (9,347  | )     
|                                                      | Scheduled principal payments on term notes                                               |                                           |                                                      | (5,728  | )      |         |       | (2,990  | )      |         |       | (2,241  | )     
|                                                      | Additional principal payments on term notes                                              |                                           |                                                      | (20,000 | )      |         |       |        |        |         |       |        |       
|                                                      | Contributions from (distributions to) Atrium
	Corporation, net                           |                                           |                                                      | 7,248   |        |         |       | 59,102  |        |         |       | (25,356 | )     
|                                                      | Payment of other long-term liabilities                                                   |                                           |                                                      |        |        |         |       | (1,616  | )      |         |       | (2,003  | )     
|                                                      | Checks drawn in excess of bank balances                                                  |                                           |                                                      | (5,121  | )      |         |       | 2,982   |        |         |       | 436     |       
|                                                      |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|                                                      |                                                                                          |                                           | Net cash provided by (used in) financing
	activities |         |        | (43,240 | )     |         |        | 97,573  |       |         |        | 100,939  |  
|NET INCREASE (DECREASE) IN CASH AND CASH
	EQUIVALENTS |                                                                                          |                                           | (3,399                                               | )       |        |         | 3,352 |         |        |         | 1,294 |        
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        |                                                                                          |                                           | 4,646                                                |         |        |         | 1,294 |         |        |         |      |        
|                                                      |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD              |                                                                                          | $                                         | 1,247                                                |         |        | $       | 4,646 |         |        | $       | 1,294 |        
|                                                      |                                                                                          |                                           |                                                      |         |        |         |       |         |        |         |       |        

The accompanying notes are an integral part of
the consolidated financial statements.

F-6



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

For the Years Ended December 31, 2001,
2000, 1999


(Dollars in thousands)


|                         |                                             |                                                                                                              |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------ | ------------------------------------------- | ------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                         |                                             | 2001                                                                                                         |  | 2000 |        | 1999
|                         |                                             |                                                                                                              |  |      |        |     
|SUPPLEMENTAL DISCLOSURE: |                                             |                                                                                                              |  |      |        |      |  |   |        |   |  |  
|                         | Cash paid during the period for:            |                                                                                                              |  |      |        |      |  |   |        |   |  |   |       
|                         |                                             | Interest                                                                                                     |  | $    | 37,909 |      |  | $ | 32,629 |   |  | $ | 23,227 |  
|                         |                                             | Income taxes, net of refunds                                                                                 |  |      | 1,677  |      |  |   | (2,376 | ) |  |   | (1,181 | )
|                         | Cash received during the period held as:    |                                                                                                              |  |      |        |      |  |   |        |   |  |   |       
|                         |                                             | Restricted cash                                                                                              |  |      |       |      |  |   |       |   |  |   | 869    |  
|                         | Noncash investing and financing activities: |                                                                                                              |  |      |        |      |  |   |        |   |  |   |       
|                         |                                             | Contribution of Atrium Corp. for shares issued in
	Ellison transaction                                       |  |      |       |      |  |   | 27,279 |   |  |   |       |  
|                         |                                             | Contribution of Atrium Corp. for shares issued
	for services provided in connection with Ellison transaction |  |      |       |      |  |   | 1,000  |   |  |   |       |  
|                         |                                             | Sale of assets for note                                                                                      |  |      | 150    |      |  |   | 300    |   |  |   |       |  
|                         |                                             | Settlement of note receivable for fixed assets                                                               |  |      | 905    |      |  |   |       |   |  |   |       |  
|                         |                                             | Debt assumed in acquisition                                                                                  |  |      |       |      |  |   | 1      |   |  |   | 1,473  |  

The accompanying notes are an integral part of
the consolidated financial statements.

F-7



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Dollars in thousands, except share and pound
amounts)


1.     Organization,
Business and Basis of Presentation:

Atrium Companies, Inc. (Atrium
Companies or the Company) is engaged in the
manufacture and sale of patio doors, windows and various
building materials throughout the United States.

On August 3, 1998, D and W
Holdings, Inc. (D and W), the
Companys then ultimate parent, entered into a Merger
Agreement with Atrium Corporation, the former parent of the
Company, and certain security holders to acquire all of the
outstanding capital stock of Atrium Corporation for
$225.0 million, through a series of transactions (the
1998 Recapitalization). Atrium Corporation owned
100% of the outstanding capital stock of the Company prior to
the merger. In connection with the merger, GE Investment Private
Placement Partners II, a limited partnership
(GEIPPPII), and Ardatrium L.L.C.
(Ardatrium) formed D and W by acquiring
all of its outstanding common stock for an aggregate purchase
price of $50.0 million. GEIPPPII is a private equity
partnership affiliated with GE Investments, a wholly-owned
investment management subsidiary of General Electric Company.
Ardatrium is an affiliate of Ardshiel, Inc.
(Ardshiel), a private equity investment firm based
in Connecticut.

The acquisition of Atrium Corporation by
D and W was effected through the merger on
October 2, 1998 of a wholly-owned subsidiary of
D and W, with and into Atrium Corporation pursuant to
the terms of the Merger Agreement. Prior to the merger,
D and W contributed $50.0 million to Atrium
Corporation in exchange for all of its outstanding common stock.
As a result of the merger, Atrium Corporation became a direct
wholly-owned subsidiary of D and W, and the Company
became an indirect wholly-owned subsidiary of D and W.

On October 25, 2000, D and W and
Atrium Corporation were merged and D and W was the
surviving entity of the merger. Upon completion of this merger,
D and W changed its name to Atrium Corporation. The
Company is now wholly-owned by Atrium Corporation.

The operations of Delta Millwork, Inc.
(Darby-South, since merged into Door Holdings, Inc.,
which has since been merged into the Company) are included since
the date of acquisition, January 27, 1999, the operations
of Heat, Inc. (Heat, since renamed Atrium Vinyl,
Inc.) and Champagne Industries, Inc. (Champagne,
since renamed Atrium Door and Window of the Rockies) are
included since their date of acquisition, May 17, 1999 and
the operations of VES, Inc. doing business as Ellison Extrusion
Systems, Inc. (since renamed Atrium Extrusion Systems, Inc.) and
Ellison Windows and Doors (collectively Ellison) are
included since their date of acquisition, October 25, 2000.
There were no acquisitions in 2001 that would require pro forma
information.

All share amounts are adjusted for the
December 31, 2001 reverse stock split of 1,000 to one
effected by Atrium Corporation.

The following unaudited pro forma information
presents consolidated operating results as though the
acquisitions of Ellison (see Note 6) and the
divestitures of Wing Industries, Inc. (Wing) and the
Atrium Wood Patio Door division (Wood) (see
Note 3) had occurred at the beginning of the periods
presented:

|                                                                                                             |  |                   |         |                         |  |           |         |  |  |   |         | 
|------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | ----------------------- |  | --------- | ------- |  |  | - | ------- | 
|                                                                                                             |  |                   |         |                        
|                                                                                                             |  |                   |         | Year Ended December 31,
|                                                                                                             |  | Year Ended        |         | 2000                   
|                                                                                                             |  | December 31, 2001 |         |                        
|                                                                                                             |  | Actual            |         | Actual                  |  | Pro Forma
|                                                                                                             |  |                   |         |                         |  |          
|NET SALES                                                                                                    |  | $                 | 524,899 |                         |  | $         | 496,247 |  |  | $ | 500,454 | 
|COST OF GOODS SOLD (includes special writedown of
	inventory of $1,010 in 2001 related to facility shutdown) |  |                   | 354,808 |                         |  |           | 371,195 |  |  |   | 334,625 | 
|                                                                                                             |  |                   |         |                         |  |           |         |  |  |   |         | 
|Gross profit                                                                                                 |  |                   | 170,091 |                         |  |           | 125,052 |  |  |   | 165,829 | 
|                                                                                                             |  |                   |         |                         |  |           |         |  |  |   |         | 

F-8



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |         | 
|------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------- | ----------------------- |  | --------- | ------- | ------- | - | - | ------- | ------- | 
|                                                                                            |                                                                                                                                  |                   |         |                        
|                                                                                            |                                                                                                                                  |                   |         | Year Ended December 31,
|                                                                                            |                                                                                                                                  | Year Ended        |         | 2000                   
|                                                                                            |                                                                                                                                  | December 31, 2001 |         |                        
|                                                                                            |                                                                                                                                  | Actual            |         | Actual                  |  | Pro Forma
|                                                                                            |                                                                                                                                  |                   |         |                         |  |          
|OPERATING EXPENSES:                                                                         |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|                                                                                            | Selling, delivery, general and administrative
	expenses (excluding securitization, stock compensation and
	amortization expense) |                   |         | 115,892                 |  |           |         | 125,991 |   |   |         | 109,433 | 
|                                                                                            | Securitization expense                                                                                                           |                   |         | 1,532                   |  |           |         |        |   |   |         |        | 
|                                                                                            | Stock compensation expense                                                                                                       |                   |         | 582                     |  |           |         |        |   |   |         |        | 
|                                                                                            | Deferred compensation from Ellison                                                                                               |                   |         |                        |  |           |         |        |   |   |         | 576     | 
|                                                                                            | Amortization expense                                                                                                             |                   |         | 14,410                  |  |           |         | 9,870   |   |   |         | 14,155  | 
|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
	EXPENSES                                     |                                                                                                                                  |                   | 132,416 |                         |  |           | 135,861 |         |   |   | 124,164 |        
|Special charges                                                                             |                                                                                                                                  |                   | 1,213   |                         |  |           | 27,739  |         |   |   | 4,207   |        
|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|                                                                                            |                                                                                                                                  |                   | 133,629 |                         |  |           | 163,600 |         |   |   | 128,371 |        
|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|                                                                                            | Income (loss) from operations                                                                                                    |                   |         | 36,462                  |  |           |         | (38,548 | ) |   |         | 37,458  | 
|INTEREST EXPENSE                                                                            |                                                                                                                                  |                   | 39,113  |                         |  |           | 36,967  |         |   |   | 39,056  |        
|OTHER INCOME (LOSS), net                                                                    |                                                                                                                                  |                   | (20     | )                       |  |           | 249     |         |   |   | 71      |        
|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|Income (loss) before income taxes and
	extraordinary charge                                 |                                                                                                                                  |                   | (2,671  | )                       |  |           | (75,266 | )       |   |   | (1,527  | )      
|PROVISION (BENEFIT) FOR INCOME TAXES                                                        |                                                                                                                                  |                   | 1,358   |                         |  |           | (940    | )       |   |   | 3,242   |        
|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|Income (loss) before extraordinary charge                                                   |                                                                                                                                  |                   | (4,029  | )                       |  |           | (74,326 | )       |   |   | (4,769  | )      
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
	(net of income tax benefit of $0 in 2001) |                                                                                                                                  |                   | 837     |                         |  |           |        |         |   |   |        |        
|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|NET INCOME (LOSS)                                                                           |                                                                                                                                  | $                 | (4,866  | )                       |  | $         | (74,326 | )       |   | $ | (4,769  | )      
|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|Other Information:                                                                          |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        
|Depreciation Expense                                                                        |                                                                                                                                  |                   | 10,005  |                         |  |           | 6,613   |         |   |   | 7,957   |        
|                                                                                            |                                                                                                                                  |                   |         |                         |  |           |         |         |   |   |         |        

2.     Significant
Accounting Policies:



| |                       
| | ----------------------
| | Basis of Consolidation

The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation.



| |                 
| | ----------------
| | Industry Segment

The Company operates in a single operating
segment, the fabrication, distribution and installation of doors
and windows and related components for the residential new
construction, manufactured housing and the repair and remodeling
markets.



| |                    
| | -------------------
| | Revenue Recognition

Revenue from the sale of doors and windows and
related components is recorded at the time of delivery to the
customer. On contracts involving installation, revenue is
recognized when the installation is complete. Allowances are
established to recognize the risk of sales returns from
customers and estimates of warranty costs.

F-9



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company classifies any shipping charges to
customers as revenues. The costs of shipping and handling fees
are presented in selling, delivery, general and administrative
expenses on the Companys consolidated statements of
operations and were $31,192, $38,619 and $37,364 for 2001, 2000
and 1999, respectively.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly-liquid
investments with original maturities of three months or less to
be cash equivalents. At December 31, 2001 and 2000, the
Company had $2,309 and $7,430 of checks outstanding that were
reclassified into accounts payable.



| |                                        
| | ---------------------------------------
| | Equity Securities  Available for
	Sale

Investments in equity securities 
available for sale are carried at market based on quoted market
prices, with unrealized gains (losses) recorded in
stockholders equity. During 2000, the Company sold its
equity securities for $620 which resulted in a $507 gain on the
sale.



| |                              
| | -----------------------------
| | Concentrations of Credit Risk

Financial instruments, which potentially expose
the Company to concentrations of credit risk, consist primarily
of the Companys retained interest in trade accounts
receivable. The Companys customers are located in
49 states. The Company performs ongoing credit evaluations
of its customers financial condition and generally
requires no collateral. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
The Company has sales to one significant customer as follows
(presented as a percentage of actual net sales):

|                     |  |             |   |          |  |          |    |   |  |  |    |  
|-------------------- |  | ----------- | - | -------- |  | -------- | -- | - |  |  | -- | -
|                     |  |            
|                     |  | Years Ended
|                     |  |            
|Customer             |  | 12/31/01    |   | 12/31/00 |  | 12/31/99
|                     |  |             |   |          |  |         
|The Home Depot, Inc. |  |             | 3 | %        |  |          | 15 | % |  |  | 26 | %



| |            
| | -----------
| | Inventories

Inventories are valued at the lower of cost
(last-in, first-out or LIFO) or market. Work-in-
process and finished goods inventories consist of materials,
labor and manufacturing overhead. Inventory costs include direct
materials, labor and manufacturing overhead. Management believes
that the LIFO method results in a better matching of current
costs with current revenues. Under the first-in, first-out
method (FIFO) of accounting, such inventories would have
been approximately $304 lower at December 31, 2001 and $813
higher at December 31, 2000. The Company writes down its
inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future
demand and market conditions. A reserve for inventory allowance
is included in raw materials.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment is stated at cost
less accumulated depreciation. The Company depreciates the
assets principally on a straight-line basis for financial
reporting purposes over their estimated useful lives, as follows:

|                           |  |             |            | 
|-------------------------- |  | ----------- | ---------- | 
|                           |  | Estimated  
|                           |  | Useful Life
|                           |  |            
|Buildings and improvements |  |             | 5-40 years | 
|Machinery and equipment    |  |             | 3-12 years | 

F-10



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Gains or losses on disposition are based on the
net proceeds and the adjusted carrying amount of the assets sold
or retired. Expenditures for maintenance, minor renewals and
repairs are expensed as incurred, while major replacements and
improvements are capitalized.



| |         
| | --------
| | Goodwill

Goodwill represents the excess of cost over fair
market value of net assets acquired. Goodwill is being amortized
over periods ranging from 20 to 40 years on a straight-line
basis. Management reviews the carrying value of goodwill for
recoverability based on anticipated undiscounted cash flows of
the assets to which it relates when events or changes in
circumstances indicate, in managements judgement, that the
carrying value may not be recoverable. The Company considers
operating results, trends and prospects of the Company, as well
as competitive comparisons. The Company also takes into
consideration competition within the building materials industry
and any other events or circumstances which might indicate
potential impairment. When goodwill is determined not to be
recoverable, an impairment is recognized as a charge to
operations. Such impairment is based on the discounted cash flow
approach.

The Company is amortizing the goodwill related to
the Ellison acquisition over 20 years (see Note 6).
For prior acquisitions, the Company believes that a 40 year
useful life for goodwill is appropriate based upon the fact that
the majority of the Companys operating entities have been
in business over fifty years with some of the industrys
most recognized brand names, including Atrium®. Management
believes its brand names have an indeterminable life that may
equal or exceed 40 years and therefore, will amortize
goodwill over that period. Further, products are not
significantly impacted by technological risks that would cause
the Company to consider reducing the goodwill life. The
Companys management periodically reviews the
appropriateness of the estimated useful life of goodwill (see
New Accounting Pronouncements).



| |                           
| | --------------------------
| | Capitalized Software Costs

The Company capitalizes internal employee costs
and external consulting costs associated with implementing and
developing software for internal use. Internal costs capitalized
include payroll and payroll-related costs for employees who are
directly associated with the development, modification and
implementation of the software. External costs include direct
expenses related to consulting and other professional fees
incurred in developing, modifying and implementing the software.
Capitalization of costs occurs upon the completion of the
preliminary project stage and when management believes it is
probable a project will be completed and the software will be
used to perform the function intended. Amortization begins the
period after the software is put into service and is calculated
on a straight-line basis over three years. Management
continually reviews the carrying value and expected
functionality of the accumulated costs for potential impairment.
When it is no longer probable that computer software being
developed will be completed, modified or placed in service, the
assets carrying value will be adjusted to the lower of
cost or fair value.

Unamortized capitalized software costs at
December 31, 2001 and 2000 were $3,230 and $2,981,
respectively, and are included in other long-term assets.
Amortization expense for 2001, 2000 and 1999 was $1,359, $1,925
and $2,005, respectively.



| |             
| | ------------
| | Income Taxes

The provision for income taxes is based on pretax
income as reported for financial statement purposes. Deferred
income taxes are provided in accordance with the liability
method of accounting for income taxes to recognize the tax
effects of temporary differences between financial statement and
income tax accounting.

The Company is included in Atrium
Corporations consolidated tax return for 2001, 2000 and
1999. The Companys income taxes have been presented as if
calculated on a stand-alone separate tax return basis.

F-11



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Included in prepaid expenses and other current
assets, at December 31, 1999, is an income tax receivable
due from Atrium Corporation of $3,006. There was no receivable
due from Atrium Corporation in 2001 and 2000.



| |                    
| | -------------------
| | Forward Commitments

The Company periodically enters into forward
commitments to hedge price variances in certain raw materials.
Changes in the market value of forward commitments are
recognized in income when the effects of the related charges in
the hedged items are recognized.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 141,
Business Combination (SFAS No.141), and
SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 141
requires all business combinations initiated after June 30,
2001 be accounted for using the purchase method. Additionally,
SFAS No. 141 establishes specific criteria for the
recognition of intangible assets separately from goodwill. The
adoption of SFAS No. 141 is not expected to have any impact
on the Company. SFAS No. 142 primarily addresses the
accounting for goodwill and intangible assets subsequent to
their acquisition and is effective for the Company on
January 1, 2002. The most significant changes made by SFAS
No. 142 require that goodwill and indefinite lived
intangible assets no longer be amortized and be tested for
impairment at least on an annual basis. Additionally, the
amortization period of intangible assets with finite lives will
no longer be limited to forty years.

The Company is currently assessing the impact of
SFAS No. 142 and has not yet determined the full effects
this statement will have on its consolidated financial position
or results of operations. However, the Company has estimated
that the pretax reduction in annual amortization expense will be
approximately $11,725.

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS
No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
SFAS No. 143 is effective for the Company on
January 1, 2003. The Company is currently assessing the
impact of SFAS No. 143 and has not yet determined the
effects, if any, it will have on its consolidated financial
position or results of operations.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144). SFAS
No. 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. SFAS
No. 144 is effective for the Company on January 1,
2002. The Company is currently assessing the impact of SFAS
No. 144 and has not yet determined the effects, if any, it
will have on its consolidated financial position or results of
operations.



| |                 
| | ----------------
| | Use of Estimates

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues
and expenses during the reporting periods. These estimates and
assumptions are based upon the best available information and
are subject to change as conditions within and beyond the
control of the Company change, including but not limited to,
economic conditions, the availability of additional information
and actual experience rates different from those used in the
Companys estimates. Accordingly, actual results could
differ from those estimates. Significant estimates are used in
calculating

F-12



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

allowance for bad debt, insurance, including
medical and workers compensation and warranty accruals,
and in recognizing deferred tax assets and liabilities.



| |                  
| | -----------------
| | Advertising Costs

Advertising costs are expensed when incurred and
were $3,664, $3,852 and $4,457, for 2001, 2000 and 1999,
respectively. These costs are reflected in selling, delivery,
general and administrative in the consolidated statements of
operations.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to the
2000 and 1999 balances to conform to the 2001 presentation.

3.     Special
Charges:



| |     
| | ----
| | 2001



| |                   
| | ------------------
| | Woodville closing:

During 2001, the Company recorded special charges
of $1,213, of which $303 related to non-capitalizable legal fees
incurred to amend the Credit Agreement and $910 related to
managements commitment to close its Woodville, Texas
facility and merge certain operations into existing operations
at other divisions. Included in the charge of $910 is $389
related to operating leases, $156 related to the write-off of
fixed assets, $94 related to severance and other reserves
totaling $271. Of these amounts, $754 is included in accrued
liabilities as of December 31, 2001. The Company believes
that all the reserves associated with the special charge for the
closure of the Woodville, Texas facility will be utilized during
2002.

In addition to the above charges, the Company
recorded a special writedown to inventory of $1,010 related to
the closure of the Woodville, Texas facility and the associated
product line rationalization, which is included in cost of goods
sold.



| |     
| | ----
| | 2000



| |                  
| | -----------------
| | Wing divestiture:

On August 25, 2000, the Company completed
the sale of substantially all of the assets of Wing, its wood
interior door subsidiary to Premdor Corporation, a subsidiary of
Premdor Inc. In connection with the sale, the Company received
$20,570 in proceeds. As such, the Company has recorded a special
charge related to this divestiture as follows:

|                                                             |  |   |        |  
|------------------------------------------------------------ |  | - | ------ | -
|Write-off of goodwill                                        |  | $ | 21,087 |  
|Write-off of capitalized software costs                      |  |   | 1,662  |  
|Expense associated with operating leases of idle
	facilities |  |   | 1,533  |  
|Expense associated with operating leases of idle
	equipment  |  |   | 462    |  
|Write-off of noncompete agreement and software               |  |   | 229    |  
|Net gain on sale of fixed assets                             |  |   | (388   | )
|                                                             |  |   |        |  
|Total special charge  Wing divestiture                      |  | $ | 24,585 |  
|                                                             |  |   |        |  

In 2001, the Company reduced its accrued
provisions by $452 and $1,456 for expenses related to its
operating leases on idle equipment and idle facilities,
respectively.

F-13



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                  
| | -----------------
| | Wood divestiture:

On August 30, 2000, the Company completed
the sale of substantially all of the assets of Wood to Woodgrain
Millwork, Inc. In connection with the sale, the Company received
$3,785 in proceeds. As such, the Company has recorded a special
charge related to this divestiture as follows:

|                                                             |  |   |       | 
|------------------------------------------------------------ |  | - | ----- | 
|Net loss on sale of fixed assets                             |  | $ | 929   | 
|Expense associated with operating leases of idle
	facilities |  |   | 308   | 
|Other                                                        |  |   | 14    | 
|                                                             |  |   |       | 
|Total special charge  Wood divestiture                      |  | $ | 1,251 | 
|                                                             |  |   |       | 

In addition to the above charges, the Company
recorded writedowns related to inventory of $5,338 and $1,868,
respectively, related to the Wing and Wood divestitures that are
included in cost of goods sold. In addition, the Companys
gross margins were also adversely affected as a result of
liquidating the Wood divestitures inventory below normal selling
prices, although in excess of cost.

The Company recorded special charges in the
amount of $539 for non-capitalizable legal fees associated with
the amendment of the Credit Agreement. Additionally, during
2000, $1,364 was recorded for severance benefits incurred in
connection with the separation agreement entered into between
the Company and a former Chief Executive Officer hired in March
2000.



| |     
| | ----
| | 1999

During the first quarter of 1999, a special
charge of $1,886 was recorded for severance benefits incurred in
connection with the separation agreement entered into between
the Company and a former President and Chief Executive Officer.



|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|4. | Adoption of SFAS No. 133 
	Accounting for Derivative Instruments and Hedging
	Activities:

The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), and the
corresponding amendments on January 1, 2001. In accordance
with the transition provisions of SFAS No. 133, the Company
recorded a cumulative-effect adjustment as of January 1,
2001 of $2,319 to other comprehensive income. This adjustment
represents the current fair-value of hedging instruments related
to interest rate swap agreements of $2,646 with an offset of
$327 related to the reclassification of deferred gains on
previously terminated interest rate collars. There is no income
tax effect considering there is a full valuation allowance
against deferred tax assets. The Company also has forward
aluminum contracts. However, these are excluded from the scope
of SFAS No. 133 as they represent normal sales and
purchases.

At December 31, 2001, the fair-value of the
hedging instruments is a liability of $8,269. One of the
Companys hedging instruments will mature in 2002.
Therefore, the related liability of $1,448 has been classified
as a current liability. The remaining liability of $6,821 is
classified as a long-term liability.

The Company is exposed to credit-related losses
in the event of nonperformance by counterparties to financial
instruments, but it expects all counterparties to meet their
obligations given their credit ratings.

The Company, as part of its risk management
program, is party to interest rate swap agreements for the
purpose of hedging its exposure to floating interest rates on
certain portions of its debt. As of December 31, 2001, the
Company had $137,500 of notional amount in outstanding interest
rate swaps with third parties. The maximum length of the
interest rate swaps currently in place as of December 31,
2001 is approximately 2 years 10 months.

F-14



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

All derivatives are recognized on the balance
sheet at their fair-value as a hedge of cash flows. On the date
that the Company enters into a derivative contract, it
designates the derivative as a hedge of (a) a forecasted
transaction or (b) the variability of cash flows that are
to be received or paid in connection with a recognized asset or
liability (a cash flow hedge). Changes in the
fair-value of a derivative that is highly effective
as  and that is designated and qualifies as a cash
flow hedge, to the extent that the hedge is effective, are
recorded in other comprehensive income, until earnings are
affected by the variability of cash flows of the hedged
transaction (e.g., until periodic settlements of a variable-rate
asset or liability are recorded in earnings). Any hedge
ineffectiveness (which represents the amount by which the
changes in the fair-value of the derivative exceed the
variability in the cash flows of the forecasted transaction) is
recorded in current-period earnings. As of December 31,
2001, all hedges outstanding were highly effective.

The Company formally documents all relationships
between hedging instruments and hedge items, as well as its
risk-management objective and strategy for undertaking various
hedge transactions. This process includes linking all
derivatives that are designated as fair-value or cash flow
hedges to (1) specific assets and liabilities on the
balance sheet or (2) specific firm commitments or
forecasted transactions. The Company also formally assesses
(both at the hedges inception and on an ongoing basis)
whether the derivatives that are used in hedging transactions
have been highly effective in offsetting changes in the fair
value or cash flows of hedged items and whether those
derivatives may be expected to remain highly effective in future
periods. When it is determined that a derivative is not (or has
ceased to be) highly effective as a hedge, the Company
discontinues hedge accounting prospectively, as discussed below.

The Company discontinues hedge accounting
prospectively when (1) it determines that the derivative is
no longer effective in offsetting changes in the fair-value or
cash flows of a hedge item (including hedged items such as firm
commitments or forecasted transactions); (2) the derivative
expires or is sold, terminated or exercised; (3) it is no
longer probable that the forecasted transaction will occur; or
(4) management determines that designating the derivative
as a hedging instrument is no longer appropriate.

When the Company discontinues hedge accounting
because it is no longer probable that the forecasted transaction
will occur in the originally expected period, the gain or loss
on the derivative remaining in accumulated other comprehensive
income is reclassified into earnings. In all situations in which
hedge accounting is discontinued and the derivative remains
outstanding, the Company will carry the derivative at its
fair-value on the balance sheet, recognizing changes in the
fair-value in current-period earnings.

5.     Securitization
of Accounts Receivable:

On July 31, 2001, the Company and certain of
its subsidiaries (collectively the Originators)
entered into an agreement whereby each Originator agreed to sell
on a non-recourse basis, and on an ongoing basis, a pool of
receivables comprising their entire trade receivable portfolio
to a wholly-owned bankruptcy-remote special purpose funding
subsidiary (Atrium Funding Corporation or
AFC) of the Company. AFC is a distinct legal entity
that does not engage in trade or business in order to make
remote the possibility that it would have to file in bankruptcy
or other receivership. In addition, AFC is consolidated for
financial purposes. Certain subsidiaries sell all of their trade
receivables to AFC. AFC entered into an agreement with Fairway
Finance Corp. (the Securitization Company), agented
by BMO Nesbitt Burns, whereby AFC can sell a pro rata share of
the trade receivable portfolio to the Securitization Company for
aggregate payments of up to $50,000, subject to a borrowing base
and receivable eligibility.

Generally, the agreement provides that as
payments are collected from the sold accounts receivable, AFC
may elect to have the Securitization Company reinvest the
proceeds in new accounts receivable. The Securitization Company,
in addition to the right to collect payments from that portion
of the interests in the accounts receivable owned by them, also
has the right to collect payments from that portion of the
ownership interest in the accounts receivable that is owned by
AFC. The facility, which expires July 31, 2004, requires
the Company to comply with various affirmative or negative
covenants and requires early amortization if AFC

F-15



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

does not maintain a minimum equity requirement.
The facility also terminates on the occurrence and failure to
cure certain events, including, among other things, any failure
of AFC to maintain certain ratios related to the collectability
of the receivables, or the Companys failure to maintain
long-term unsecured debt ratios. The Company and AFC were in
compliance with all related covenants as of December 31,
2001.

As a result of the agreement, receivables sold to
the Securitization Company are not reflected in the
Companys consolidated balance sheet. The Securitization
Company is free to pledge or exchange its interest. Any
receivables not sold to the Securitization Company constitute
the retained interest in the receivables portfolio of AFC. Due
to the short term nature of the underlying receivables, the net
carrying amount of the Companys retained interest in
transferred accounts receivables as of December 31, 2001
approximates fair value and is classified as a current asset.

On August 3, 2001, AFC sold a pro rata share
of the trade receivable portfolio for $33,000, leaving a
retained interest of $28,055. Subsequently, additional pools of
receivables were sold. The amount the Company received from the
sale was net of provisions for bad debts and transaction fees,
which included placement fees and professional fees of
approximately $878. The proceeds from the sale were used to
repay debt under the Companys Credit Agreement (see
Note 11). As of December 31, 2001 the retained
interest was $14,373 and the amount of receivables sold was
$27,400.

The Company retains the servicing
responsibilities for which it receives an annual servicing fee
of .5% of the securitized accounts receivables. The Company
recognizes no servicing asset or liability because the servicing
fee represents adequate compensation for the services performed.

The table below summarizes certain cash flow
information for 2001:

|                                         |  |   |         |       
|---------------------------------------- |  | - | ------- | ------
|Proceeds from new securitizations        |  | $ | 269,893 |       
|Cash flows received on retained interest |  |   | 109,214 |       
|Proceeds from collections reinvested     |  |   | 222,332 |       
|Net charge-offs of managed receivables   |  |   | 1,069   |       
|Actual and expected losses               |  |   | N/A     | (a)(b)



---



|    |  |                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | not applicable due to collateral coverage on
	securitizations.                                                                           
|   
|(b) |  | not applicable since fair value of retained
	interest approximates carrying value given the short-term nature
	of underlying receivables.

Managed portfolio data:

|                                              |  |   |        | 
|--------------------------------------------- |  | - | ------ | 
|Securitized balances                          |  | $ | 27,400 | 
|Retained interest in sold accounts receivable |  |   | 14,373 | 
|Owned receivables                             |  |   | 3,895  | 
|                                              |  |   |        | 
|Managed receivables                           |  | $ | 45,668 | 
|                                              |  |   |        | 

The delinquency rate as defined by the agreement
represents any sold receivables that have aged beyond
60 days past due. The delinquency rate at December 31,
2001 was 2.71%.

During 2001, the Company incurred costs of $1,532
on the sale of its receivables that have been classified as a
separate line item in selling, delivery, general and
administrative expenses. These costs were comprised of $878 of
fees associated with the placement of the securitization and a
loss on the sale of receivables of $654, which represents the
interest expense component of the transaction. Additionally,
included in selling, delivery, general and administrative
expenses is $1,069 related to the loss on sale of receivables
related to the adjustment to fair value.

F-16



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Acquisitions:



| |                 
| | ----------------
| | 2000 Acquisition



| |                     
| | --------------------
| | Ellison Acquisition:

On October 25, 2000, the Company completed
the acquisition of the stock of VES, Inc. doing business as
Ellison Extrusion Systems, Inc. (since renamed Atrium Extrusion
Systems, Inc.), and substantially all of the operating assets of
The Ellison Company, Inc.s Windows and Doors Division. The
transaction was valued at $125,466, excluding transaction fees
and expenses of $6,002.

The purchase price was comprised of $98,187 of
cash and $27,279 (20,983 shares) of common stock in Atrium
Corporation. The cash portion of the purchase price and
transaction fees and expenses aggregating $104,189, was funded
through Atrium Corporations issuance of $36,500 and
$26,000 of Senior PIK Notes and common stock, respectively,
$24,355 from the divestiture of Wing and Wood assets and $4,913
of cash acquired from Ellison. The remaining portion was funded
through additional borrowings under the Companys Credit
Agreement.

The acquisition has been accounted for as a
purchase in accordance with Accounting Principles Board Opinion
No. 16, Business Combinations (APB
16). The aggregate purchase price has been allocated to
the underlying assets and liabilities based upon their
respective estimated fair market values at the date of
acquisition. The excess of purchase price over the fair value of
the net assets acquired (goodwill) was $97,503. The
results of operations for the acquired business were included in
the Companys consolidated financial statements beginning
October 25, 2000.



| |                  
| | -----------------
| | 1999 Acquisitions



| |                      
| | ---------------------
| | Delta Asset Purchase:

On January 27, 1999, the Company acquired
certain assets of Delta Millwork, Inc. (renamed R.G. Darby
Company-South and Total Trim, Inc.-South, collectively
Darby-South), a privately held door pre-hanger located in
Orlando, Florida, for approximately $1,755. The Company financed
the acquisition through its revolving credit facility.

The acquisition of Delta Millwork, Inc. has been
accounted for as a purchase in accordance with APB 16. The
aggregate purchase price has been allocated to the underlying
assets and liabilities based upon their respective estimated
fair market values at the date of acquisition, with the
remainder of $491 allocated to goodwill, which is being
amortized over 40 years. The results of operations for the
acquired business are included in the Companys
consolidated financial statements beginning January 27,
1999.



| |                     
| | --------------------
| | Heat Stock Purchase:

On May 17, 1999, the Company acquired the
stock of Heat (since renamed Atrium Vinyl, Inc.), a privately
held vinyl window and door company with operations located in
Yakima, Washington (Best Built, Inc., Best Built,
since renamed Atrium Door and Window Company of the Northwest)
and Pittsburgh, Pennsylvania (Thermal Industries, Inc.,
Thermal), pursuant to a stock purchase agreement
(the Purchase Agreement), dated as of April 20,
1999, among Heat, its shareholders and optionholders, H.I.G.
Vinyl, Inc., a Cayman Island corporation (since merged into
Heat), H.I.G. Investment Fund, L.P., a Cayman Island limited
partnership and H.I.G. Capital Management, Inc., a Delaware
corporation. The Company paid $85,000, which included $679 of
assumed indebtedness. Additionally, a post closing adjustment of
$4,095 was paid on May 17, 1999 related to working capital
and cash delivered in excess of the target defined in the
Purchase Agreement. The Company financed the acquisition with a
portion of the proceeds raised in the $175,000 Senior
Subordinated Notes offering.

F-17



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The acquisition of Heat has been accounted for as
a purchase in accordance with APB 16. The aggregate purchase
price has been allocated to the underlying assets and
liabilities based upon their respective estimated fair market
values at the date of acquisition, with the remainder of $56,886
allocated to goodwill, which is being amortized over
40 years. The results of operations for the acquired
business are included in the Companys consolidated
financial statements beginning May 17, 1999.



| |                          
| | -------------------------
| | Champagne Stock Purchase:

On May 17, 1999, the Company acquired the
stock of Champagne (since renamed Atrium Door and Window Company
of the Rockies), a privately held vinyl window and door company
located in Denver, Colorado, for approximately $4,426, including
assumed indebtedness. The Company financed the acquisition with
a portion of the proceeds raised in the $175,000 Senior
Subordinated Notes offering.

The acquisition of Champagne has been accounted
for as a purchase in accordance with APB 16. The aggregate
purchase price has been allocated to the underlying assets and
liabilities based upon their respective estimated fair market
values at the date of acquisition, with the remainder of $2,618
allocated to goodwill, which is being amortized over
40 years. The results of operations for the acquired
business are included in the Companys consolidated
financial statements beginning May 17, 1999.

7.     Fair Value of
Financial Instruments:

In accordance with SFAS No. 107,
Disclosures About Fair Value of Financial
Instruments, the following methods have been used in
estimating fair value disclosures for significant financial
instruments of the Company.

Estimated fair value amounts have been determined
by the Company using available market information and
appropriate valuation methodologies. Due to the fact that
considerable judgment is required to interpret market data to
develop the estimates of fair value, the estimates presented are
not necessarily indicative of the amounts that could be realized
in a current market exchange.

Cash and cash
equivalents The carrying
amounts reported in the balance sheet approximate the fair value.

Notes
payable The fair value of
the Companys notes is based on quoted market prices. The
carrying value of notes payable, other than the Senior
Subordinated Notes, approximate fair value due to the floating
nature of the interest rates. Management estimates that the
Senior Subordinated Notes of $175,000 are valued at $162,750 and
$170,406 as of December 31, 2001 and 2000, respectively,
based on quoted market prices.

Interest Rate
Swaps The Company has
entered into interest rate swap agreements whereby the Company
will pay the counterparties interest at a fixed rate and the
counterparties will pay the Company interest at a floating rate
equal to the three-month LIBOR interest rate. The fair value of
interest rate swap

F-18



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

agreements is the amount at which they could be
settled, based on estimates obtained from lenders. Swaps
consisted of the following at December 31:

|        |                     |      |   |         |   |  |   |         |  
|------- | ------------------- | ---- | - | ------- | - |  | - | ------- | -
|        |                     | 2001 |   | 2000   
|        |                     |      |   |        
|Swap #1 |                     |      |   |         |   |  |   |        
|        | Notional Amount     |      |   |        |   |  | $ | 1,949   |  
|        | Fixed Interest Rate |      |   |        |   |  |   | 6.25    | %
|        | Termination Date    |      |   |        |   |  |   | 11/6/03 |  
|        | Fair Value          |      |   |        |   |  | $ | 16      |  
|Swap #2 |                     |      |   |         |   |  |   |        
|        | Notional Amount     |      | $ | 100,000 |   |  | $ | 100,000 |  
|        | Fixed Interest Rate |      |   | 6.6625  | % |  |   | 6.6625  | %
|        | Termination Date    |      |   | 11/3/03 |   |  |   | 11/3/03 |  
|        | Fair Value          |      | $ | (6,821  | ) |  | $ | (2,367  | )
|Swap #3 |                     |      |   |         |   |  |   |        
|        | Notional Amount     |      | $ | 37,500  |   |  | $ | 40,000  |  
|        | Fixed Interest Rate |      |   | 6.1475  | % |  |   | 6.1475  | %
|        | Termination Date    |      |   | 12/9/02 |   |  |   | 12/9/02 |  
|        | Fair Value          |      | $ | (1,448  | ) |  | $ | (295    | )

In December 2001, the Company terminated Swap #1
and amended Swap #3 to a notional amount of $37,500 to maintain
hedge effectiveness. The Company incurred a loss of $184 which
was reclassified from other comprehensive loss to interest
expense.

Forward aluminum
contracts The unrealized
gains and losses are based on quotes for aluminum as reported on
the London Metal Exchange. The Company had forward contracts
with fixed rate prices totaling $18,124 and $14,663 with
unrealized losses of $599 and unrealized gains of $176 at
December 31, 2001 and 2000, respectively.

8.     Inventories:

Inventories consisted of the following at
December 31:

|                |  |      |        |      |  |   |        |  
|--------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                |  | 2001 |        | 2000
|                |  |      |        |     
|Raw materials   |  | $    | 24,209 |      |  | $ | 31,785 |  
|Work-in-process |  |      | 1,000  |      |  |   | 671    |  
|Finished goods  |  |      | 11,225 |      |  |   | 14,312 |  
|                |  |      |        |      |  |   |        |  
|                |  |      | 36,434 |      |  |   | 46,768 |  
|LIFO reserve    |  |      | 303    |      |  |   | (813   | )
|                |  |      |        |      |  |   |        |  
|                |  | $    | 36,737 |      |  | $ | 45,955 |  
|                |  |      |        |      |  |   |        |  

The change in the LIFO reserve for 2001, 2000 and
1999, resulted in a decrease of cost of sales of $1,116, an
increase of cost of sales of $1,541 and a decrease in cost of
sales of $75, respectively. During 2001, inventory quantities
were reduced. This reduction resulted in a liquidation of LIFO
inventory quantities carried at lower costs prevailing in prior
years as compared with the costs of 2001 purchases, the effect
of which decreased cost of goods sold by approximately $282.

F-19



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.     Property,
Plant and Equipment:

Property, plant and equipment consisted of the
following at December 31:

|                                               |       |      |         |        |  |   |        |        | 
|---------------------------------------------- | ----- | ---- | ------- | ------ |  | - | ------ | ------ | 
|                                               |       | 2001 |         | 2000  
|                                               |       |      |         |       
|Land                                           |       | $    | 737     |        |  | $ | 956    |       
|Buildings and improvements                     |       |      | 12,231  |        |  |   | 9,560  |       
|Machinery and equipment                        |       |      | 56,254  |        |  |   | 46,286 |       
|Construction-in-process                        |       |      | 1,943   |        |  |   | 7,565  |       
|                                               |       |      |         |        |  |   |        |       
|                                               | Total |      |         | 71,165 |  |   |        | 64,367 | 
|Less accumulated depreciation and amortization |       |      | (15,410 | )      |  |   | (9,727 | )     
|                                               |       |      |         |        |  |   |        |       
|                                               |       | $    | 55,755  |        |  | $ | 54,640 |       
|                                               |       |      |         |        |  |   |        |       

Depreciation expense was $10,005, $6,613 and
$5,344 in 2001, 2000 and 1999, respectively.



| |                        
| | -----------------------
| | Thermal Extrusion Sale:

On September 10, 2001, the Company and its
subsidiary, Thermal Industries, Inc. entered into an asset sale
agreement with Royal Group Technologies Limited
(Royal) to sell certain assets of Thermals
vinyl extrusion operation for $3,784. The Company recorded a
gain of $1,741 in the fourth quarter of 2001, net of certain
shut down costs associated with the extrusion operation.
Additionally, the Company entered into a supply agreement with
Royal for a period of five years at current market prices for
minimum quantities.



| |                           
| | --------------------------
| | W.P. Carey Sale-leaseback:

On November 29, 2001, the Company sold one
of its manufacturing facilities and subsequently leased back the
facility under an operating lease. In connection with the sale,
the Company recorded a gain of $582. On November 18, 1999,
the Company sold two of its manufacturing facilities and
subsequently leased back the facilities under operating leases.
In connection with the sales, the Company recorded a gain of
$143. All of these sale-leaseback gains have been deferred and
are being amortized as an adjustment to rent expense over the
terms of the related leases. Each of these sales were
consummated with W.P. Carey and its affiliates. W.P. Carey is a
New York based real estate investor that is not affiliated with
the Company.



| |                       
| | ----------------------
| | Alenco Asset Purchase:

On August 17, 2001, the Company entered into
an asset purchase agreement with Alenco Holding Corporation
(formerly known as Reliant Building Products) whereby the
Company purchased assets comprised primarily of machinery and
equipment located in Gallatin, Tennessee for $1,302. The
transaction has been accounted for as a purchase and accordingly
the assets have been recorded at cost, which represents fair
market value.

10.     Deferred
Financing Costs:

Deferred financing costs relate to costs incurred
in the placement of the Companys debt and are being
amortized using the straight line method over the terms of the
related debt, which range from five to ten years. Amortization
expense for 2001, 2000 and 1999 was $2,845, $2,289 and $1,902,
respectively and was recorded as interest expense in the
accompanying consolidated statements of operations.

During 2001, the Company wrote off deferred
financing costs of $837 in connection with the $20,000
prepayment of debt under the Companys Credit Agreement
(see note 11) from a portion of the proceeds of the
securitization of accounts receivable (see note 5). During
1999, the Company wrote off deferred financing

F-20



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

costs of $896 and paid a tender premium of
$2,182, net of income tax benefit of $1,142 in connection with
the paydown of the Term Loan B and the retirement of the
old Senior Subordinated Notes. The amounts for both periods have
been classified as an extraordinary charge on early retirement
of debt in the statements of operations.

11.     Notes
Payable:

Notes payable consisted of the following at
December 31:

|                                                                                                                                                                                                                                                                           |                                                   |      |         |         |   |   |         |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                                                                                                                                                                           |                                                   | 2001 |         | 2000   
|                                                                                                                                                                                                                                                                           |                                                   |      |         |        
|$175,000 Senior Subordinated Notes, issued with
	an original discount of $2,632, due May 17, 2009, with
	semiannual interest payments of 10.50% due May 1 and
	November 1                                                                                                  |                                                   | $    | 175,000 |         |   | $ | 175,000 |        
|Revolving credit facility                                                                                                                                                                                                                                                  |                                                   |      |        |         |   |   | 19,000  |        
|$14,000 Term Loan A, due June 30, 2004
	with $810 quarterly payments, interest at either the
	administrative agents base rate plus an applicable margin
	or LIBOR plus an applicable margin (5.02% and 9.73% at
	December 31, 2001 and December 31, 2000 respectively)    |                                                   |      | 8,185   |         |   |   | 13,070  |        
|$70,000 Term Loan B, due June 30, 2005
	with $280 quarterly payments, interest at either the
	administrative agents base rate plus an applicable margin
	or LIBOR plus an applicable margin (5.45% and 9.98% at
	December 31, 2001 and December 31, 2000, respectively)   |                                                   |      | 59,980  |         |   |   | 69,720  |        
|$80,930 Term Loan C, due June 30, 2006,
	with $280 quarterly payments, interest at either the
	administrative agents base rate plus an applicable margin
	or LIBOR plus an applicable margin (5.67% and 10.23% at
	December 31, 2001 and December 31, 2000, respectively) |                                                   |      | 69,547  |         |   |   | 80,650  |        
|Other notes payable                                                                                                                                                                                                                                                        |                                                   |      | 28      |         |   |   | 279     |        
|                                                                                                                                                                                                                                                                           |                                                   |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                                                           |                                                   |      | 312,740 |         |   |   | 357,719 |        
|Less:                                                                                                                                                                                                                                                                      |                                                   |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                                                           | Unamortized discount on Senior Subordinated Notes |      |         | (2,186  | ) |   |         | (2,371  | )
|                                                                                                                                                                                                                                                                           | Current maturities of long-term debt              |      |         | (6,191  | ) |   |         | (6,211  | )
|                                                                                                                                                                                                                                                                           |                                                   |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                                                           | Long-term debt                                    |      | $       | 304,363 |   |   | $       | 349,137 |  
|                                                                                                                                                                                                                                                                           |                                                   |      |         |         |   |   |         |        

On May 17, 1999, the Company issued $175,000
of Senior Subordinated Notes (the Notes) due
May 1, 2009. The notes are non-callable for five years and
have redemption prices of 105.25%, 103.50%, 101.75% and 100.00%
of the principal amount for the twelve months beginning
May 1, 2004, 2005, 2006, 2007 and thereafter, respectively.
The notes have a 10.50% stated rate paid semi-annually and were
issued at a discount of 98.496 to yield 10.75% to maturity. In
connection with the issuance of the Notes, the Company retired
its previously outstanding senior subordinated notes and paid
down $15,000 on its Term Loan B.

In connection with the 1998 Recapitalization, the
Company entered into a Credit Agreement (the Credit
Agreement), dated as of October 2, 1998 as amended
and restated as of October 25, 2000, among Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as lead arranger and syndication agent, Bank
One, Texas, N.A. as documentation agent and Fleet National Bank,
as administrative agent. On May 15, 2001 and July 20,
2001, the Company amended its Credit Agreement. The most recent
amendments permit the Company to enter into certain
transactions, including the accounts receivable securitization
(Note 5), the sale of specific assets, and accordingly,
adjust covenants for the transactions. In August 2001, in
accordance with the Credit Agreement, the Company was required
to repay $20,000 of its Term Loans as a

F-21



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

result of the proceeds from the accounts
receivable securitization. The repayment was allocated between
Term Loan A, Term Loan B and Term Loan C.

The Credit Agreement provides for four separate
facilities (the Facilities) consisting of three term
loans (referred to individually as Term Loan A,
Term Loan B and Term Loan C,
and collectively as the Term Loans) and a revolving
credit facility with a letter of credit sub-facility (the
Revolving Facility, together with the Term Loans,
the Loans). The Revolving Facility is in the amount
of $47,000, of which $10,000 is available under a letter of
credit sub-facility. As of December 31, 2001 and 2000,
letters of credit of $2,645 and $5,413, respectively, were
outstanding. The Revolving Facility has a maturity date of
June 30, 2004. The Company repaid the outstanding Revolving
Facility in the fourth quarter of 2001.

All amounts outstanding under the Credit
Agreement are collateralized by (i) a pledge of all of the
capital stock and intercompany notes of the Company and its
direct and indirect subsidiaries existing October 2, 1998
or thereafter and (ii) an interest in substantially all of
the tangible and intangible properties and assets (including
substantially all contract rights, certain real property
interests, trademarks, tradenames, equipment and proceeds of the
foregoing) of Atrium Corporation, the Company and their
respective direct and indirect domestic subsidiaries existing on
the October 2, 1998 or thereafter created or acquired (the
Domestic Subsidiaries). Atrium Corporation and each
of the Domestic Subsidiaries have unconditionally guaranteed, on
a joint and several basis, all obligations of the Company under
the Credit Agreement.

The Term Loans have an excess cash
flows provision mandating additional principal payments if
certain cash flows targets are met during the year. For 2001 and
2000, the excess cash flows payments were $684 and $0,
respectively, and have been reflected in current maturities of
long-term debt. This payment is required within 100 days of
the fiscal year end.

The Company is required to pay certain commitment
fees in connection with the Credit Agreement based upon the
average daily unused portion of the Revolving Facility, certain
fees assessed in connection with the issuance of letters of
credit as well as other fees specified in the Credit Agreement
and other documents related thereto.

The Notes and Credit Agreement require the
Company to comply with certain covenants which, among other
things, include limitations on indebtedness, liens and further
negative pledges, investments, contingent obligations,
dividends, redemptions and repurchases of equity interests,
mergers, acquisitions and asset sales, capital expenditures,
sale leaseback transactions, transactions with affiliates,
dividend and other payment restrictions affecting subsidiaries,
changes in business conducted, amendment of documents relating
to other indebtedness and other material documents, creation of
subsidiaries, designation of Designated Senior Indebtedness in
respect of the Notes, and prepayment or repurchase of other
indebtedness. Additionally, the Notes and Credit Agreement
require the Company meet certain financial tests pertaining to
interest coverage, fixed charge coverage and leverage. As of
December 31, 2001, the Company is in compliance with all
related covenants.

The Credit Agreement contains customary events of
default, including, without limitation, payment defaults,
covenant defaults, breaches of representations and warranties,
bankruptcy and insolvency, judgments, change of control and
cross-default with certain other indebtedness.

On January 4, 1999, the Company entered into
two interest rate collars totaling $60,000. These collars were
to expire on January 6, 2002. The collars had a floor of
4.57% and 4.66%, respectively, and caps of 6.00%. To the extent
that the three-month US dollar LIBOR rate was below the collar
floor, payment was due from the Company for the difference to
the extent the three-month US dollar LIBOR rate was above the
collar cap, the Company was entitled to receive the difference.
On August 6, 1999, the Company terminated the collars. The
Company received $790 in connection with the termination. This
gain was deferred and was amortized over 29 months, the
remaining term of the collars, as a reduction to interest
expense.

F-22



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On November 1, 2000, the Company entered
into a $100,000 interest rate swap agreement to limit the effect
of changes in interest rates on long-term borrowings. Under the
agreement, the Company pays interest at a fixed rate of 6.66% on
the notional amount and receives interest therein at the
three-month LIBOR on a quarterly basis. This swap expires in
November 2003.

On December 8, 2000, the Company entered
into a $40,000 interest rate swap agreement to limit the effect
of changes in interest rates on long-term borrowings. Under the
agreement, the Company pays interest at a fixed rate of 6.15% on
the notional amount and receives interest therein at the
three-month LIBOR on a quarterly basis. In December 2001, the
Company amended the swap notional amount to $37,500. This swap
expires in December 2002.

Principal payments due during the next five years
on long-term notes payable as of December 31, 2001 are as
follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2002       |  | $ | 6,191   | 
|2003       |  |   | 5,485   | 
|2004       |  |   | 3,904   | 
|2005       |  |   | 57,440  | 
|2006       |  |   | 64,720  | 
|Thereafter |  |   | 175,000 | 
|           |  |   |         | 
|           |  | $ | 312,740 | 
|           |  |   |         | 

The ability of the Company to meet its debt
service and working capital obligations and capital expenditure
requirements is dependent upon the future performance of the
Company and its subsidiaries which, in turn, is subject to
general economic conditions and to financial, business and other
factors, including factors beyond the Companys control.

The Companys Credit Agreement contains
quarterly financial covenants which, as amended, become more
restrictive in the fourth quarter of 2002. The Company
anticipates that they will continue to comply in 2002 with the
quarterly financial covenants.

12.     Accrued
Liabilities:

Accrued expenses and other liabilities consisted
of the following at December 31:

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2001 |        | 2000
|                                            |  |      |        |     
|Salaries, wages and related taxes           |  | $    | 9,186  |      |  | $ | 8,397  | 
|Interest                                    |  |      | 5,163  |      |  |   | 6,539  | 
|Current portion of interest rate swap       |  |      | 1,448  |      |  |   |       | 
|Shutdown costs and accrued severance        |  |      | 1,523  |      |  |   | 6,291  | 
|Advertising allowances and customer rebates |  |      | 3,212  |      |  |   | 2,530  | 
|Workers compensation                       |  |      | 1,200  |      |  |   | 1,826  | 
|Sales, use and property taxes               |  |      | 2,091  |      |  |   | 1,816  | 
|Warranty reserve                            |  |      | 1,226  |      |  |   | 1,515  | 
|Other                                       |  |      | 4,622  |      |  |   | 4,190  | 
|                                            |  |      |        |      |  |   |        | 
|                                            |  | $    | 29,671 |      |  | $ | 33,104 | 
|                                            |  |      |        |      |  |   |        | 

F-23



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                     
|--- | --------------------------------------------------------------------
|13. | Distributions to and Capital Contributions
	from Atrium Corporation:

During 2001, the Company received a capital
contribution of $10,052 from Atrium Corporation, which
represented the proceeds from the issuance of its common stock.
This amount was contributed to the Company net of transaction
expenses of $1,423 incurred in connection with the registration
of the Atrium Corporation Senior Pay-In-Kind Notes, $862 for
distribution to Atrium Corporation for the repurchase of stock
options, $492 for distribution to Atrium Corporation for the
repurchase of stock and $27 for cash used in operating
activities.

During 2000, the Company received net capital
contributions of $86,380 from Atrium Corporation primarily
related to financing for the acquisition of Ellison (see
Note 6). Additionally, the Company made a payment to Atrium
Corporation for the buyback of stock and the cancellation of
certain options from management.

During 1999, in connection with the issuance of
the $175,000 of Senior Subordinated Notes, the Company utilized
$21,500 of the proceeds to pay a distribution to Atrium
Corporation. The Company had previously recorded the $45,000 as
a capital contribution; therefore, the payment was treated as a
return of capital. Additionally, the Company made a payment to
Atrium Corporation for the buyback of stock and the cancellation
of certain options from management.

All distributions and contributions have been
reflected in the consolidated statements of stockholders
equity. The Company has no commitments to make any further
distributions to Atrium Corporation, except for amounts required
under its tax sharing agreement.

14.     Federal
Income Tax:

Temporary differences that give rise to the
deferred income tax assets and liabilities are as follows as of
December 31:

|                            |                                                         |      |        |         |   |  |        |         |  
|--------------------------- | ------------------------------------------------------- | ---- | ------ | ------- | - |  | ------ | ------- | -
|                            |                                                         | 2001 |        | 2000   
|                            |                                                         |      |        |        
|Deferred income tax assets: |                                                         |      |        |         |   |  |        |        
|                            | Stock option compensation                               |      | $      | 884     |   |  | $      | 1,231   |  
|                            | Accounts receivable                                     |      |        | 792     |   |  |        | 1,412   |  
|                            | Inventory cost capitalization and valuation             |      |        | 1,128   |   |  |        | 762     |  
|                            | Accrued vacation and bonuses                            |      |        | 1,499   |   |  |        | 1,900   |  
|                            | Other accrued liabilities                               |      |        | 1,147   |   |  |        | 1,989   |  
|                            | Warranty reserve                                        |      |        | 493     |   |  |        | 610     |  
|                            | Workers compensation reserve                           |      |        | 483     |   |  |        | 735     |  
|                            | Deferred rent                                           |      |        |        |   |  |        | 64      |  
|                            | Alternative minimum tax credit carryforwards and
	other |      |        | 657     |   |  |        | 1,054   |  
|                            | Deferred financing costs                                |      |        | 518     |   |  |        | 38      |  
|                            | Swap contract liability                                 |      |        | 3,327   |   |  |        |        |  
|                            | Net operating loss carryforwards                        |      |        | 17,885  |   |  |        | 16,784  |  
|                            |                                                         |      |        |         |   |  |        |        
|                            |                                                         |      | 28,813 |         |   |  | 26,579 |        
|                            | Valuation allowance                                     |      |        | (18,703 | ) |  |        | (18,150 | )
|                            |                                                         |      |        |         |   |  |        |        
|                            | Net deferred tax asset                                  |      |        | 10,110  |   |  |        | 8,429   |  

F-24



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                          |                            |      |        |         |   |   |        |        |  
|----------------------------------------- | -------------------------- | ---- | ------ | ------- | - | - | ------ | ------ | -
|                                          |                            | 2001 |        | 2000   
|                                          |                            |      |        |        
|Deferred income tax liabilities:          |                            |      |        |         |   |   |        |       
|                                          | Depreciation               |      |        | (4,211  | ) |   |        | (3,982 | )
|                                          | LIFO reserve               |      |        | (648    | ) |   |        | (473   | )
|                                          | Capitalized software costs |      |        | (1,203  | ) |   |        | (1,136 | )
|                                          | Amortization of goodwill   |      |        | (4,048  | ) |   |        | (2,838 | )
|                                          |                            |      |        |         |   |   |        |       
|                                          | Net deferred tax liability |      |        | (10,110 | ) |   |        | (8,429 | )
|                                          |                            |      |        |         |   |   |        |       
|Net deferred income tax asset/(liability) |                            |      |       |         |   |   |       |       
|Less-current deferred tax asset           |                            |      | 1,426  |         |   |   | 2,000  |       
|                                          |                            |      |        |         |   |   |        |       
|Long-term deferred tax liability          |                            | $    | (1,426 | )       |   | $ | (2,000 | )     
|                                          |                            |      |        |         |   |   |        |       

A valuation allowance is required against
deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some of or all of the
deferred tax assets will not be realized. The change in the
valuation allowance is the result of changes in temporary
differences, return to provision adjustments and adoption of
SFAS No. 133. A valuation allowance has been recorded
against the Companys net deferred tax asset.

At December 31, 2001, the Company had net
operating loss carryforwards of approximately $50,600, which
begin to expire in 2019. The Company also had $230 of
alternative minimum tax credit carryforwards at
December 31, 2001, which have no expiration date.

The components of the provision for income taxes
are as follows:

|                                       |          |              |       |              |  |              |      |        |   |   |       |       | 
|-------------------------------------- | -------- | ------------ | ----- | ------------ |  | ------------ | ---- | ------ | - | - | ----- | ----- | 
|                                       |          | Year ended   |       | Year ended   |  | Year ended  
|                                       |          | December 31, |       | December 31, |  | December 31,
|                                       |          | 2001         |       | 2000         |  | 1999        
|                                       |          |              |       |              |  |             
|Federal income tax provision (benefit) |          |              |       |              |  |              |      |        |   |   |       |      
|                                       | Current  |              | $     |             |  |              | $    |       |   |   | $     | 1,714 | 
|                                       | Deferred |              |       |             |  |              |      | (1,593 | ) |   |       | 3,953 | 
|State income tax provision (benefit)   |          |              |       |              |  |              |      |        |   |   |       |      
|                                       | Current  |              |       | 1,358        |  |              |      | 825    |   |   |       | 482   | 
|                                       | Deferred |              |       |             |  |              |      | (172   | ) |   |       | 492   | 
|                                       |          |              |       |              |  |              |      |        |   |   |       |      
|Provision (benefit) for income taxes   |          | $            | 1,358 |              |  | $            | (940 | )      |   | $ | 6,641 |      
|                                       |          |              |       |              |  |              |      |        |   |   |       |      

Reconciliation of the federal statutory income
tax rate to the effective tax rate, was as follows:

|                                     |  |              |        |              |  |              |         |   |  |   |       | 
|------------------------------------ |  | ------------ | ------ | ------------ |  | ------------ | ------- | - |  | - | ----- | 
|                                     |  | Year ended   |        | Year ended   |  | Year ended  
|                                     |  | December 31, |        | December 31, |  | December 31,
|                                     |  | 2001         |        | 2000         |  | 1999        
|                                     |  |              |        |              |  |             
|Tax computed at statutory rate       |  | $            | (935   | )            |  | $            | (26,343 | ) |  | $ | 3,778 | 
|State taxes, net of federal benefit  |  |              | 883    |              |  |              | 425     |   |  |   | 974   | 
|Amortization of goodwill             |  |              | 2,679  |              |  |              | 2,115   |   |  |   | 1,786 | 
|Write-off of non-deductible goodwill |  |              |       |              |  |              | 4,571   |   |  |   |      | 
|Valuation allowance                  |  |              | (1,484 | )            |  |              | 18,150  |   |  |   |      | 
|Other items                          |  |              | 215    |              |  |              | 142     |   |  |   | 103   | 
|                                     |  |              |        |              |  |              |         |   |  |   |       | 
|Provision (benefit) for income taxes |  | $            | 1,358  |              |  | $            | (940    | ) |  | $ | 6,641 | 
|                                     |  |              |        |              |  |              |         |   |  |   |       | 

F-25



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

For income tax purposes, Internal Revenue Code
Section 197 (IRC section 197) provides for
the amortization of certain intangible assets, including
goodwill, for asset acquisitions occurring after August 1993.
Any resulting difference in the book and tax basis of these
intangibles is reflected as a component of deferred taxes.
Amortization expense related to intangible assets which do not
qualify under IRC section 197 is reflected as nondeductible
amortization in the rate reconciliation.

15.     Related
Parties:



| |                       
| | ----------------------
| | Stockholders Agreement

GEIPPPII, Ardshiel and certain of its affiliates
and certain other stockholders of Atrium Corporation have
entered into an Amended and Restated Stockholders Agreement (the
Stockholders Agreement), dated as of
October 25, 2000, which sets forth their relative rights as
stockholders of Atrium Corporation.

Under the Stockholders Agreement, the
stockholders have agreed that the authorized number of directors
should consist of up to eleven directors and set forth the
manner of appointing directors. Further, the Stockholders
Agreement contains certain restrictions on selling, transferring
or disposing of common stock of Atrium Corporation and
provisions regarding stockholders rights in connection with
sale, transfer or disposition of Atrium Corporations
common stock by other stockholders as well as registration of
Atrium Corporations stock under the Securities Act of
1933. Finally, the Stockholders Agreement provides that Atrium
Corporation cannot take certain enumerated actions without
obtaining the prior written consent of GEIPPPII.



| |                     
| | --------------------
| | Management Agreement

Atrium Corporation is a party to a management
agreement, dated October 2, 1998, which was amended on
May 17, 1999, with Ardshiel. Under the management
agreement, Ardshiel provides advisory services to the Company
with respect to business strategy, operations and budgeting and
financial controls in exchange for an annual fee of $1,900, plus
expenses. Amounts paid under the management agreement totaled
$2,063, $2,062 and $1,525 in 2001, 2000, and 1999, respectively.
Of the $2,063 paid in 2001, $300 was in the form of Atrium
Corporation common stock and is included in stock compensation
expense, $1,763 of the 2001 amount and the entire amounts for
2000 and 1999 are included in selling, delivery, general and
administrative expenses. Additionally, the management agreement
provides that, in connection with a sale or purchase of a
business or any financing prior to engaging another financial
advisor, the Company must offer Ardshiel the opportunity to
perform investment banking services. Ardshiel has the right to
receive a closing fee for its services in an amount not greater
than 2% of the total purchase or sale price for such a business.
The consent of GEIPPPII is required prior to the payment by the
Company in paying similar fees to other entities for similar
services. Atrium Corporation paid Ardshiels fees and
expenses of $1,352 in 1999 in connection with the acquisitions
of Darby-South, Heat and Champagne and $1,900 in fees, of which
$900 was in cash and $1,000 in Atrium Corporations
restricted stock, in connection with the Ellison acquisition
(see Note 6). The management agreement will remain in
effect until October 2, 2008. The agreement will
automatically be renewed for one-year periods unless either
party gives written notice to the contrary prior to the
expiration of the initial or any extended term.



| |                     
| | --------------------
| | Consulting Agreement

The Company entered a consulting, noncompetition
and nonsolicitation agreement with John Ellison, the former
owner of Ellison. The term of the agreement commenced
October 25, 2000, was amended in June 2001 and will
continue through October 15, 2007. Under this agreement,
Mr. Ellison provides the Company with consulting services
with respect to the matters of Ellison, as well as various
strategies for expanding the Companys customer base and
increasing its sales. During the term of his agreement,
Mr. Ellison will receive payments in the aggregate amount
of $2,600, payable in 18 installments of $12 each, on the
fifteenth and last

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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

day of each month and 150 installments of $16 on
the fifteenth and last day of each month beginning on
July 31, 2001 and continuing thereafter to and including
October 15, 2007.

Under the agreement, Mr. Ellison has agreed
not to engage in the making, marketing, assembling, selling or
distribution of the products of Ellison or any other windows or
doors for sale in the United States for the term of the
agreement. Mr. Ellison has also agreed not to solicit any
of the Companys employees to work for any other person or
solicit any of the Companys present or future customers
during the term of the agreement.



| |                 
| | ----------------
| | Notes Receivable

Included in prepaid expenses and other current
assets are the following receivables due from related parties at
December 31:

|                                                     |  |      |     |      |  |   |     | 
|---------------------------------------------------- |  | ---- | --- | ---- |  | - | --- | 
|                                                     |  | 2001 |     | 2000
|                                                     |  |      |     |     
|Receivables from shareholders of Atrium
	Corporation |  | $    |    |      |  | $ | 72  | 
|Receivables from employees                           |  | $    | 156 |      |  | $ | 114 | 

16.     Commitments
and Contingencies:



| |                      
| | ---------------------
| | Employment Agreements

The Company has entered into employment
agreements with several key executives of the Company including
its President and Chief Executive Officer, Chief Financial
Officer, its Co-Chief Operating Officers, several Divisional
Presidents and Vice Presidents, General Managers and Sales
Managers of the Companys divisions. The agreements
generally provide for terms of employment, annual salaries,
bonuses, eligibility for option awards and severance.



| |                 
| | ----------------
| | Operating Leases

The Company has entered into operating lease
agreements for office and manufacturing space, automobiles, and
machinery and equipment with unrelated third parties, and
related parties of the Company. Total rent expense for 2001,
2000 and 1999 was $23,197, $16,721 and $8,414, respectively. Of
these totals, amounts paid to related parties were $1,665, $398
and $1,323 for 2001, 2000 and 1999, respectively. The Company
terminated three lease agreements with related parties, one in
November 1999 and two in November 2001, and entered into
replacement lease agreements with an unrelated third party.
Future minimum rents due under operating leases with initial or
remaining terms greater than twelve months are as follows:

|           |  |       |         | 
|---------- |  | ----- | ------- | 
|           |  | Total
|           |  |      
|2002       |  | $     | 13,414  | 
|2003       |  |       | 12,871  | 
|2004       |  |       | 11,688  | 
|2005       |  |       | 10,380  | 
|2006       |  |       | 8,895   | 
|Thereafter |  |       | 46,279  | 
|           |  |       |         | 
|           |  | $     | 103,527 | 
|           |  |       |         | 

Certain of these lease agreements provide for
increased payments based on changes in the consumer price index.
Additionally, under certain of these lease agreements the
Company is obligated to pay insurance and taxes.

F-27



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Forward Commitments

The Company has contracts with various suppliers
to purchase aluminum for use in the manufacturing process. The
contracts vary from one to twelve months and are at fixed
quantities with fixed and floating prices. As of
December 31, 2001, the Company had forward commitments for
45,160,000 pounds of aluminum, of which 23,825,000 pounds were
at fixed prices. The fixed contracts totaled $18,124 for
delivery through December 2002.



| |              
| | -------------
| | Contingencies

The Company is party to various claims, legal
actions and complaints arising in the ordinary course of
business. In the opinion of management, all such matters are
without merit or are of such kind, or involve such amounts, that
an unfavorable disposition would not have a material effect on
the consolidated financial position, results of operations or
liquidity of the Company.

The Company has five unionized facilities within
the State of Texas, four of which are represented by the Union
of Needletrades, Industrial and Textile Employees
(UNITE!) and one is represented by the Sheet Metal
International Association. During May of 2001, the Company
entered into a new three-year collective bargaining agreement
with UNITE! All of these collective bargaining agreements will
expire in 2004. Due to the decision to close the Woodville,
Texas facility in early 2002 (see note 3), the Company
negotiated a termination agreement with the Sheet Metal
International Association resulting in a termination of this
contract.

The Company is involved in various stages of
investigation and cleanup related to environmental protection
matters, some of which relate to waste disposal sites. The
potential costs related to such matters and the possible impact
thereof on future operations are uncertain due in part to: the
uncertainty as to the extent of pollution; the complexity of
government laws and regulations and their interpretations; the
varying costs and effectiveness of alternative cleanup
technologies and methods; the uncertain level of insurance or
other types of recovery; and the questionable level of the
Companys involvement. The Company was named in 1988 as a
potentially responsible party (PRP) in two superfund
sites pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended.

The Company is a PRP at the Chemical Recycling,
Inc. or CRI Superfund site in Wylie, Texas. The
Company is a very small contributor at the CRI site, being
assigned approximately 2.788% of the damages based on its waste
volume at the site. The site was a solvent reclamation facility,
and the Company sent paint waste to the site for recycling. The
site has soil and groundwater contamination. Major removal
actions have occurred and a Work Plan for Risk Assessment/
Feasibility Study was submitted to the Environmental Protection
Agency (EPA) in October 1996. According to the
studies performed by the sites steering committee,
affected groundwater has not migrated off-site. According to the
EPA general counsel in charge of the site, the site is low
priority compared to other sites in the region. There are 115
PRPs at this site with approximately 85 that are members
of the sites steering committee. Two main PRPs,
Glidden and Sherwin Williams, account for approximately 46% of
all liability. The Companys costs to date associated with
this site have been approximately $78, with a current credit for
overpayment of $30.

The second site is the Diaz Refinery site in
Jackson County, Arkansas. There is no documentation linking the
Company to the site. In connection with a De Minimis Buyout
Agreement, the Company paid $11 to exclude itself from future
liability. Because of the lack of documentation linking the
Company to the site and the De Minimis Buyout Agreement, it is
not expected that the costs will be incurred in the future.
Records indicate that, through agreements with the sites
steering committee and the Arkansas Department of Pollution
Control (the ADPCE), the Company will not receive
any orders or be allocated further costs for continuing work
because the Company does not have a volume contribution assigned
to it (because of the lack of records showing it used the site).
The facility was a solvent recovery, supplemental fuel blending
and

F-28



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

hazardous waste facility from the mid 1970s to
1988, resulting in impacted soil and groundwater. In 1995, the
ADPCE approved a work plan and no further requirements have been
assigned. Additionally, monitoring actions were completed in
2000 and no further activities have occurred since then.

The Company believes that based on the
information currently available, including the substantial
number of other PRPs and relatively small share allocated
to it at such sites, its liability, if any, associated with
either of these sites will not have a material adverse effect on
the Companys consolidated financial position, results of
operations or liquidity.

The Company owned one parcel of real estate that
requires future costs related to environmental clean-up. The
estimated costs of clean-up have been reviewed by third-party
sources and are expected not to exceed $150. The previous owner
of the property has established an escrow of $400 to remediate
the associated costs. This property was sold in December 1999.
The Company has established a letter of credit of $250 to cover
any costs of remediation exceeding the previous owners
escrow. The Company believes the existing escrow amount is
adequate to cover costs associated with this clean-up. No
additional liabilities are believed to exist in regards to the
Companys remaining operations.

17.     Other Income,
Net:

Other income, net consists of the following for
the years ended December 31, 2001, 2000 and 1999:

|                                             |  |      |      |      |  |      |      |   |  |   |     | 
|-------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | --- | 
|                                             |  | 2001 |      | 2000 |  | 1999
|                                             |  |      |      |      |  |     
|Rental, interest and other income            |  | $    | 364  |      |  | $    | 587  |   |  | $ | 174 | 
|Gain on sale of marketable equity securities |  |      |     |      |  |      | 507  |   |  |   |    | 
|Other                                        |  |      | (384 | )    |  |      | (845 | ) |  |   | 30  | 
|                                             |  |      |      |      |  |      |      |   |  |   |     | 
|                                             |  | $    | (20  | )    |  | $    | 249  |   |  | $ | 204 | 
|                                             |  |      |      |      |  |      |      |   |  |   |     | 

18.     Stock
Options:



| |              
| | -------------
| | The 1998 Plan

In connection with the 1998 Recapitalization, the
Board of Directors of D and W adopted the 1998 Plan
authorizing the issuance of 11,991 options to acquire common
stock of D and W, now Atrium Corporation. Upon
consummation of the acquisitions of Heat and Champagne, the 1998
Plan was amended to increase the number of shares of options
available for grant to 14,991. Through December 31, 2001,
the Board of Directors had granted 9,008 options under the 1998
Plan. All options granted under the 1998 Plan expire ten years
from the date of grant.

As of December 31, 2001, options of 831 had
been granted that consisted of two tranches: (a) 
options to purchase 277 shares with an exercise price
of $1,090 per share and (b)  options to
purchase 554 shares with an exercise price of $1,400.
These options previously had a strike price that increased
annually by 15% and 30%, respectively. On January 1, 2002, these
options were fixed with strike prices of $1,090 and $1,300,
respectively. At December 31, 2001, all of these options
were vested.

As of December 31, 2001, options of 220 with
an exercise price of $1,650 had been granted that are
exercisable only upon the occurrence of a value event as defined
by the 1998 Plan. These options vest at such time of occurrence
of a value event and expire ten years from the date of grant.
Additionally, options of 7,538 options had been granted with
exercise prices ranging from $1,000 to $1,500 per share.
These options vest ratably over periods ranging from three to
five years.

F-29



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company recorded non-cash stock compensation
expense of $128 in 1999, representing the difference between the
fair value of the stock at the date of issuance and the
respective exercise prices of each of the above grants and upon
appreciation in the fair value for variable options.



| |                     
| | --------------------
| | The Replacement Plan

In addition to the 1998 Plan, the board of
directors of D and W adopted the D and W
Holdings, Inc. Replacement Stock Option Plan (the
Replacement Plan) relating to certain options to
purchase common stock which were granted in replacement of
outstanding options of Atrium Corporation in connection with the
1998 Recapitalization. Under the Replacement Plan, options to
purchase 1,575 shares of Atrium Corporation common
stock were granted in exchange for outstanding options of Atrium
Corporation which were not exercised pursuant to the 1998
Recapitalization. The Replacement Plan was amended in connection
with the consummation of the Heat and Champagne acquisitions to
increase the number of shares of Atrium Corporation common stock
issuable upon exercise of options to 2,575 shares. Options
to purchase 531 shares of Atrium Corporation common stock were
issued under the Replacement Plan in exchange for outstanding
options of Heat which were not exercised. The options granted
pursuant to the Replacement Plan vest ratably over a period
ranging from three to five years on each anniversary date of the
grant. The replacement options have exercise prices ranging from
$10 to $160 per share and expire 10 years from the
date of grant. As of December 31, 2001, a total of 1,383
options to purchase shares of Atrium Corporation common stock
were outstanding under the Replacement Plan.

Upon termination of an optionees
employment, Atrium Corporation has the right to repurchase all
or any portion of the replacement options held by the optionee.
Upon exercise of any vested portion of a replacement option,
Atrium Corporation may require the optionee to execute a
buy-sell agreement containing provisions similar to the
repurchase provisions described above, as a condition to the
optionees exercise of that option.

The following table summarizes the transactions
of the 1998 Plan and the Replacement Plan (combined) for
the years ended December 31, 2001, 2000 and 1999.

|                                                     |  |              |        |              |  |              |        |   |  |   |        |  
|---------------------------------------------------- |  | ------------ | ------ | ------------ |  | ------------ | ------ | - |  | - | ------ | -
|                                                     |  | December 31, |        | December 31, |  | December 31,
|                                                     |  | 2001         |        | 2000         |  | 1999        
|                                                     |  |              |        |              |  |             
|Outstanding awards, beginning of period              |  |              | 13,108 |              |  |              | 13,370 |   |  |   | 13,310 |  
|Granted                                              |  |              | 175    |              |  |              | 5,550  |   |  |   | 2,990  |  
|Canceled or expired                                  |  |              | (2,742 | )            |  |              | (5,812 | ) |  |   | (2,930 | )
|Exchanged                                            |  |              |       |              |  |              |       |   |  |   |       |  
|Exercised                                            |  |              | (150   | )            |  |              |       |   |  |   |       |  
|                                                     |  |              |        |              |  |              |        |   |  |   |        |  
|Outstanding awards, end of year                      |  |              | 10,391 |              |  |              | 13,108 |   |  |   | 13,370 |  
|                                                     |  |              |        |              |  |              |        |   |  |   |        |  
|Weighted average grant-date fair value of awards     |  | $            | 1,300  |              |  | $            | 1,300  |   |  | $ | 430    |  
|Weighted average exercise price of awards
	exercised |  | $            | 10     |              |  | $            |       |   |  | $ |       |  
|Weighted average exercise price of awards granted    |  | $            | 1,300  |              |  | $            | 1,570  |   |  | $ | 880    |  
|Weighted average exercise price, end of period       |  | $            | 1,107  |              |  | $            | 1,040  |   |  | $ | 870    |  
|Awards exercisable, end of period                    |  |              | 5,230  |              |  |              | 4,123  |   |  |   | 4,092  |  
|Awards available for future grant                    |  |              | 7,025  |              |  |              | 4,453  |   |  |   | 4,192  |  

F-30



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding at December 31, 2001:

|                         |               |                     |        |                     |  |          |  |             |  |          |   |       |  |  |       |       |  |  |   |       | 
|------------------------ | ------------- | ------------------- | ------ | ------------------- |  | -------- |  | ----------- |  | -------- | - | ----- |  |  | ----- | ----- |  |  | - | ----- | 
|                         |               |                     |        |                    
|                         |               | Options Outstanding |        | Options Exercisable
|                         |               |                     |        |                    
|                         |               |                     |        | Weighted            |  | Weighted |  |             |  | Weighted
|                         |               |                     |        | Average             |  | Average  |  |             |  | Average 
|                         |               | Number              |        | Remaining           |  | Exercise |  | Number      |  | Exercise
|Range of Exercise Prices |               | Outstanding         |        | Life (months)       |  | Price    |  | Exercisable |  | Price   
|                         |               |                     |        |                     |  |          |  |             |  |         
|Options:                 |               |                     |        |                     |  |          |  |             |  |          |   |       |  |  |       |       |  |  |   |      
|                         | $10-$160      |                     |        | 1,383               |  |          |  | 82          |  |          | $ | 69    |  |  |       | 723   |  |  | $ | 54    | 
|                         | $1,000-$1,400 |                     |        | 6,938               |  |          |  | 81          |  |          | $ | 1,121 |  |  |       | 3,869 |  |  | $ | 1,103 | 
|                         | $1,500-$2,000 |                     |        | 2,070               |  |          |  | 89          |  |          | $ | 1,757 |  |  |       | 638   |  |  | $ | 1,759 | 
|                         |               |                     |        |                     |  |          |  |             |  |          |   |       |  |  |       |       |  |  |   |      
|                         |               |                     | 10,391 |                     |  |          |  |             |  |          |   |       |  |  | 5,230 |       |  |  |   |      
|                         |               |                     |        |                     |  |          |  |             |  |          |   |       |  |  |       |       |  |  |   |      

In connection with the 1998 Recapitalization,
Ardshiel exchanged 1,040 previously issued warrants in exchange
for equivalent warrants of Atrium Corporation. These warrants
have a strike price of $10 and as of December 31, 2001 all
of the warrants were vested.

In 1995, the FASB issued SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS
No. 123), which, if fully adopted by the Company,
would change the methods the Company applies in recognizing the
cost of the stock based plans. Adoption of the cost recognition
provisions of SFAS No. 123 is optional, and the Company has
not elected the provisions of SFAS No. 123. However, pro
forma disclosures, as if the Company adopted the cost
recognition provisions of SFAS No. 123 are required by SFAS
No. 123. During 2001, 2000 and 1999, the Company granted
only nonqualified stock options and warrants under the plans.

The fair value of each stock option granted is
estimated on the date of grant using the minimum value method of
option pricing with the following weighted-average assumptions
for grants in 2000, 1999 and 1998: dividend yield of 0.0%;
risk-free interest rate of 5.65%; and the expected life of
5 years. In determining the minimum value
SFAS 123 does not require the volatility of the
Companys common stock underlying the options to be
calculated or considered because the Company was not
publicly-traded when the options were granted.

Had the compensation cost for the stock-based
compensation plans and warrants been determined consistent with
SFAS No. 123, the Companys net income (loss) for
2001, 2000, and 1999 would have been $(5,303), $(74,730) and
$1,403, respectively.

The effects of applying SFAS No. 123 in this
pro forma disclosure are not indicative of future amounts.

19.     Employee
Benefit Plans:

The Company maintains an employees savings
plan under Section 401(k) of the Internal Revenue Code
(Atrium Plan). The Company makes discretionary
matching contributions equal to 50% of the first 4% of the
employees contribution. The Company contributed $1,107,
$839 and $505 during 2001, 2000 and 1999, respectively.

In connection with the 1998 Recapitalization, the
Company assumed Door Holding, Incs profit sharing plan
under section 401 of the Code. The plan provided for
discretionary contributions by the employer. The plan did not
provide for employee contributions. No contributions were
contributed in 1999 and upon receipt of a favorable tax
determination letter from the Internal Revenue Service the plan
was terminated in October 1999 at which time a distribution of
$1,710 was made to eligible employees.

The Company assumed Thermals qualified
401(k) and profit-sharing plan which covered substantially all
of its employees. Under the terms of the plan, Thermal
contributed up to 25% of the first 8% of each

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ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

employees compensation contributed and made
discretionary contributions to the plan. Total expense recorded
was $5 and $529 during 2000 and 1999, respectively. The Thermal
401(k) and profit-sharing plan was merged into the Atrium Plan
in 2000.

During 1998, Best Built implemented a qualified
401(k) plan. Under the terms of the plan, Best Built contributed
up to 25% of the first 8% of each employees compensation
contributed. The total expense recorded was $6 and $17 during
2000 and 1999, respectively. The Best Built 401(k) plan was
merged into the Atrium Plan in 2001.

Champagne sponsored a 401(k) profit sharing plan
covering substantially all employees. Contributions are
determined annually by the Board of Directors. The total expense
recorded was $0 and $67 during 2000 and 1999, respectively. The
Champagne 401(k) profit sharing plan was merged into the Atrium
Plan in 2001.

20.     Quarterly
Results (unaudited)

|                  |  |           |         |          |  |               |         |              |  |       |         |   |  |  |         |   |  |  |         |  
|----------------- |  | --------- | ------- | -------- |  | ------------- | ------- | ------------ |  | ----- | ------- | - |  |  | ------- | - |  |  | ------- | -
|                  |  | March 31, |         | June 30, |  | September 30, |         | December 31, |  |      
|                  |  | 2000      |         | 2000     |  | 2000          |         | 2000         |  | Total
|                  |  |           |         |          |  |               |         |              |  |      
|Net sales         |  |           | 133,782 |          |  |               | 136,291 |              |  |       | 113,321 |   |  |  | 112,853 |   |  |  | 496,247 |  
|Gross profit      |  |           | 37,076  |          |  |               | 32,819  |              |  |       | 21,537  |   |  |  | 33,620  |   |  |  | 125,052 |  
|Net income (loss) |  |           | (3,616  | )        |  |               | (28,881 | )            |  |       | (14,669 | ) |  |  | (27,160 | ) |  |  | (74,326 | )

During the third quarter of 2001, the Company
wrote off deferred financing costs of $837 in connection with
the retirement of debt under the Companys Credit Agreement
(see note 11) from the proceeds of the securitization
of accounts receivable. These charges were previously not
reflected in the Companys September 30, 2001
financial statements. The following table presents the quarterly
results as restated for the third quarter.

|                                          |                      |           |         |          |  |               |         |          |  |              |         |            |  |          |         |     |  |  |         |   |  |  |         |   |  |  |         |     | 
|----------------------------------------- | -------------------- | --------- | ------- | -------- |  | ------------- | ------- | -------- |  | ------------ | ------- | ---------- |  | -------- | ------- | --- |  |  | ------- | - |  |  | ------- | - |  |  | ------- | --- | 
|                                          |                      |           |         |          |  |               |         |          |  |              |         |           
|                                          |                      |           |         |          |  | September 30, |         |          |  |             
|                                          |                      |           |         |          |  | 2001          |         |          |  | Total       
|                                          |                      |           |         |          |  |               |         |          |  |             
|                                          |                      | March 31, |         | June 30, |  | Previously    |         |          |  | December 31, |         | Previously |  |         
|                                          |                      | 2001      |         | 2001     |  | Reported      |         | Restated |  | 2001         |         | Reported   |  | Restated
|                                          |                      |           |         |          |  |               |         |          |  |              |         |            |  |         
|Net sales                                 |                      |           | 112,302 |          |  |               | 143,810 |          |  |              | 140,846 |            |  |          | 140,846 |     |  |  | 127,941 |   |  |  | 524,899 |   |  |  | 524,899 |    
|Gross profit                              |                      |           | 36,228  |          |  |               | 46,084  |          |  |              | 47,193  |            |  |          | 47,193  |     |  |  | 40,586  |   |  |  | 170,091 |   |  |  | 170,091 |    
|Income (loss) before extraordinary charge |                      |           | (3,907  | )        |  |               | 2,443   |          |  |              | 1,575   |            |  |          | 1,575   |     |  |  | (4,140  | ) |  |  | (4,029  | ) |  |  | (4,029  | )  
|                                          | Extraordinary charge |           |         |         |  |               |         |         |  |              |         |           |  |          |         | 837 |  |  |         |  |  |  |         |  |  |  |         | 837 | 
|Net income (loss)                         |                      |           | (3,907  | )        |  |               | 2,443   |          |  |              | 1,575   |            |  |          | 738     |     |  |  | (4,140  | ) |  |  | (4,029  | ) |  |  | (4,866  | )  

21.     Subsidiary
Guarantors:

In connection with the Companys Notes, the
Companys payment obligations under the Notes are fully and
unconditionally guaranteed, jointly and severally (collectively,
the Subsidiary Guarantees) on a senior subordinated basis by its
wholly-owned subsidiaries: Atrium Door and Window Company of the
Northeast, Atrium Door and Window Company of Arizona, Atrium
Door and Window Company  West Coast, Atrium Vinyl,
Inc. (formerly known as Heat), Thermal Industries, Inc., Atrium
Door and Window Company of the Northwest (formerly known as Best
Built), Atrium Door and Window Company of the Rockies (formerly
known as Champagne), Wing Industries, Inc., R.G. Darby Company,
Inc., Total Trim, Inc. and Atrium Extrusion Systems, Inc.
(formerly known as VES, Inc.) (collectively, the Guarantor
Subsidiaries). The operations of Atrium Door and Window Company
of the Northeast, Atrium Door and Window Company of Arizona,
Atrium Door and Window Company  West Coast, R.G.
Darby Company, Inc, Total Trim, Inc. and Wing Industries, Inc.
are presented for all periods covered. The operations of Atrium
Vinyl, Inc., Thermal Industries, Inc., Atrium Door and Window
Company of the Northwest and Atrium Door and Window Company of
the Rockies are included since their date of acquisition on
May 17, 1999. The operations of

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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Atrium Extrusion Systems, Inc. are included since
their date of acquisition on October 25, 2000. The
operations of Atrium Funding Corporation (Non-Guarantor
Subsidiary) are included since its date of inception on
July 31, 2001. The balance sheet information includes all
subsidiaries as of December 31, 2001 and all subsidiaries
excluding Atrium Funding Corporation as of December 31,
2000. In the opinion of management, separate financial
statements of the respective Subsidiary Guarantors would not
provide additional material information, which would be useful
in assessing the financial composition of the Subsidiary
Guarantors. No single Subsidiary Guarantor has any significant
legal restrictions on the ability of investors or creditors to
obtain access to its assets in event of default on the
Subsidiary Guarantee other than its subordination to senior
indebtedness.

The Notes and the Subsidiary Guarantees are
subordinated to all existing and future Senior Indebtedness of
the Company. The indenture governing the Notes contains
limitations on the amount of additional indebtedness (including
senior indebtedness) which the Company may incur.

F-33



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

December 31, 2001


(Dollars in thousands)


|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |         |         | 
|------------------------------------- | --------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------- | ------ | - | ----------------- | ------ | ------------ | ------- | ------- | ------- |  | ---- | ------ | ------ | - | ------- | ------- | ------- | 
|                                      |                                               | Guarantor                                  |         | Non-Guarantor |         |        |   | Reclassification/ |        |             
|                                      |                                               | Subsidiaries                               |         | Subsidiary    |         | Parent |   | Eliminations      |        | Consolidated
|                                      |                                               |                                            |         |               |         |        |   |                   |        |             
|ASSETS                               
|CURRENT ASSETS:                       |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      | Cash and cash equivalents                     |                                            | $       | (31,441       | )       |        | $ | 748               |        |              | $       | 29,631  |         |  | $    | 2,309  |        |   | $       | 1,247   |        
|                                      | Accounts receivable, net                      |                                            |         | 3,895         |         |        |   |                  |        |              |         |        |         |  |      |       |        |   |         | 3,895   |        
|                                      | Retained interest in sold accounts receivable |                                            |         |              |         |        |   | 14,373            |        |              |         |        |         |  |      |       |        |   |         | 14,373  |        
|                                      | Inventories                                   |                                            |         | 16,398        |         |        |   |                  |        |              |         | 21,298  |         |  |      | (959   | )      |   |         | 36,737  |        
|                                      | Prepaid expenses and other current assets     |                                            |         | 2,487         |         |        |   |                  |        |              |         | 2,315   |         |  |      | 17     |        |   |         | 4,819   |        
|                                      | Deferred tax asset                            |                                            |         | 6,740         |         |        |   |                  |        |              |         |        |         |  |      | (5,314 | )      |   |         | 1,426   |        
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      |                                               | Total current assets                       |         |               | (1,921  | )      |   |                   | 15,121 |              |         |         | 53,244  |  |      |        | (3,947 | ) |         |         | 62,497  | 
|PROPERTY, PLANT AND EQUIPMENT, net    |                                               |                                            | 19,619  |               |         |        |  |                   |        |              | 36,139  |         |         |  | (3   | )      |        |   | 55,755  |        
|GOODWILL, net                         |                                               |                                            | 167,899 |               |         |        |  |                   |        |              | 177,340 |         |         |  |     |        |        |   | 345,239 |        
|DEFERRED TAX ASSET                    |                                               |                                            |        |               |         |        |  |                   |        |              | 431     |         |         |  | (431 | )      |        |   |        |        
|DEFERRED FINANCING COSTS, net         |                                               |                                            |        |               |         |        |  |                   |        |              | 13,350  |         |         |  |     |        |        |   | 13,350  |        
|OTHER ASSETS, net                     |                                               |                                            | 1,439   |               |         |        |  |                   |        |              | 5,927   |         |         |  |     |        |        |   | 7,366   |        
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      |                                               | Total assets                               |         | $             | 187,036 |        |   | $                 | 15,121 |              |         | $       | 286,431 |  |      | $      | (4,381 | ) |         | $       | 484,207 | 
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                     
|LIABILITIES AND STOCKHOLDERS
	EQUITY
|CURRENT LIABILITIES:                  |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      | Current portion of notes payable              |                                            | $       | 2,496         |         |        | $ |                  |        |              | $       | 3,695   |         |  | $    |       |        |   | $       | 6,191   |        
|                                      | Deferred tax liability                        |                                            |         |              |         |        |   |                  |        |              |         | 431     |         |  |      | (431   | )      |   |         |        |        
|                                      | Accounts payable                              |                                            |         | 5,050         |         |        |   |                  |        |              |         | 11,180  |         |  |      | 2,309  |        |   |         | 18,539  |        
|                                      | Accrued liabilities                           |                                            |         | 8,905         |         |        |   | 121               |        |              |         | 20,628  |         |  |      | 17     |        |   |         | 29,671  |        
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      |                                               | Total current liabilities                  |         |               | 16,451  |        |   |                   | 121    |              |         |         | 35,934  |  |      |        | 1,895  |   |         |         | 54,401  | 
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|LONG-TERM LIABILITIES:                |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      | Notes payable                                 |                                            |         | 122,724       |         |        |   |                  |        |              |         | 181,639 |         |  |      |       |        |   |         | 304,363 |        
|                                      | Deferred tax liability                        |                                            |         | 6,740         |         |        |   |                  |        |              |         |        |         |  |      | (5,314 | )      |   |         | 1,426   |        
|                                      | Other long-term liabilities                   |                                            |         | 580           |         |        |   |                  |        |              |         | 127     |         |  |      |       |        |   |         | 707     |        
|                                      | Swaps contract liability                      |                                            |         |              |         |        |   |                  |        |              |         | 6,821   |         |  |      |       |        |   |         | 6,821   |        
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      |                                               | Total long-term liabilities                |         |               | 130,044 |        |   |                   |       |              |         |         | 188,587 |  |      |        | (5,314 | ) |         |         | 313,317 | 
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      |                                               | Total liabilities                          |         |               | 146,495 |        |   |                   | 121    |              |         |         | 224,521 |  |      |        | (3,419 | ) |         |         | 367,718 | 
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|COMMITMENTS AND CONTINGENCIES         |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|STOCKHOLDERS EQUITY:                 |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      | Common stock                                  |                                            |         |              |         |        |   |                  |        |              |         |        |         |  |      |       |        |   |         |        |        
|                                      | Paid-in capital                               |                                            |         | 36,014        |         |        |   | 17,732            |        |              |         | 149,806 |         |  |      |       |        |   |         | 203,552 |        
|                                      | Retained earnings (accumulated deficit)       |                                            |         | 4,527         |         |        |   | (2,732            | )      |              |         | (79,627 | )       |  |      | (962   | )      |   |         | (78,794 | )      
|                                      | Accumulated other comprehensive loss          |                                            |         |              |         |        |   |                  |        |              |         | (8,269  | )       |  |      |       |        |   |         | (8,269  | )      
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      |                                               | Total stockholders equity                 |         |               | 40,541  |        |   |                   | 15,000 |              |         |         | 61,910  |  |      |        | (962   | ) |         |         | 116,489 | 
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        
|                                      |                                               | Total liabilities and stockholders equity |         | $             | 187,036 |        |   | $                 | 15,121 |              |         | $       | 286,431 |  |      | $      | (4,381 | ) |         | $       | 484,207 | 
|                                      |                                               |                                            |         |               |         |        |   |                   |        |              |         |         |         |  |      |        |        |   |         |        

F-34



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

December 31, 2000


(Dollars in thousands )


|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |         |         |         | 
|------------------------------------- | ----------------------------------------- | --------------------------- | ------------------------------------------ | ------- | ------- | ----------------- | ------- | ------------ | ------- | ------- | -- | ------ | ------ | ----- | ------- | ------- | ------- | ------- | 
|                                      |                                           | Guarantor                   |                                            |         |         | Reclassification/ |         |             
|                                      |                                           | Subsidiaries                |                                            | Parent  |         | Eliminations      |         | Consolidated
|                                      |                                           |                             |                                            |         |         |                   |         |             
|ASSETS                               
|CURRENT ASSETS:                       |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      | Cash and cash equivalents                 |                             | $                                          | (34,019 | )       |                   | $       | 31,236       |         |         | $  | 7,429  |        |       | $       | 4,646   |        
|                                      | Accounts receivable, net                  |                             |                                            | 21,652  |         |                   |         | 29,587       |         |         |    |       |        |       |         | 51,239  |        
|                                      | Inventories                               |                             |                                            | 19,401  |         |                   |         | 27,570       |         |         |    | (1,016 | )      |       |         | 45,955  |        
|                                      | Prepaid expenses and other current assets |                             |                                            | 1,611   |         |                   |         | 1,347        |         |         |    |       |        |       |         | 2,958   |        
|                                      | Deferred tax asset                        |                             |                                            | 4,689   |         |                   |         | 50           |         |         |    | (2,739 | )      |       |         | 2,000   |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      |                                           | Total current assets        |                                            |         | 13,334  |                   |         |              | 89,790  |         |    |        | 3,674  |       |         |         | 106,798 |        
|PROPERTY, PLANT AND EQUIPMENT, net    |                                           |                             | 23,983                                     |         |         |                   | 30,660  |              |         |         | (3 | )      |        |       | 54,640  |        
|GOODWILL, net                         |                                           |                             | 173,198                                    |         |         |                   | 183,476 |              |         |         |   |        |        |       | 356,674 |        
|DEFERRED FINANCING COSTS, net         |                                           |                             |                                           |         |         |                   | 16,644  |              |         |         |   |        |        |       | 16,644  |        
|OTHER ASSETS, net                     |                                           |                             | 1,484                                      |         |         |                   | 6,095   |              |         |         |   |        |        |       | 7,579   |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      |                                           | Total assets                |                                            | $       | 211,999 |                   |         | $            | 326,665 |         |    | $      | 3,671  |       |         | $       | 542,335 |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                     
|LIABILITIES AND STOCKHOLDERS
	EQUITY
|CURRENT LIABILITIES:                  |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      | Current portion of notes payable          |                             | $                                          | 2,621   |         |                   | $       | 3,590        |         |         | $  |       |        |       | $       | 6,211   |        
|                                      | Accounts payable                          |                             |                                            | 6,714   |         |                   |         | 14,339       |         |         |    | 7,429  |        |       |         | 28,482  |        
|                                      | Accrued liabilities                       |                             |                                            | 12,601  |         |                   |         | 20,503       |         |         |    |       |        |       |         | 33,104  |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      |                                           | Total current liabilities   |                                            |         | 21,936  |                   |         |              | 38,432  |         |    |        | 7,429  |       |         |         | 67,797  |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|LONG-TERM LIABILITIES:                |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      | Notes payable                             |                             |                                            | 147,308 |         |                   |         | 201,829      |         |         |    |       |        |       |         | 349,137 |        
|                                      | Deferred tax liability                    |                             |                                            | 4,689   |         |                   |         | 50           |         |         |    | (2,739 | )      |       |         | 2,000   |        
|                                      | Other long-term liabilities               |                             |                                            |        |         |                   |         | 1,325        |         |         |    |       |        |       |         | 1,325   |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      |                                           | Total long-term liabilities |                                            |         | 151,997 |                   |         |              | 203,204 |         |    |        | (2,739 | )     |         |         | 352,462 |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      |                                           | Total liabilities           |                                            |         | 173,933 |                   |         |              | 241,636 |         |    |        | 4,690  |       |         |         | 420,259 |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|COMMITMENTS AND CONTINGENCIES         |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|STOCKHOLDERS EQUITY:                 |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      | Common stock                              |                             |                                            |        |         |                   |         |             |         |         |    |       |        |       |         |        |        
|                                      | Paid-in capital                           |                             |                                            | 36,013  |         |                   |         | 159,991      |         |         |    |       |        |       |         | 196,004 |        
|                                      | Retained earnings (accumulated deficit)   |                             |                                            | 2,053   |         |                   |         | (74,962      | )       |         |    | (1,019 | )      |       |         | (73,928 | )      
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      |                                           | Total stockholders equity  |                                            |         | 38,066  |                   |         |              | 85,029  |         |    |        | (1,019 | )     |         |         | 122,076 |        
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        
|                                      |                                           |                             | Total liabilities and stockholders equity |         | $       | 211,999           |         |              | $       | 326,665 |    |        | $      | 3,671 |         |         | $       | 542,335 | 
|                                      |                                           |                             |                                            |         |         |                   |         |              |         |         |    |        |        |       |         |        

F-35



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENTS OF
OPERATIONS

For the Year Ended December 31,
2001


(Dollars in thousands)


|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------------ | ------- | ------------- |  | ------ | ------ | ----------------- | - | ------------ | ------- | ------ | - | - | ------- | --- | - | - | ------- | ------- | 
|                                                                                                                                 |                               | Guarantor    |         | Non-Guarantor |  |        |        | Reclassification/ |   |             
|                                                                                                                                 |                               | Subsidiaries |         | Subsidiary    |  | Parent |        | Eliminations      |   | Consolidated
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |             
|NET SALES                                                                                                                        |                               | $            | 206,425 |               |  | $      |       |                   |   | $            | 351,252 |        |   | $ | (32,778 | )   |   | $ | 524,899 |        
|COST OF GOODS SOLD                                                                                                               |                               |              | 130,925 |               |  |        |       |                   |   |              | 256,772 |        |   |   | (32,889 | )   |   |   | 354,808 |        
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|Gross profit                                                                                                                     |                               |              | 75,500  |               |  |        |       |                   |   |              | 94,480  |        |   |   | 111     |     |   |   | 170,091 |        
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|OPERATING EXPENSES:                                                                                                              |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|Selling, delivery, general and administrative
	expenses (excluding securitization, stock compensation and
	amortization expense) |                               |              | 49,321  |               |  |        | 1,069  |                   |   |              | 65,582  |        |   |   | (80     | )   |   |   | 115,892 |        
|                                                                                                                                 | Securitization expense        |              |         |              |  |        |        | 1,663             |   |              |         | (131   | ) |   |         |    |   |   |         | 1,532   | 
|                                                                                                                                 | Stock compensation expense    |              |         |              |  |        |        |                  |   |              |         | 582    |   |   |         |    |   |   |         | 582     | 
|                                                                                                                                 | Amortization expense          |              |         | 6,906         |  |        |        |                  |   |              |         | 7,504  |   |   |         |    |   |   |         | 14,410  | 
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE                                                                                    |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|                                                                                                                                 | EXPENSES                      |              |         | 56,227        |  |        |        | 2,732             |   |              |         | 73,537 |   |   |         | (80 | ) |   |         | 132,416 | 
|Special Charges                                                                                                                  |                               |              |        |               |  |        |       |                   |   |              | 1,213   |        |   |   |        |     |   |   | 1,213   |        
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|                                                                                                                                 |                               |              | 56,227  |               |  |        | 2,732  |                   |   |              | 74,750  |        |   |   | (80     | )   |   |   | 133,629 |        
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|                                                                                                                                 | Income (loss) from operations |              |         | 19,273        |  |        |        | (2,732            | ) |              |         | 19,730 |   |   |         | 191 |   |   |         | 36,462  | 
|INTEREST EXPENSE                                                                                                                 |                               |              | 15,345  |               |  |        |       |                   |   |              | 23,768  |        |   |   |        |     |   |   | 39,113  |        
|OTHER INCOME, net                                                                                                                |                               |              | 53      |               |  |        |       |                   |   |              | 60      |        |   |   | (133    | )   |   |   | (20     | )      
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|Income (loss) before income taxes and
	extraordinary charge                                                                      |                               |              | 3,981   |               |  |        | (2,732 | )                 |   |              | (3,978  | )      |   |   | 58      |     |   |   | (2,671  | )      
|PROVISION FOR INCOME TAXES                                                                                                       |                               |              | 1,358   |               |  |        |       |                   |   |              |        |        |   |   |        |     |   |   | 1,358   |        
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|Income (loss) before extraordinary charge                                                                                        |                               |              | 2,623   |               |  |        | (2,732 | )                 |   |              | (3,978  | )      |   |   | 58      |     |   |   | (4,029  | )      
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
	(net of income tax benefit of $0)                                              |                               |              |        |               |  |        |       |                   |   |              | 837     |        |   |   |        |     |   |   | 837     |        
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|NET INCOME (LOSS)                                                                                                                |                               | $            | 2,623   |               |  | $      | (2,732 | )                 |   | $            | (4,815  | )      |   | $ | 58      |     |   | $ | (4,866  | )      
|                                                                                                                                 |                               |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        

F-36



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENTS OF
OPERATIONS

For the Year Ended December 31,
2000


(Dollars in thousands)


|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |         |  
|---------------------------------------------------------------------------------------- | ----------------------------- | ------------ | ------- | ------- | - | ----------------- | ------- | ------------ |  | - | ------- | --- |  | - | ------- | ------- | -
|                                                                                         |                               | Guarantor    |         |         |   | Reclassification/ |         |             
|                                                                                         |                               | Subsidiaries |         | Parent  |   | Eliminations      |         | Consolidated
|                                                                                         |                               |              |         |         |   |                   |         |             
|NET SALES                                                                                |                               | $            | 286,447 |         |   | $                 | 247,792 |              |  | $ | (37,992 | )   |  | $ | 496,247 |        
|COST OF GOODS SOLD                                                                       |                               |              | 224,184 |         |   |                   | 185,575 |              |  |   | (38,564 | )   |  |   | 371,195 |        
|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|Gross profit                                                                             |                               |              | 62,263  |         |   |                   | 62,217  |              |  |   | 572     |     |  |   | 125,052 |        
|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|OPERATING EXPENSES:                                                                      |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|Selling, delivery, general and administrative
	expenses (excluding amortization expense) |                               |              | 82,000  |         |   |                   | 44,310  |              |  |   | (319    | )   |  |   | 125,991 |        
|                                                                                         | Amortization expense          |              |         | 5,270   |   |                   |         | 4,600        |  |   |         |    |  |   |         | 9,870   |  
|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
	EXPENSES                                  |                               |              | 87,270  |         |   |                   | 48,910  |              |  |   | (319    | )   |  |   | 135,861 |        
|Special Charges                                                                          |                               |              | 24,585  |         |   |                   | 3,154   |              |  |   |        |     |  |   | 27,739  |        
|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|                                                                                         |                               |              | 111,855 |         |   |                   | 52,064  |              |  |   | (319    | )   |  |   | 163,600 |        
|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|                                                                                         | Income (loss) from operations |              |         | (49,592 | ) |                   |         | 10,153       |  |   |         | 891 |  |   |         | (38,548 | )
|INTEREST EXPENSE                                                                         |                               |              | 21,281  |         |   |                   | 15,686  |              |  |   |        |     |  |   | 36,967  |        
|OTHER INCOME (LOSS), net                                                                 |                               |              | 121     |         |   |                   | 661     |              |  |   | (533    | )   |  |   | 249     |        
|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|Income (loss) before income taxes                                                        |                               |              | (70,752 | )       |   |                   | (4,872  | )            |  |   | 358     |     |  |   | (75,266 | )      
|BENEFIT FOR INCOME TAXES                                                                 |                               |              | (880    | )       |   |                   | (60     | )            |  |   |        |     |  |   | (940    | )      
|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|NET INCOME (LOSS)                                                                        |                               | $            | (69,872 | )       |   | $                 | (4,812  | )            |  | $ | 358     |     |  | $ | (74,326 | )      
|                                                                                         |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        

F-37



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENTS OF
OPERATIONS

For the Year Ended December 31,
1999


(Dollars in thousands)


|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |        | 
|------------------------------------------------------------------------------------------------------------------------ | ----------------------------------- | ------------ | ------- | ------ |  | ----------------- | ------- | ------------ |  | - | ------- | --- |  | - | ------- | ------ | 
|                                                                                                                         |                                     | Guarantor    |         |        |  | Reclassification/ |         |             
|                                                                                                                         |                                     | Subsidiaries |         | Parent |  | Eliminations      |         | Consolidated
|                                                                                                                         |                                     |              |         |        |  |                   |         |             
|NET SALES                                                                                                                |                                     | $            | 318,052 |        |  | $                 | 224,272 |              |  | $ | (43,868 | )   |  | $ | 498,456 |       
|COST OF GOODS SOLD                                                                                                       |                                     |              | 226,380 |        |  |                   | 158,894 |              |  |   | (44,365 | )   |  |   | 340,909 |       
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|Gross profit                                                                                                             |                                     |              | 91,672  |        |  |                   | 65,378  |              |  |   | 497     |     |  |   | 157,547 |       
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|OPERATING EXPENSES:                                                                                                      |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|Selling, delivery, general and administrative
	expenses (excluding amortization expense and stock compensation
	expense) |                                     |              | 70,856  |        |  |                   | 37,181  |              |  |   | (336    | )   |  |   | 107,701 |       
|                                                                                                                         | Non-cash stock compensation expense |              |         |       |  |                   |         | 128          |  |   |         |    |  |   |         | 128    | 
|                                                                                                                         | Amortization expense                |              |         | 4,582  |  |                   |         | 4,135        |  |   |         |    |  |   |         | 8,717  | 
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
	EXPENSES                                                                  |                                     |              | 75,438  |        |  |                   | 41,444  |              |  |   | (336    | )   |  |   | 116,546 |       
|Special Charges                                                                                                          |                                     |              |        |        |  |                   | 1,886   |              |  |   |        |     |  |   | 1,886   |       
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|                                                                                                                         |                                     |              | 75,438  |        |  |                   | 43,330  |              |  |   | (336    | )   |  |   | 118,432 |       
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|                                                                                                                         | Income (loss) from operations       |              |         | 16,234 |  |                   |         | 22,048       |  |   |         | 833 |  |   |         | 39,115 | 
|INTEREST EXPENSE                                                                                                         |                                     |              | 18,169  |        |  |                   | 10,355  |              |  |   |        |     |  |   | 28,524  |       
|OTHER INCOME (LOSS), net                                                                                                 |                                     |              | 183     |        |  |                   | 734     |              |  |   | (713    | )   |  |   | 204     |       
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|Income (loss) before income taxes and
	extraordinary charge                                                              |                                     |              | (1,752  | )      |  |                   | 12,427  |              |  |   | 120     |     |  |   | 10,795  |       
|PROVISION (BENEFIT) FOR INCOME TAXES                                                                                     |                                     |              | (1,090  | )      |  |                   | 7,731   |              |  |   |        |     |  |   | 6,641   |       
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|Income (loss) before extraordinary charge                                                                                |                                     |              | (662    | )      |  |                   | 4,696   |              |  |   | 120     |     |  |   | 4,154   |       
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
	(net of income tax benefit of $1,142 in 1999)                          |                                     |              |        |        |  |                   | 1,936   |              |  |   |        |     |  |   | 1,936   |       
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       
|NET INCOME (LOSS)                                                                                                        |                                     | $            | (662    | )      |  | $                 | 2,760   |              |  | $ | 120     |     |  | $ | 2,218   |       
|                                                                                                                         |                                     |              |         |        |  |                   |         |              |  |   |         |     |  |   |         |       

F-38



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Year Ended December 31,
2001


(Dollars in thousands)


|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |         |         |         |  
|----------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------- | ----------------------------------------- | ------------- | --- | ------- | ------- | ------------ | - | ------------ | ------ | ------- | ------- | ------- | ------ | ------ | - | ------ | ------ | ------- | ------- | ------- | -
|                                                      |                                                             | Guarantor                             |                                           | Non-Guarantor |     |         |         |              |   |             
|                                                      |                                                             | Subsidiaries                          |                                           | Subsidiary    |     | Parent  |         | Eliminations |   | Consolidated
|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |             
|CASH FLOWS FROM OPERATING ACTIVITIES                  |                                                             | $                                     | 26,500                                    |               |     | $       | (16,984 | )            |   | $            | 40,920 |         |         | $       | 1      |        |   | $      | 50,437 |        
|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        
|                                                      | Purchases of property, plant and equipment                  |                                       |                                           | (3,041        | )   |         |         |             |   |              |        | (11,063 | )       |         |        |       |   |        |        | (14,104 | )      
|                                                      | Proceeds from sales of assets                               |                                       |                                           | 5,238         |     |         |         |             |   |              |        | 882     |         |         |        |       |   |        |        | 6,120   |        
|                                                      | Other assets                                                |                                       |                                           | (1,338        | )   |         |         |             |   |              |        | (1,274  | )       |         |        |       |   |        |        | (2,612  | )      
|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        
|                                                      |                                                             | Net cash used in investing activities |                                           |               | 859 |         |         |              |  |              |        |         | (11,455 | )       |        |        |  |        |        |         | (10,596 | )      
|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        
|                                                      | Capital contributions                                       |                                       |                                           |              |     |         |         | 17,732       |   |              |        | (17,732 | )       |         |        |       |   |        |        |        |        
|                                                      | Payments of notes payable                                   |                                       |                                           | (100          | )   |         |         |             |   |              |        | (151    | )       |         |        |       |   |        |        | (251    | )      
|                                                      | Net borrowings/ (payments) under revolving credit
	facility |                                       |                                           | (7,661        | )   |         |         |             |   |              |        | (11,339 | )       |         |        |       |   |        |        | (19,000 | )      
|                                                      | Deferred financing costs                                    |                                       |                                           |              |     |         |         |             |   |              |        | (388    | )       |         |        |       |   |        |        | (388    | )      
|                                                      | Scheduled principal payments on term notes                  |                                       |                                           | (2,309        | )   |         |         |             |   |              |        | (3,419  | )       |         |        |       |   |        |        | (5,728  | )      
|                                                      | Additional principal payments on term notes                 |                                       |                                           | (14,711       | )   |         |         |             |   |              |        | (5,289  | )       |         |        |       |   |        |        | (20,000 | )      
|                                                      | Contributions from (distributions to) Atrium Corp           |                                       |                                           |              |     |         |         |             |   |              |        | 7,248   |         |         |        |       |   |        |        | 7,248   |        
|                                                      | Checks drawn in excess of bank balances                     |                                       |                                           |              |     |         |         |             |   |              |        |        |         |         |        | (5,121 | ) |        |        | (5,121  | )      
|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        
|                                                      |                                                             |                                       | Net cash provided by financing activities |               |     | (24,781 | )       |              |   | 17,732       |        |         |         | (31,070 | )      |        |   | (5,121 | )      |         |         | (43,240 | )
|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        
|NET INCREASE (DECREASE) IN CASH AND CASH
	EQUIVALENTS |                                                             |                                       | 2,578                                     |               |     |         | 748     |              |   |              | (1,605 | )       |         |         | (5,120 | )      |   |        | (3,399 | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        |                                                             |                                       | (34,019                                   | )             |     |         |        |              |   |              | 31,236 |         |         |         | 7,429  |        |   |        | 4,646  |        
|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD              |                                                             | $                                     | (31,441                                   | )             |     | $       | 748     |              |   | $            | 29,631 |         |         | $       | 2,309  |        |   | $      | 1,247  |        
|                                                      |                                                             |                                       |                                           |               |     |         |         |              |   |              |        |         |         |         |        |        |   |        |        |        

F-39



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Year Ended December 31,
2000


(Dollars in thousands)


|                                                      |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |         |         |  
|----------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------- | ------- | ------ | ------ | ------------ | ------ | ------------ | -------- | - | ----- | - | - | - | ------ | ------- | ------- | -
|                                                      |                                                             | Guarantor                                 |         |        |        |              |        |             
|                                                      |                                                             | Subsidiaries                              |         | Parent |        | Eliminations |        | Consolidated
|                                                      |                                                             |                                           |         |        |        |              |        |             
|CASH FLOWS FROM OPERATING ACTIVITIES                  |                                                             | $                                         | (31,180 | )      |        | $            | 23,792 |              |          | $ | 2,947 |   |   | $ | (4,441 | )      
|                                                      |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        
|                                                      | Purchases of property, plant and equipment                  |                                           |         | (4,050 | )      |              |        | (10,468      | )        |   |       |  |   |   |        | (14,518 | )      
|                                                      | Proceeds from sales of assets                               |                                           |         |       |        |              |        | 2,829        |          |   |       |  |   |   |        | 2,829   |        
|                                                      | Proceeds from sales of Wing & Wood                          |                                           |         | 24,355 |        |              |        |             |          |   |       |  |   |   |        | 24,355  |        
|                                                      | Acquisition of Ellison, net of cash acquired                |                                           |         |       |        |              |        | (99,276      | )        |   |       |  |   |   |        | (99,276 | )      
|                                                      | Proceeds from the sale of investment in equity
	securities  |                                           |         |       |        |              |        | 620          |          |   |       |  |   |   |        | 620     |        
|                                                      | Other assets                                                |                                           |         |       |        |              |        | (3,790       | )        |   |       |  |   |   |        | (3,790  | )      
|                                                      |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        
|                                                      |                                                             | Net cash used in investing activities     |         |        | 20,305 |              |        |              | (110,085 | ) |       |   |  |   |        |         | (89,780 | )
|                                                      |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        
|                                                      | Proceeds from borrowings under term notes                   |                                           |         |       |        |              |        | 38,000       |          |   |       |  |   |   |        | 38,000  |        
|                                                      | Payments of notes payable                                   |                                           |         |       |        |              |        | (309         | )        |   |       |  |   |   |        | (309    | )      
|                                                      | Net borrowings/ (payments) under revolving credit
	facility |                                           |         |       |        |              |        | 3,730        |          |   |       |  |   |   |        | 3,730   |        
|                                                      | Deferred financing costs                                    |                                           |         |       |        |              |        | (1,326       | )        |   |       |  |   |   |        | (1,326  | )      
|                                                      | Scheduled principal payments on term notes                  |                                           |         |       |        |              |        | (2,990       | )        |   |       |  |   |   |        | (2,990  | )      
|                                                      | Contributions from (distributions to) Atrium Corp           |                                           |         |       |        |              |        | 59,102       |          |   |       |  |   |   |        | 59,102  |        
|                                                      | Payment of other long-term liabilities                      |                                           |         |       |        |              |        | (1,616       | )        |   |       |  |   |   |        | (1,616  | )      
|                                                      | Checks drawn in excess of bank balances                     |                                           |         |       |        |              |        | 2,982        |          |   |       |  |   |   |        | 2,982   |        
|                                                      |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        
|                                                      |                                                             | Net cash provided by financing activities |         |        |       |              |        |              | 97,573   |   |       |   |  |   |        |         | 97,573  |  
|                                                      |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        
|NET INCREASE (DECREASE) IN CASH AND CASH
	EQUIVALENTS |                                                             |                                           | (10,875 | )      |        |              | 11,280 |              |          |   | 2,947 |   |   |   | 3,352  |        
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        |                                                             |                                           | (23,144 | )      |        |              | 19,956 |              |          |   | 4,482 |   |   |   | 1,294  |        
|                                                      |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD              |                                                             | $                                         | (34,019 | )      |        | $            | 31,236 |              |          | $ | 7,429 |   |   | $ | 4,646  |        
|                                                      |                                                             |                                           |         |        |        |              |        |              |          |   |       |   |   |   |        |        

F-40



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Year Ended December 31,
1999


(Dollars in thousands)


|                                                      |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |         |          |  
|----------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------- | ------- | ------- | ------ | ------------ | ------ | ------------ | -------- | - | ----- | - | - | - | ----- | ------- | -------- | -
|                                                      |                                                              | Guarantor                                 |         |         |        |              |        |             
|                                                      |                                                              | Subsidiaries                              |         | Parent  |        | Eliminations |        | Consolidated
|                                                      |                                                              |                                           |         |         |        |              |        |             
|CASH FLOWS FROM OPERATING ACTIVITIES                  |                                                              | $                                         | (17,596 | )       |        | $            | 21,949 |              |          | $ | 4,482 |   |   | $ | 8,835 |        
|                                                      |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        
|                                                      | Purchases of property, plant and equipment                   |                                           |         | (13,147 | )      |              |        | (3,849       | )        |   |       |  |   |   |       | (16,996 | )       
|                                                      | Proceeds from sales of assets                                |                                           |         | 7,599   |        |              |        | 1,286        |          |   |       |  |   |   |       | 8,885   |         
|                                                      | Acquisition of Heat, Champagne and Delta                     |                                           |         |        |        |              |        |             |          |   |       |  |   |   |       |        |         
|                                                      | Millwork, net of cash acquired                               |                                           |         |        |        |              |        | (95,327      | )        |   |       |  |   |   |       | (95,327 | )       
|                                                      | Other assets                                                 |                                           |         |        |        |              |        | (5,042       | )        |   |       |  |   |   |       | (5,042  | )       
|                                                      |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        
|                                                      |                                                              | Net cash used in investing activities     |         |         | (5,548 | )            |        |              | (102,932 | ) |       |   |  |   |       |         | (108,480 | )
|                                                      |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        
|                                                      | Proceeds from issuance of senior subordinated
	notes         |                                           |         |        |        |              |        | 172,368      |          |   |       |  |   |   |       | 172,368 |         
|                                                      | Payments of notes payable                                    |                                           |         |        |        |              |        | (15,000      | )        |   |       |  |   |   |       | (15,000 | )       
|                                                      | Payment of senior subordinated notes previously
	outstanding |                                           |         |        |        |              |        | (29,070      | )        |   |       |  |   |   |       | (29,070 | )       
|                                                      | Net borrowings/ (payments) under revolving credit
	facility  |                                           |         |        |        |              |        | 11,152       |          |   |       |  |   |   |       | 11,152  |         
|                                                      | Deferred financing costs                                     |                                           |         |        |        |              |        | (9,347       | )        |   |       |  |   |   |       | (9,347  | )       
|                                                      | Scheduled principal payments on term notes                   |                                           |         |        |        |              |        | (2,241       | )        |   |       |  |   |   |       | (2,241  | )       
|                                                      | Contributions from (distributions to) Atrium Corp            |                                           |         |        |        |              |        | (25,356      | )        |   |       |  |   |   |       | (25,356 | )       
|                                                      | Payment of other long-term liabilities                       |                                           |         |        |        |              |        | (2,003       | )        |   |       |  |   |   |       | (2,003  | )       
|                                                      | Checks drawn in excess of bank balances                      |                                           |         |        |        |              |        | 436          |          |   |       |  |   |   |       | 436     |         
|                                                      |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        
|                                                      |                                                              | Net cash provided by financing activities |         |         |       |              |        |              | 100,939  |   |       |   |  |   |       |         | 100,939  |  
|                                                      |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        
|NET INCREASE (DECREASE) IN CASH AND CASH
	EQUIVALENTS |                                                              |                                           | (23,144 | )       |        |              | 19,956 |              |          |   | 4,482 |   |   |   | 1,294 |        
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        |                                                              |                                           |        |         |        |              |       |              |          |   |      |   |   |   |      |        
|                                                      |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD              |                                                              | $                                         | (23,144 | )       |        | $            | 19,956 |              |          | $ | 4,482 |   |   | $ | 1,294 |        
|                                                      |                                                              |                                           |         |         |        |              |        |              |          |   |       |   |   |   |       |        

F-41



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS ON

FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Stockholder

of Atrium Companies, Inc.:


Our audits of the consolidated financial
statements of Atrium Companies, Inc. referred to in our report
dated March 27, 2002, appearing in this Annual Report on
Form 10-K also included an audit of the related financial
statement schedule listed in Item 14(a)(2) of this Form 10-K. In
our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.

PricewaterhouseCoopers LLP

Dallas, Texas


March 27, 2002


S-1



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)


|                                 |                              |              |   |                      |  |             |   |               |  |               |   |     |  |  |   |        |   |  |   |       | 
|-------------------------------- | ---------------------------- | ------------ | - | -------------------- |  | ----------- | - | ------------- |  | ------------- | - | --- |  |  | - | ------ | - |  | - | ----- | 
|                                 |                              |              |   |                      |  |             |   |              
|                                 |                              |              |   | Column C  Additions |  |             |   |              
|                                 |                              |              |   |                      |  |             |   |              
|                                 |                              | Column B    |   | (1)                  |  | (2)         |   |               |  |              
|                                 |                              | Balance at   |   | Charged to           |  | Acquired    |   | Column D     |  | Column E    
|                                 |                              | Beginning of |   | Costs and            |  | Through     |   | Deductions   |  | Balance at   
|Column A Description             |                              | Period       |   | Expenses             |  | Acquisition |   | Write-Offs(a) |  | End of Period
|                                 |                              |              |   |                      |  |             |   |               |  |              
|Allowance for doubtful accounts: |                              |              |   |                      |  |             |   |               |  |               |   |     |  |  |   |        |   |  |   |      
|                                 | Year ended December 31, 1999 |              | $ | 778                  |  |             | $ | 3,990         |  |               | $ | 344 |  |  | $ | (3,442 | ) |  | $ | 1,670 | 
|                                 | Year ended December 31, 2000 |              | $ | 1,670                |  |             | $ | 4,247         |  |               | $ | 177 |  |  | $ | (2,584 | ) |  | $ | 3,510 | 
|                                 | Year ended December 31, 2001 |              | $ | 3,510                |  |             | $ | 1,666         |  |               | $ |    |  |  | $ | (5,023 | ) |  | $ | 153   | 



---



|    |  |                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------
|(a) |  | includes write-offs, net of recoveries, and
	adjustment to writedown receivables sold to AFC to fair value.

|                                |                              |              |   |                      |  |             |   |            |     |               |   |   |  |  |   |        |   |  |   |        | 
|------------------------------- | ---------------------------- | ------------ | - | -------------------- |  | ----------- | - | ---------- | --- | ------------- | - | - |  |  | - | ------ | - |  | - | ------ | 
|                                |                              |              |   |                      |  |             |   |           
|                                |                              |              |   | Column C  Additions |  |             |   |           
|                                |                              |              |   |                      |  |             |   |           
|                                |                              | Column B    |   | (1)                  |  | (2)         |   |            |     |              
|                                |                              | Balance at   |   | Charged to           |  | Acquired    |   |            |     | Column E    
|                                |                              | Beginning of |   | Costs and            |  | Through     |   | Column D  |     | Balance at   
|Column A Description            |                              | Period       |   | Expenses             |  | Acquisition |   | Deductions |     | End of Period
|                                |                              |              |   |                      |  |             |   |            |     |              
|Income tax valuation allowance: |                              |              |   |                      |  |             |   |            |     |               |   |   |  |  |   |        |   |  |   |       
|                                | Year ended December 31, 1999 |              | $ |                     |  |             | $ |           |     |               | $ |  |  |  | $ |       |   |  | $ |       | 
|                                | Year ended December 31, 2000 |              | $ |                     |  |             | $ | 18,150     |     |               | $ |  |  |  | $ |       |   |  | $ | 18,150 | 
|                                | Year ended December 31, 2001 |              | $ | 18,150               |  |             | $ | 2,137      | (b) |               | $ |  |  |  | $ | (1,584 | ) |  | $ | 18,703 | 



---



|    |                                                                        
|--- | -----------------------------------------------------------------------
|(b) | includes the cumulative-effect adjustment of
	adoption of SFAS No. 133.

|                     |                              |              |   |                      |  |             |   |            |  |               |   |     |  |  |   |      |   |  |   |       | 
|-------------------- | ---------------------------- | ------------ | - | -------------------- |  | ----------- | - | ---------- |  | ------------- | - | --- |  |  | - | ---- | - |  | - | ----- | 
|                     |                              |              |   |                      |  |             |   |           
|                     |                              |              |   | Column C  Additions |  |             |   |           
|                     |                              |              |   |                      |  |             |   |           
|                     |                              | Column B    |   | (1)                  |  | (2)         |   |            |  |              
|                     |                              | Balance at   |   | Charged to           |  | Acquired    |   |            |  | Column E    
|                     |                              | Beginning of |   | Costs and            |  | Through     |   | Column D  |  | Balance at   
|Column A Description |                              | Period       |   | Expenses             |  | Acquisition |   | Deductions |  | End of Period
|                     |                              |              |   |                      |  |             |   |            |  |              
|Inventory allowance: |                              |              |   |                      |  |             |   |            |  |               |   |     |  |  |   |      |   |  |   |      
|                     | Year ended December 31, 1999 |              | $ | 938                  |  |             | $ | 184        |  |               | $ | 116 |  |  | $ | (227 | ) |  | $ | 1,011 | 
|                     | Year ended December 31, 2000 |              | $ | 1,011                |  |             | $ | 102        |  |               | $ |    |  |  | $ | (622 | ) |  | $ | 491   | 
|                     | Year ended December 31, 2001 |              | $ | 491                  |  |             | $ | 1,181      |  |               | $ |    |  |  | $ | (116 | ) |  | $ | 1,556 | 

S-2



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES




EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                                                                                                                                                                            
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Second Amended and Restated Purchase Agreement,
	dated as of October 17, 2000, among The Ellison Company,
	Inc., Atrium Companies, Inc. and D and W Holdings,
	Inc.(5)                                                                                                                                                     
|        | 2  | .2          |  | Agreement and Plan of Merger, dated as of
	October 25, 2000, between D and W Holdings, Inc.
	and Atrium Corporation(4)                                                                                                                                                                                                     
|        | 2  | .3          |  | Agreement and Plan of Merger, dated as of
	December 27, 2001, between R.G. Darby Company 
	South and Door Holdings, Inc.(1)                                                                                                                                                                                               
|        | 2  | .4          |  | Agreement and Plan of Merger, dated as of
	December 27, 2001, between Total Trim, Inc. 
	South and Door Holdings, Inc.(1)                                                                                                                                                                                                 
|        | 2  | .5          |  | Agreement and Plan of Merger, dated as of
	December 27, 2001, between Door Holdings, Inc. and Atrium
	Companies, Inc.(1)                                                                                                                                                                                                   
|        | 2  | .6          |  | Agreement and Plan of Merger, dated as of
	December 27, 2001, between H.I.G. Vinyl, Inc. and Heat,
	Inc.(1)                                                                                                                                                                                                                
|        | 2  | .7          |  | Agreement and Plan of Merger, dated as of
	December 26, 2001, between Atrium Door and Window Company
	of New England and Atrium Door and Window Company of the
	Northeast(1)                                                                                                                                               
|        | 2  | .8          |  | Agreement and Plan of Merger, dated as of
	December 26, 2001, between Atrium Door and Window Company
	of New York and Atrium Companies, Inc.(1)                                                                                                                                                                            
|        | 2  | .9          |  | Agreement and Plan of Merger, dated as of
	December 27, 2001, between Wing Industries Holdings, Inc.
	and Atrium Companies, Inc.(1)                                                                                                                                                                                        
|        | 4  | .1          |  | Indenture, dated as of May 17, 1999, among
	Atrium Companies, Inc., the Guarantors named therein and State
	Street Bank and Trust Company(6)                                                                                                                                                                               
|        | 4  | .2          |  | First Supplemental Indenture, dated as of
	October 25, 2000, to the Indenture dated May 17,1999,
	among Atrium Companies, Inc., the Guarantors named therein and
	State Street Bank and Trust Company(4)                                                                                                                   
|        | 4  | .3          |  | Registration Rights Agreement, dated as of
	May 17, 1999, among Atrium Companies, Inc., the Guarantors
	named therein and Merrill Lynch & Co., Merrill Lynch,
	Pierce Fenner & Smith Incorporated(6)                                                                                                                       
|        | 10 | .1          |  | Asset Purchase Agreement, dated as of
	August 30, 2000, between Atrium Companies, Inc. and
	Woodgrain Millwork, Inc.(4)                                                                                                                                                                                                    
|        | 10 | .2          |  | Asset Purchase Agreement, dated as of
	June 30, 2000, among Atrium Companies, Inc., Wing
	Industries, Inc. and Premdor Corporation(4)                                                                                                                                                                                      
|        | 10 | .3          |  | Amendment No. 1 to the Stock Purchase
	Agreement, dated as of May 17, 1999, to the Stock Purchase
	Agreement dated as of April 20, 1999, among Heat, Inc.,
	shareholders and optionholders named therein, H.I.G. Vinyl,
	Inc., H.I.G. Investment Fund, L.P., H.I.G. Capital Management,
	Inc. and Atrium Companies, Inc.(6)
|        | 10 | .4          |  | Stock Purchase Agreement, dated as of
	May 10, 1999, between Champagne Industries, Inc. and Atrium
	Companies, Inc.(6)                                                                                                                                                                                                     
|        | 10 | .5          |  | Stock Purchase Agreement, dated as of
	April 20, 1999, among Heat, Inc., the shareholders and
	optionholders named therein, H.I.G. Vinyl, Inc., H.I.G.
	Investment Fund L.P., H.I.G. Capital Management, Inc. and Atrium
	Companies, Inc. (6)                                                                              
|        | 10 | .6          |  | Asset Purchase Agreement, dated as of
	March 4, 1998, among Masterview Window Company, LLC, Atrium
	Companies, Inc. and, for the limited purposes set forth therein,
	BancBoston Ventures, Inc.(8)                                                                                                                         
|        | 10 | .7          |  | Lease Agreement, dated as of November 29,
	2001, between Windough (DE) LP, and Atrium Companies,
	Inc.(1)                                                                                                                                                                                                                  
|        | 10 | .8          |  | Lease Agreement, dated as of November 18,
	1999, between Delaware Frame (Tx), LP and Atrium Companies,
	Inc.(4)                                                                                                                                                                                                            

E-1



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .9          |  | Employment Agreement, dated as of
	December 31, 2000, among Atrium Corporation, Atrium
	Companies, Inc. and Jeff L. Hull (4)                                                                                                                                                                                                                                                                                                                           
|        | 10 | .10         |  | Employment Agreement, dated as of January 1,
	2001, between Atrium Corporation and Eric W. Long(4)                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .11         |  | Employment and Non-Competition Agreement, dated
	as of January 24, 2000, between Atrium Companies, Inc. and
	Robert E. Burns(4)                                                                                                                                                                                                                                                                                                                        
|        | 10 | .12         |  | Consulting, Non-Competition and Non-Solicitation
	Agreement, dated as of October 25, 2000, between Atrium
	Companies, Inc. and John Ellison, Jr.(4)                                                                                                                                                                                                                                                                                                    
|        | 10 | .13         |  | Amendment to Consulting, Non-Competition and
	Non-Solicitation Agreement, dated as of July, 2001, between
	Atrium Companies, Inc. and John Ellison, Jr.(1)                                                                                                                                                                                                                                                                                             
|        | 10 | .14         |  | Side Letter Agreement, dated as of
	October 25, 2000, between Atrium Companies, Inc. and John
	Ellison Jr.(4)                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .15         |  | Employment and Non-Competition Agreement, dated
	as of October 25, 2000, between Atrium Companies, Inc. and
	C. Douglas Cross(4)                                                                                                                                                                                                                                                                                                                       
|        | 10 | .16         |  | Buy-Sell Agreement, dated October 25, 2000,
	among D and W Holdings, Inc., C. Douglas Cross and GE
	Investment Private Placement Partners II(4)                                                                                                                                                                                                                                                                                                        
|        | 10 | .17         |  | Purchase Agreement, dated as of May 10,
	1999, among Atrium Companies, Inc., the Guarantors named therein
	and Merrill Lynch & Co., Merrill Lynch, Pierce,
	Fenner & Smith Incorporated(6)                                                                                                                                                                                                                                                             
|        | 10 | .18         |  | Joinder Agreement to Purchase Agreement, dated as
	of May 10, 1999, by and among Heat, Inc., H.I.G. Vinyl,
	Inc., Champagne Industries, Inc., Thermal Industries, Inc., Best
	Built, Inc. and Merrill Lynch & Co., Merrill Lynch,
	Pierce, Fenner & Smith Incorporated(6)                                                                                                                                                                              
|        | 10 | .19         |  | Side Letter Agreement, dated as of
	October 24, 2000, among D and W Holdings, Inc., Atrium
	Corporation and Atrium Companies, Inc.(4)                                                                                                                                                                                                                                                                                                                  
|        | 10 | .20         |  | Contribution Agreement, dated as of
	October 25, 2000, between D and W Holdings, Inc.
	and Atrium Companies, Inc.(4)                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .21         |  | Contribution Agreement, dated as of
	October 25, 2000, between Atrium Corporation and Atrium
	Companies, Inc.(4)                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .22         |  | Restated and Amended Tax Sharing Agreement, dated
	as of October 25, 2000, D and W Holdings, Inc.,
	Atrium Companies, Inc. and the direct and indirect subsidiaries
	of Atrium Companies, Inc. signatories thereto(4)                                                                                                                                                                                                                                  
|        | 10 | .23         |  | Employment Agreement, dated as of January 1,
	2002, between Atrium Corporation and Cliff Darby(1)                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .24         |  | Buy-Sell Agreement, dated as of October 2,
	1998, among D and W Holdings, Inc., GE Investment Private
	Placement Partners II and Cliff Darby(7)                                                                                                                                                                                                                                                                                                        
|        | 10 | .25         |  | D and W Holdings, Inc. 1998 Stock
	Option Plan(7)                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .26         |  | Amendment No. 1 to D and W
	Holdings, Inc. 1999 Stock Option Plan, dated as of May 17,
	1999(6)                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .27         |  | D and W Holdings, Inc. 1998 Replacement
	Stock Option Plan(7)                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .28         |  | Amendment No. 1 to D and W
	Holdings, Inc. 1998 Replacement Stock Option Plan, dated as of
	May 17, 1999, to the D and W Holdings, Inc.
	Replacement Stock Option Plan(6)                                                                                                                                                                                                                                                                              
|        | 10 | .29         |  | Amended and Restated Management Agreement, dated
	as of May 17, 1999, among Ardshiel, Inc., D and W
	Holdings, Inc., Atrium Corporation and Atrium Companies, Inc.(6)                                                                                                                                                                                                                                                                                  
|        | 10 | .30         |  | Amendment No. 2, dated as of July 20,
	2001 to the Credit Agreement dated as of October 2, 1998
	and amended and restated as of October 25, 2000, among
	Atrium Companies, Inc., the Guarantor party thereto, each of the
	Lenders, Merrill Lynch & Co., Merrill Lynch, Pierce,
	Fenner & Smith Incorporated, as Lead Arranger and
	Syndication Agent, BankOne, Texas, N.A. as Documentation Agent
	and Fleet National Bank, as Administrative Agent(1)

E-2



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .31         |  | Amendment No. 1 and Waiver No. 1 dated
	as of May 15, 2001 to the Credit Agreement, dated as of
	October 2, 1998 and amended and Restated as of
	October 25, 2000 among Atrium Companies, Inc., the
	Guarantor party thereto, each of the Lenders, Merrill
	Lynch & Co., Merrill Lynch, Pierce, Fenner &
	Smith Incorporated, as Lead Arranger and Syndication Agent,
	BankOne, Texas, N.A. as Documentation Agent and Fleet National
	Bank, as Administrative Agent(1)
|        | 10 | .32         |  | First Amended and Restated Credit Agreement,
	dated as of October 25, 2000, among Atrium Companies, Inc.
	and the Guarantors Party thereto, Merrill Lynch & Co.,
	Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
	Lead Arranger and Syndication Agent, BankOne, Texas, N.A. as
	Documentation Agent and Fleet National Bank, as Administrative
	Agent and the Lenders Party thereto(5)                                                                         
|        | 10 | .33         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and Daniel T. Morley(4)                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .34         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and Jeff L. Hull(4)                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .35         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and Nimrod Natan(4)                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .36         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and Andreas Hildebrand(4)                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .37         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and John Deterding(4)                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .38         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and Robert E. Burns(4)                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .39         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and Roger A. Knight(4)                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .40         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and Eric W. Long(4)                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .41         |  | Indemnification Agreement, dated as of
	October 25, 2000, between D and W Holdings, Inc.
	and John Ellison, Jr.(4)                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .42         |  | Indemnification Agreement, dated as of
	August 31, 2000, between D and W Holdings, Inc.
	and Cliff Darby(4)                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .43         |  | Indemnification Agreement, dated as of
	October 25, 2000, between D and W Holdings, Inc.
	and Dennis M. McCormick(4)                                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .44         |  | Indemnification Agreement, dated as of
	October 25, 2000, between Atrium Corporation and C. Douglas
	Cross(4)                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .45         |  | Contribution Agreement, dated as of May 2,
	2001, between Atrium Corporation and Atrium Companies, Inc.(3)                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .46         |  | Contribution Agreement, dated as of May 16,
	2001 among Atrium Corporation and Atrium Companies, Inc.(1)                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .47         |  | Receivable Purchase Agreement dated as of
	July 31, 2001, among Atrium Funding Corp., Atrium
	Companies, Inc., Fairway Finance Corporation and BMO Nesbitt
	Burns Corp.(2)                                                                                                                                                                                                                                                                                             
|        | 10 | .48         |  | Purchase and Sale Agreement dated July 3,
	2001, between the various entities listed on Schedule A
	thereto and Atrium Funding Corp.(2)                                                                                                                                                                                                                                                                                                                                
|        | 21 | .1          |  | Subsidiaries of Atrium Companies, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                                                                              



---



|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed herewith.                                                                                                                                          
|   
|(2) | Incorporated by reference from Atrium Companies,
	Inc.s Report on Form 8-K filed on August 14,
	2001.                                                   
|   
|(3) | Incorporated by reference from Amendment
	No. 2 to Atrium Corporations Registration Statement
	on Form S-4 , dated May 9, 2001, SEC File
	No. 333-54122.

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##### Table of Contents





|    |                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|(4) | Incorporated by reference from Atrium
	Corporations Registration Statement on Form S-4,
	dated January 22, 2001, SEC File No. 333-54122.
|   
|(5) | Incorporated by reference from Atrium Companies,
	Inc.s Report on Form 8-K, dated October 24, 2000
	and filed on November 9, 2000.      
|   
|(6) | Filed with Atrium Companies, Inc.s
	Registration Statement on Form S-4 dated July 15,
	1999, SEC File No. 333-82921.                    
|   
|(7) | Incorporated by reference from Atrium Companies,
	Inc.s Report on Form 10-K dated March 31, 1999
	and filed on April 15, 1999.          
|   
|(8) | Incorporated by reference from Atrium Companies,
	Inc.s Report on Form 8-K, dated March 27, 1998
	and filed on April 13, 1998.          

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