##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

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,
    2002.                                                                      
|          
|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



---

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 West 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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes o          No þ

As of March 31, 2003, the registrant had
100 shares of Common Stock, par value $.01 per share
outstanding.



---






---

TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                           
|                                                  | 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 7A. Qualitative and Quantitative Disclosures about Market Risk                          
|                                                  | 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 11. Executive Compensation                                                              
|                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                  | Item 13. Certain Relationships and Related Transactions                                      
|                                                  | Item 14. Controls and Procedures                                                             
|PART IV                                          
|                                                  | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                       
|EXHIBIT INDEX                                    
|EX-10.9 Employment Agreement-Jeff L. Hull        
|EX-10.10 Change of Control Agreement-Jeff L. Hull
|EX-10.11 Employment Agreement-Eric W. Long       
|EX-10.12 Change of Control Agreement-Eric W. Long
|EX-10.13 Employment Agreement-Robert E. Burns    
|EX-10.17 Employment Agreement-C. Douglas Cross   
|EX-10.25 Employment Agreement-Philip J. Ragona   
|EX-10.46 Indemnification Agreement-Philip Ragona 
|EX-10.47 Indemnification Agreement-W. Andrew Shea
|Am No.1 to the Receivable Purchase Agreement     
|Am No.2 to the Receivable Purchase Agreement     
|EX-21.1 Subsidiaries                             



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

2002 FORM 10-K

TABLE OF CONTENTS

|         |  |                                                                                           |  |      |    | 
|-------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|Item No. |  | Description                                                                               |  | Page
|         |  |                                                                                           |  |     
|PART I  
|ITEM 1.  |  | BUSINESS                                                                                  |  |      | 2  | 
|ITEM 2.  |  | PROPERTIES                                                                                |  |      | 13 | 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                         |  |      | 14 | 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS                                   |  |      | 14 | 
|PART II 
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND
    RELATED STOCKHOLDER MATTERS                 |  |      | 14 | 
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                   |  |      | 16 | 
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  |      | 18 | 
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK                            |  |      | 27 | 
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                               |  |      | 28 | 
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE  |  |      | 28 | 
|PART III
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                        |  |      | 29 | 
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                    |  |      | 31 | 
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
    AND MANAGEMENT                        |  |      | 36 | 
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                            |  |      | 38 | 
|ITEM 14. |  | CONTROLS AND PROCEDURES                                                                   |  |      | 39 | 
|PART IV 
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
    REPORTS ON FORM 8-K                       |  |      | 40 | 

1



---



##### 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

Organizational Structure

Either of the terms Company or Atrium 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 table below sets
forth each of the Companys wholly-owned subsidiaries and
its date of inception or acquisition, as applicable.

|              |                                                                                                                                                                                                                                                                      |                                                                                                                                                     |  |      |  | 
|------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- |  | 
|              |                                                                                                                                                                                                                                                                      | Year of                                                                                                                                            
|Subsidiary    |                                                                                                                                                                                                                                                                      | Inception/Acquisition(a)                                                                                                                           
|              |                                                                                                                                                                                                                                                                      |                                                                                                                                                    
| Northeast:  |                                                                                                                                                                                                                                                                      |                                                                                                                                                     |  |     
|              | Atrium Door and Window Company of the Northeast                                                                                                                                                                                                                      |                                                                                                                                                     |  | 1996 | 
|              |                                                                                                                                                                                                                                                                      | (formerly known as Vinyl Building Specialists of
    Connecticut, Inc.)                                                                             |  |      |  | 
|              | Atrium Door and Window Company of New England                                                                                                                                                                                                                        |                                                                                                                                                     |  | n/a  | 
|              |                                                                                                                                                                                                                                                                      | (formerly known as Bishop Manufacturing Company
    of New England, Inc. and since merged into Atrium Door and
    Window Company of the Northeast) |  |      |  | 
|              | Atrium Door and Window Company of New York                                                                                                                                                                                                                           |                                                                                                                                                     |  | n/a  | 
|              |                                                                                                                                                                                                                                                                      | (formerly known as Bishop Manufacturing Co. of
    New York, Inc. and since merged into Atrium)                                                     |  |      |  | 
|              | Atrium Door and Window Company of the
    Northeast, Atrium Door and Window Company of New England, and
    Atrium Door and Window Company of New York are collectively
    referred to as Northeast (acquired entities
    collectively referred to as Bishop.) |                                                                                                                                                     |  |      | 
| West Coast: |                                                                                                                                                                                                                                                                      |                                                                                                                                                     |  |     
|              | Atrium Door and Window Company  West
    Coast                                                                                                                                                                                                                      |                                                                                                                                                     |  | 1997 | 
|              |                                                                                                                                                                                                                                                                      | (formerly known as H-R Window Supply, Inc.)                                                                                                         |  |      |  | 
|              | Atrium Door and Window Company 
    West Coast is referred to as West Coast.                                                                                                                                                                                      |                                                                                                                                                     |  |      | 
| Arizona:    |                                                                                                                                                                                                                                                                      |                                                                                                                                                     |  |     
|              | Atrium Door and Window Company of Arizona                                                                                                                                                                                                                            |                                                                                                                                                     |  | 1998 | 
|              | Atrium Door and Window Company of Arizona is
    referred to as Arizona.                                                                                                                                                                                           |                                                                                                                                                     |  |      | 
| Darby:      |                                                                                                                                                                                                                                                                      |                                                                                                                                                     |  |     
|              | R.G. Darby Company, Inc.                                                                                                                                                                                                                                             |                                                                                                                                                     |  | 1998 | 
|              | Total Trim, Inc.                                                                                                                                                                                                                                                     |                                                                                                                                                     |  | 1998 | 
|              | R.G. Darby Company  South (since
    merged into Door Holdings, Inc.)                                                                                                                                                                                               |                                                                                                                                                     |  | n/a  | 
|              | Total Trim, Inc.  South (since merged
    into Door Holdings, Inc.)                                                                                                                                                                                                 |                                                                                                                                                     |  | n/a  | 

2



---



##### Table of Contents



|                                 |                                                                                                                                                                                |                                                                                            |      |      |  | 
|-------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------ | ---- | ---- |  | 
|                                 |                                                                                                                                                                                | Year of                                                                                   
|Subsidiary                       |                                                                                                                                                                                | Inception/Acquisition(a)                                                                  
|                                 |                                                                                                                                                                                |                                                                                           
|                                 | Door Holdings, Inc. (since merged into Atrium)                                                                                                                                 |                                                                                            |      | n/a  | 
|                                 | R.G. Darby Company, Inc., Total Trim,
    Inc., R.G. Darby Company  South, Total Trim,
    Inc.  South, and Door Holdings, Inc. are collectively
    referred to as Darby. |                                                                                            |      |      | 
|                                 | R.G. Darby Company  South and
    Total Trim, Inc.  South are collectively referred to
    as Darby  South.                                                               |                                                                                            |      |      | 
| Wing:                          |                                                                                                                                                                                |                                                                                            |      |     
|                                 | Wing Industries, Inc.                                                                                                                                                          |                                                                                            |      | 1998 | 
|                                 | Wing Industries Holdings, Inc. (since merged into
    Atrium)                                                                                                                  |                                                                                            |      | n/a  | 
|                                 | Wing Industries, Inc. and Wing Industries
    Holdings, Inc. are collectively referred to as
    Wing.                                                                       |                                                                                            |      |      | 
| Rockies:                       |                                                                                                                                                                                |                                                                                            |      |     
|                                 | Atrium Door and Window Company of the Rockies                                                                                                                                  |                                                                                            |      | 1999 | 
|                                 |                                                                                                                                                                                | (formerly known as Champagne Industries, Inc. and
    formerly referred to as Champagne) |      |      |  | 
|                                 | Atrium Door and Window Company of the Rockies
    is referred to as Rockies.                                                                                                 |                                                                                            |      |      | 
| Heat:                          |                                                                                                                                                                                |                                                                                            |      |     
|                                 | Atrium Vinyl, Inc.                                                                                                                                                             |                                                                                            |      | 1999 | 
|                                 |                                                                                                                                                                                | (formerly known as Heat, Inc.)                                                             |      |      |  | 
|                                 | Thermal Industries, Inc.                                                                                                                                                       |                                                                                            |      | 1999 | 
|                                 | Thermal Industries, Inc. is referred to as
    Thermal.                                                                                                                      |                                                                                            |      |      | 
|                                 | Atrium Door and Window Company of the Northwest                                                                                                                                |                                                                                            |      | 1999 | 
|                                 |                                                                                                                                                                                | (formerly known as Best Built, Inc.)                                                       |      |      |  | 
|                                 | Atrium Door and Window Company of the
    Northwest is referred to as Northwest.                                                                                             |                                                                                            |      |      | 
|                                 | Atrium Vinyl Inc., Thermal Industries, Inc.
    and Atrium Door and Window Company of the Northwest are
    collectively referred to as Heat.                                |                                                                                            |      |      | 
| Ellison:                       |                                                                                                                                                                                |                                                                                            |      |     
|                                 | Atrium Extrusion Systems, Inc.                                                                                                                                                 |                                                                                            |      | 2000 | 
|                                 |                                                                                                                                                                                | (formerly known as VES, Inc.)                                                              |      |      |  | 
|                                 | Atrium Extrusion Systems, Inc. and
    Atriums Ellison Windows and Doors division are
    collectively referred to as Ellison.                                              |                                                                                            |      |      | 
| Atrium Funding
    Corporation |                                                                                                                                                                                |                                                                                            | 2001 |     
| Mexico:                        |                                                                                                                                                                                |                                                                                            |      |     
|                                 | Atrium Ventanas de Mexico                                                                                                                                                      |                                                                                            |      | 2002 | 
|                                 | Atrium Servicios de Mexico                                                                                                                                                     |                                                                                            |      | 2002 | 
|                                 | Atrium Ventanas de Mexico and Atrium Servicios
    de Mexico are collectively referred to as Atrium
    Mexico.                                                              |                                                                                            |      |      | 
| MD Casting, Inc.               |                                                                                                                                                                                |                                                                                            | 2003 |     



---



|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|(a) | Year of inception/acquisition presented for
    currently existing subsidiaries, only.

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

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

3



---



##### Table of Contents



December 31, 2002. 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, D.R. Horton and The
Home Depot, Inc. We have grown rapidly through a combination of
internal growth and complementary acquisitions.


We have a balanced business mix, as measured by
managements estimates of the percentage of net sales
during 2002 and 2001 derived from the market segments we serve
and the material types we use in our products which is reflected
in the following table:

|                                                                                  |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|--------------------------------------------------------------------------------- |  | ----------------- | ------- | ----------------- |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                                                                                  |  |                  
|                                                                                  |  | Year Ended       
|                                                                                  |  |                  
|                                                                                  |  |                   |         |                  
|                                                                                  |  | December 31, 2002 |         | December 31, 2001
|                                                                                  |  |                   |         |                  
|                                                                                  |  |                   |         |                   |  |  |     |  
|                                                                                  |  |                  
|                                                                                  |  | (in thousands)   
|Market Segment                                                                    |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|Repair and remodeling                                                             |  | $                 | 241,418 |                   |  |  | 45  | % |  | $ | 248,190 |  |  |  | 48  | %
|New construction                                                                  |  |                   | 294,881 |                   |  |  | 55  | % |  |   | 268,873 |  |  |  | 52  | %
|                                                                                  |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|                                                                                  |  |                   | 536,299 |                   |  |  | 100 | % |  |   | 517,063 |  |  |  | 100 | %
|                                                                                  |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|Material Type                                                                     |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|Vinyl                                                                             |  | $                 | 289,284 |                   |  |  | 54  | % |  | $ | 282,488 |  |  |  | 55  | %
|Aluminum                                                                          |  |                   | 179,702 |                   |  |  | 33  | % |  |   | 160,216 |  |  |  | 31  | %
|Other products and services, including sales of
    aluminum and vinyl extrusions |  |                   | 67,313  |                   |  |  | 13  | % |  |   | 74,359  |  |  |  | 14  | %
|                                                                                  |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|                                                                                  |  | $                 | 536,299 |                   |  |  | 100 | % |  | $ | 517,063 |  |  |  | 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 2/3 of window and patio door industry
unit sales in 2002.

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 45 manufacturing facilities and
distribution centers strategically located in 22 states to
service customers on a nationwide basis. We also have a
distribution center located in Mexico City, Mexico. We
distribute through multiple channels, including direct
distribution to homebuilders, multi-family builders, remodelers/
contractors, one-step distribution through home centers,
lumberyards and retail distributors, and two-step distribution
to wholesale distributors who subsequently resell to lumberyards
and retail distributors. 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 homebuilders, multi-family builders, remodelers/contractors,
    home centers, lumberyards, retail and wholesale distributors.

4



---



##### Table of Contents





| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 and
    remodelers/contractors through company-owned distribution
    centers located across the United States.

We have completed ten 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.

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 7%. 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 and patio door 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 29 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
    Pulte, D.R. Horton and Summit Contractors, and home center
    retailing, including The Home Depot. 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.                                                                                                                                                                                                                              

5



---



##### Table of Contents



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 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 selectively starting or acquiring operations that complement
    our geographic coverage and product offerings. During 2002, we
    opened a distribution center in Mexico City, Mexico for the
    distribution of windows and extrusion.                                                                                             
|
| |  | Extend and Cross-Sell Product Offerings.We are taking 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 of 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 lead to an overall increase in our
    profitability.                                                                                                        
|
| |  | Make Selective Strategic Acquisitions.We have successfully consummated and
    integrated ten 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.                                                                                                      

6



---



##### Table of Contents



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 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 net sales in 2002 and 2001 is as follows:

|                                                                                 |  |                   |     |                   |  |  |     |  
|-------------------------------------------------------------------------------- |  | ----------------- | --- | ----------------- |  |  | --- | -
|                                                                                 |  | Year Ended        |     | Year Ended       
|                                                                                 |  | December 31, 2002 |     | December 31, 2001
|                                                                                 |  |                   |     |                  
|Product Type                                                                     |  |                   |     |                   |  |  |     |  
|Windows                                                                          |  |                   | 77  | %                 |  |  | 74  | %
|Patio Doors                                                                      |  |                   | 8   |                   |  |  | 12  |  
|Other products and services, including sale of
    aluminum and vinyl extrusions |  |                   | 15  |                   |  |  | 14  |  
|                                                                                 |  |                   |     |                   |  |  |     |  
|                                                                                 |  |                   | 100 | %                 |  |  | 100 | %
|                                                                                 |  |                   |     |                   |  |  |     |  

Windows.We had
approximately $411 million in net sales from the sale of
windows in 2002. We estimate that our net sales from the sales
of windows in 2002 were comprised of 40% from the sale of
aluminum products and 60% from vinyl products. Our window
products include sliders, single hung, double hung and casement
products and are sold under the Atrium®,
H-R WindowsTM,
ThermalTM, Ellison®, Best
BuiltTM and Kel-StarTM brand
names, as well as private label brand names.

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 strategic acquisitions. The
    acquisitions by Atrium Companies, Inc. (the previous registrant)
    of Bishop in 1996 and the assets of the Western Window Division
    of Gentek Building Products, Inc. (now known as West Coast) in
    1997, and the acquisitions by the Company of Heat and Champagne
    in 1999 and Ellison in 2000 increased our presence in the vinyl
    window business such that sales of vinyl windows represent
    approximately 46% of our total net sales in 2002, as compared to
    approximately 32% of our total net sales in 2000.

Patio Doors.We had
approximately $43 million in net sales from the sale of
patio doors in 2002. Our patio door products are sold under the
Atrium®, Best BuiltTM,
H-R WindowsTM and Ellison® brand
names.

Other Products and Services.We had approximately $82 million
in net sales from the sale of other products and services in
2002. 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

7



---



##### Table of Contents



with retaining reliable work crews and provides
protection from cost overruns. We believe that developers view
this as a value added service.


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 29 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.
Although home centers have become more important to us because
they target the repair and remodeling market segment, they still
accounted for less than 20% of our total net sales during 2002
and 2001. One of our goals is to continue to increase our market
share in the repair and remodeling market.

We utilize the following distribution channels:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Direct Distribution (approximately 31% of our
    net sales from the sale of windows and patio doors in
    2002).Direct distribution is the
    selling of our windows and patio doors directly to homebuilders,
    multi-family builders and remodelers/ contractors without the
    use of an intermediary. By selling direct, we are able to
    increase our profit margins while at the same time offer
    builders more favorable pricing.                                                                                                                                                                                                                                                                                                                                                   
|
| |  | One-Step Distribution, Including Home Center
    Sales (approximately 65% of our net sales from the sale of
    windows and patio doors in 2002 with home center sales
    representing approximately 19%).One-step distribution is the selling of our windows and patio
    doors to home centers, lumberyards, retail distributors and
    company-owned distribution centers, which will then sell to
    homeowners, homebuilders and remodelers/ contractors. While it
    is not required that lumberyards and retail 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 29 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 4% of our
    net sales from the sale of windows and patio doors in
    2002).Two-step distribution is the
    selling of windows and patio doors to a wholesale distributor
    who then sells the products to home centers, lumberyards and
    retail distributors. These intermediaries will in turn sell the
    windows and patio doors to homeowners, homebuilders and
    remodelers/ contractors. Wholesale 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-StarTM, Best BuiltTM,
Ellison®, Thermal TM and
H-R WindowsTM. 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
BuiltTM, Ellison® and
Kel-StarTM 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.

8



---



##### Table of Contents



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 invest in in-store displays and
kiosks, and product knowledge classes for customers
employees 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, company sales representatives and independent sales
representatives. The sales managers coordinate marketing
activities among both company and independent sales
representatives. Our company sales representatives focus
primarily on direct sales to homebuilders, multi-family builders
and remodelers/ contractors, while independent sales
representatives sell to home centers, lumberyards and retail and
wholesale distributors. 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
purchase the entire 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 Pulte and D.R. Horton, two of the nations
largest home-builders, and The Home Depot, the nations
largest home center retailer.

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 raw 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 favorable pricing 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 17 manufacturing operations
nationwide.

9



---



##### Table of Contents



Industry Overview

In 2002, construction spending in the United
States totaled over $643 billion. Of the total, residential
spending totaled approximately $416 billion. Within the
residential construction market, replacement spending totaled
approximately $174 billion. In 2002, new housing starts in
the United States totaled approximately 1.8 million units
of which approximately 1.5 million units were single-family
homes and approximately 300,000 units were multi-family
units. Historical residential repair and remodeling expenditures
have demonstrated consistent growth dynamics increasing from
approximately $15 billion to approximately
$174 billion during the period from 1970 to 2002 and
averaging a compound annual growth rate of 8.0%.

Windows.The
domestic window market has grown to approximately
60.7 million in unit sales in 2002, 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 20.4 million
windows sold in 2002, and repair and remodeling, with
approximately 40.3 million windows sold in 2002. 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 6.7 million units in 2002. 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 65%
of all patio door units sold in the United States in 2002.

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.

Competition

Despite the recent consolidation, the residential
window and patio door industry remains 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 Great Lakes Windows (Nortek, Inc.) in the
Northeast, Simonton Windows in the Mid-Atlantic and Southeast
and Milgard Manufacturing, Inc. (Masco Corp.) and Viking
Industries, Inc. (Pella Corporation) 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

10



---



##### Table of Contents



used in the production of our windows and patio
doors are readily available and are procured from numerous
suppliers.


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, 2002, we estimate
that approximately 55% 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 4,420 people, of whom
approximately 4,330 are employed at our manufacturing facilities
and distribution centers and approximately 90 are employed at
our corporate headquarters in Dallas, Texas. Approximately 1,260
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 four manufacturing facilities located in
Dallas, Texas. The collective bargaining agreement expires in
May 2004. 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 unforeseen
expenditures 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 material adverse effect on
our capital expenditures, results of operations or competitive
position. We cannot assure you that the discovery of presently
unknown environmental conditions, changes in environmental
claims that may

11



---



##### Table of Contents



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


Trademarks and Patents

We own the following trademarks, which are
registered in the United States: Atrium, The Atrium Door, The
French Classic, Masterview, Weatherlok and Ellison. We have
a pending application for a trademark entitled PRO100. We
consider our trademarks to be of significant importance in our
business. In addition, we are not aware of any circumstances
that would have a material adverse effect on our ability to use
our trademarks. As long as we continue to renew our trademarks
when necessary, the trademark protection provided by them is
perpetual.

Recent Developments

On January 31, 2003, the Company, through
its newly-formed and wholly-owned subsidiary, MD Casting, Inc.
(MD Casting) completed the acquisition of
substantially all of the operating assets of Miniature Die
Casting of Texas, L.P. for a purchase price of
$3.25 million with an additional amount of up to $600,000
to be paid over three years upon the achievement of certain
financial targets. MD Casting is a zinc die cast hardware
manufacturer located in Fort Worth, Texas. The Company
financed the acquisition through its revolving credit facility.
The results of operations of MD Casting will be included in the
Companys consolidated financial statements beginning on
February 1, 2003.

On February 14, 2003, the Company entered
into a definitive asset purchase agreement to acquire the assets
of Danvid Window Company (Danvid), a wholly-owned
subsidiary of American Architectural Products Corporation.
Danvid is an aluminum and vinyl window and door manufacturer
located in Dallas, Texas. The purchase price of Danvid is
$5.8 million and the assumption of certain liabilities.
Danvid is being purchased out of bankruptcy (with both Danvid
and its parent operating as a debtor-in-possession under
Chapter 11) pursuant to a Section 363 auction sale.
The transaction is expected to close April 1, 2003 and will
be financed through the Companys revolving credit facility.

12



---



##### Table of Contents








|        |           
|------- | ----------
|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 | 
|New Boston, Texas          |  | Fabrication of aluminum windows               |  |               | 30,000    |           |  |  | Lease | 
|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           |  | Idle Facility (Sublet)                        |  |               | 180,000   |           |  |  | Lease | 
|Anaheim, California        |  | Fabrication of vinyl windows                  |  |               | 80,000    |           |  |  | Lease | 
|Hayward, California        |  | Distribution of vinyl windows                 |  |               | 20,400    |           |  |  | Lease | 
|Chatsworth, California     |  | Distribution of vinyl windows                 |  |               | 10,000    |           |  |  | 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 (Sublet)                        |  |               | 30,000    |           |  |  | Own   | 
|Greenville, Texas          |  | Idle Facility (Sublet)                        |  |               | 300,000   |           |  |  | 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 | 
|Pittsburgh, Pennsylvania   |  | Showroom                                      |  |               | 10,000    |           |  |  | Lease | 
|Welcome, North Carolina    |  | Fabrication of vinyl windows                  |  |               | 376,210   |           |  |  | Lease | 
|Welcome, North Carolina    |  | Extrusion of vinyl                            |  |               | 51,300    |           |  |  | Lease | 
|Yakima, Washington         |  | Fabrication of vinyl windows                  |  |               | 58,000    |           |  |  | Lease | 
|Mexico City, Mexico        |  | Distribution of windows and extrusion         |  |               | 650       |           |  |  | Lease | 
|                           |  |                                               |  |               |           |           |  |  |       | 
|                           |  | Total                                         |  |               | 2,887,140 |           |  |  |       | 
|                           |  |                                               |  |               |           |           |  |  |       | 

Additionally, our subsidiary, Thermal Industries,
Inc., leases 21 distribution warehouses in 14 states for
vinyl window distribution with sites averaging
10,738 square feet.

We maintain our corporate headquarters in Dallas,
Texas. This 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.

13



---



##### Table of Contents








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

The Company and its subsidiary, formerly known as
Champagne (now known as Atrium Door and Window Company of the
Rockies), are defendants in a purported class action lawsuit
pending in federal district court in Boulder, Colorado in which
63 homeowners have sued the Company and Champagne, along
with three other home builder and home product manufacturer
defendants. The claims asserted against Champagne allege
manufacturing and design defects associated with its Imperial
window, a half-jamb wood window manufactured by Champagne and
installed in plaintiffs homes between 1986 and 1997. The
claims asserted against the Company, which purchased Champagne
in 1999, are based on alter ego and successor liability
theories. The plaintiffs, which claim to represent a purported
class of 4,500 homeowners with Imperial windows, seek damages in
an unspecified amount for repair and replacement of windows and
other resulting damage, together with other relief permitted
under applicable law and equity. In addition, one of the home
builder defendants has filed a cross-claim against Champagne
seeking indemnification in an amount of $2.8 million. We
believe the Company and Champagne have meritorious defenses and
are vigorously defending against these claims.

The case is currently before the court on
plaintiffs motion for class certification, which the trial
judge is expected to rule upon sometime in the next two to eight
months. While a vigorous defense of the case has been presented
related to the class certification issues, we believe there is a
likelihood that class certification will be granted. Because of
the fact that little discovery has been taken to date with
respect to alleged damages, together with the uncertainty with
regard to class certification, apportionment of liability among
the defendants, and insurance coverage, it is not possible at
this time to reasonably predict the final outcome of this
lawsuit, or reasonably to estimate any possible loss. We believe
that most, if not all of any such loss would be covered by third
party insurance such that the ultimate outcome of this matter is
not likely to result in a material adverse affect on the Company.

The Company and its insurance carriers have been
involved in preliminary settlement discussions and we currently
anticipate that most, if not all, of the cash funds for any
settlement would be covered by insurance. However, if the case
were to proceed to trial, there can be no assurance that a
judgment would not be awarded that is significantly higher than
the current settlement demand, or that a significant portion of
any judgment amount would not be covered by insurance.

In addition to the litigation described above,
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.






|        |                                                        
|------- | -------------------------------------------------------
|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.

To date, we have not paid any dividends on our
common stock and do not expect to pay any dividends on our
common stock in the foreseeable future.

14



---



##### Table of Contents



Equity Compensation Plans

|                                                   |  |                      |        |                   |  |                         |       |  |  |  |       | 
|-------------------------------------------------- |  | -------------------- | ------ | ----------------- |  | ----------------------- | ----- |  |  |  | ----- | 
|                                                   |  |                      |        | Weighted-average  |  |                        
|                                                   |  | Number of shares to  |        | exercise price of |  | Number of shares       
|                                                   |  | be issued upon       |        | outstanding       |  | remaining available for
|                                                   |  | exercise of          |        | options,          |  | future issuance under  
|                                                   |  | outstanding options, |        | warrants, and     |  | equity compensation    
|                                                   |  | warrants and rights  |        | rights            |  | plans                  
|                                                   |  |                      |        |                   |  |                        
|Plan Category                                      |  |                      |        |                   |  |                         |       |  |  |  |       | 
|Equity compensation plans approved by stockholders |  |                      | 10,611 |                   |  | $                       | 1,136 |  |  |  | 6,710 | 
|                                                   |  |                      |        |                   |  |                         |       |  |  |  |       | 



---



|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|* | We do not have equity compensation plans which
    were not approved by stockholders.

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, 2002, a
total of 9,423 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
optionees have the right to exercise the vested portion of any
option. Also, upon termination of any 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, 2002, a total of 1,188 option 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.

15



---



##### Table of Contents



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 any
optionees family members or personal representative.






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

The selected income statement data set forth
below for the years ended December 31, 1998, 1999, 2000,
2001 and 2002, and the selected balance sheet data as of
December 31, 1998, 1999, 2000, 2001 and 2002 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 Holdings, Inc.
(D and W), our then ultimate parent,
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. Additionally, the operations of
Darby-South are included since its date of acquisition,
January 27, 1999, the operations of Heat and Champagne 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, 1999 balance sheet data includes the accounts
of the

16



---



##### Table of Contents



Company, Wing, Darby, Darby-South, Heat and
Champagne. The December 31, 1998 balance sheet data
includes the accounts of the Company, Wing and Darby.


|                                    |                                                                |                         |   |          |   |      |   |          |   |      |   |         |   |  |   |         |   |  |   |         |  
|----------------------------------- | -------------------------------------------------------------- | ----------------------- | - | -------- | - | ---- | - | -------- | - | ---- | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                    |                                                                |                        
|                                    |                                                                | Year Ended December 31,
|                                    |                                                                |                        
|                                    |                                                                | 1998                    |   | 1999     |   | 2000 |   | 2001     |   | 2002
|                                    |                                                                |                         |   |          |   |      |   |          |   |     
|                                    |                                                                |                        
|                                    |                                                                | (dollars in thousands) 
|Income Statement Data:              |                                                                |                         |   |          |   |      |   |          |   |      |   |         |   |  |   |         |   |  |   |        
|                                    | Net sales                                                      |                         | $ | 208,234  |   |      | $ | 493,923  |   |      | $ | 492,303 |   |  | $ | 517,063 |   |  | $ | 536,299 |  
|                                    | Income (loss) before income taxes and
    extraordinary charge |                         |   | (2,329   | ) |      |   | 10,795   |   |      |   | (75,266 | ) |  |   | (2,671  | ) |  |   | 14,813  |  
|                                    | Net income (loss)                                              |                         |   | (2,819   | ) |      |   | 2,218    |   |      |   | (74,326 | ) |  |   | (4,866  | ) |  |   | 13,984  |  
|Balance Sheet Data (end of period): |                                                                |                         |   |          |   |      |   |          |   |      |   |         |   |  |   |         |   |  |   |        
|                                    | Total assets                                                   |                         | $ | 359,869  |   |      | $ | 484,136  |   |      | $ | 542,335 |   |  | $ | 484,207 |   |  | $ | 488,320 |  
|                                    | Total debt                                                     |                         |   | 179,227  |   |      |   | 316,711  |   |      |   | 355,348 |   |  |   | 310,554 |   |  |   | 298,025 |  
|Other Data:                         |                                                                |                         |   |          |   |      |   |          |   |      |   |         |   |  |   |         |   |  |   |        
|                                    | EBITDA(1)                                                      |                         | $ | 14,732   |   |      | $ | 55,394   |   |      | $ | 5,923   |   |  | $ | 65,194  |   |  | $ | 71,109  |  
|                                    | Depreciation and amortization                                  |                         |   | 4,129    |   |      |   | 14,061   |   |      |   | 16,483  |   |  |   | 24,415  |   |  |   | 14,885  |  
|                                    | Stock compensation expense                                     |                         |   | 3,851    |   |      |   | 128      |   |      |   |        |   |  |   | 582     |   |  |   | 383     |  
|                                    | Interest expense                                               |                         |   | 9,081    |   |      |   | 28,524   |   |      |   | 36,967  |   |  |   | 39,113  |   |  |   | 35,697  |  
|                                    | Securitization expense                                         |                         |   |         |   |      |   |         |   |      |   |        |   |  |   | 1,532   |   |  |   | 1,133   |  
|Cash Flows provided by (used in):   |                                                                |                         |   |          |   |      |   |          |   |      |   |         |   |  |   |         |   |  |   |        
|                                    | Operating activities                                           |                         | $ | (10,253  | ) |      | $ | 8,835    |   |      | $ | (4,441  | ) |  | $ | 50,437  |   |  | $ | 27,089  |  
|                                    | Investing activities                                           |                         |   | (125,184 | ) |      |   | (108,480 | ) |      |   | (89,780 | ) |  |   | (10,596 | ) |  |   | (15,335 | )
|                                    | Financing activities                                           |                         |   | 135,403  |   |      |   | 100,939  |   |      |   | 97,573  |   |  |   | (43,240 | ) |  |   | (11,870 | )



---



|      |                                                                                                                                            
|----- | -------------------------------------------------------------------------------------------------------------------------------------------
|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 $4,198 in 2002 related to
    liabilities associated with the divestiture of the assets of
    Wing. The special charges of $1,213 in 2001 related to the
    shutdown of our Woodville, Texas facility and to
    non-capitalizable legal fees incurred to amend our credit
    agreement in 2001. 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

17



---



##### Table of Contents



| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | companies within the building materials industry.
    The reconciliation of net income (in accordance with GAAP) to
    EBITDA is summarized as follows:

|                               |  |                         |        |      |  |      |        |      |  |      |         |   |  |   |        |   |  |   |        | 
|------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | - |  | - | ------ | 
|                               |  |                        
|                               |  | Year Ended December 31,
|                               |  |                        
|                               |  | 1998                    |        | 1999 |  | 2000 |        | 2001 |  | 2002
|                               |  |                         |        |      |  |      |        |      |  |     
|                               |  |                        
|                               |  | (dollars in thousands) 
|Net income                     |  | $                       | (2,819 | )    |  | $    | 2,218  |      |  | $    | (74,326 | ) |  | $ | (4,866 | ) |  | $ | 13,984 | 
|Interest expense               |  |                         | 9,081  |      |  |      | 28,524 |      |  |      | 36,967  |   |  |   | 39,113 |   |  |   | 35,697 | 
|Securitization expense         |  |                         |       |      |  |      |       |      |  |      |        |   |  |   | 1,532  |   |  |   | 1,133  | 
|Income taxes                   |  |                         | (149   | )    |  |      | 6,641  |      |  |      | (940    | ) |  |   | 1,358  |   |  |   | 625    | 
|Extraordinary charge           |  |                         | 639    |      |  |      | 1,936  |      |  |      |        |   |  |   | 837    |   |  |   | 204    | 
|Depreciation and amortization  |  |                         | 4,129  |      |  |      | 14,061 |      |  |      | 16,483  |   |  |   | 24,415 |   |  |   | 14,885 | 
|Special charges                |  |                         |       |      |  |      | 1,886  |      |  |      | 27,739  |   |  |   | 1,213  |   |  |   | 4,198  | 
|Stock compensation expense     |  |                         | 3,851  |      |  |      | 128    |      |  |      |        |   |  |   | 582    |   |  |   | 383    | 
|Special writedown of inventory |  |                         |       |      |  |      |       |      |  |      |        |   |  |   | 1,010  |   |  |   |       | 
|                               |  |                         |        |      |  |      |        |      |  |      |         |   |  |   |        |   |  |   |        | 
|EBITDA                         |  | $                       | 14,732 |      |  | $    | 55,394 |      |  | $    | 5,923   |   |  | $ | 65,194 |   |  | $ | 71,109 | 
|                               |  |                         |        |      |  |      |        |      |  |      |         |   |  |   |        |   |  |   |        | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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, our
then ultimate parent, 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 Asset Management, 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 Greenwich, 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, D and W Acquisition Corp., 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
Corporation.

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

18



---



##### Table of Contents



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
and long-lived assets, 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 specific and detailed guidelines in measuring 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 annually in the fourth quarter of
    each year in addition to 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
    our 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.

19



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 our
    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 certain 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.                                                                                 
|
| |  | Deferred taxes.We
    establish deferred tax assets and liabilities based on profits
    or losses in each jurisdiction in which we operate. Associated
    valuation allowances reflect our evaluation of the likelihood of
    the recoverability of these assets. Our judgment is based
    primarily on our historical earnings, expected future earnings
    as well as prudent and feasible tax planning strategies.                                                                                                       

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,
|                                                                                                                               |  |                        
|                                                                                                                               |  | 2002                    |       | 2001 |  | 2000
|                                                                                                                               |  |                         |       |      |  |     
|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)                |  |                         | 67.2  |      |  |      | 68.6  |    |  |  | 75.4  |   
|                                                                                                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|Gross profit                                                                                                                   |  |                         | 32.8  |      |  |      | 31.4  |    |  |  | 24.6  |   
|OPERATING EXPENSES:                                                                                                            |  |                         |       |      |  |      |       |    |  |  |       |   
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization) |  |                         | 21.7  |      |  |      | 20.9  |    |  |  | 24.8  |   
|Securitization expense                                                                                                         |  |                         | 0.2   |      |  |      | 0.3   |    |  |  |      |   
|Stock compensation expense                                                                                                     |  |                         | 0.1   |      |  |      | 0.1   |    |  |  |      |   
|Amortization expense                                                                                                           |  |                         | 0.6   |      |  |      | 2.8   |    |  |  | 2.0   |   
|                                                                                                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE                                                                                  |  |                         |       |      |  |      |       |    |  |  |       |   
|EXPENSES                                                                                                                       |  |                         | 22.6  |      |  |      | 24.1  |    |  |  | 26.8  |   
|Special charges                                                                                                                |  |                         | 0.8   |      |  |      | 0.2   |    |  |  | 5.6   |   
|                                                                                                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|                                                                                                                               |  |                         | 23.4  |      |  |      | 24.3  |    |  |  | 32.4  |   
|                                                                                                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|Income (loss) from operations                                                                                                  |  |                         | 9.4   |      |  |      | 7.1   |    |  |  | (7.8  | ) 
|INTEREST EXPENSE                                                                                                               |  |                         | 6.7   |      |  |      | 7.6   |    |  |  | 7.5   |   
|OTHER INCOME, net                                                                                                              |  |                         |      |      |  |      |      |    |  |  | 0.1   |   
|                                                                                                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|Income (loss) before income taxes and
    extraordinary charge                                                                 |  |                         | 2.7   |      |  |      | (0.5  | )  |  |  | (15.2 | ) 
|PROVISION (BENEFIT) FOR INCOME TAXES                                                                                           |  |                         | 0.1   |      |  |      | 0.3   |    |  |  | (0.2  | ) 
|                                                                                                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|Income (loss) before extraordinary charge                                                                                      |  |                         | 2.6   |      |  |      | (0.8  | )  |  |  | (15.0 | ) 
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF                                                                                    |  |                         |       |      |  |      |       |    |  |  |       |   
|DEBT (net of income tax benefit of $0 in 2002 and
    2001)                                                                    |  |                         |      |      |  |      | 0.2   |    |  |  |      |   
|                                                                                                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|NET INCOME (LOSS)                                                                                                              |  |                         | 2.6   | %    |  |      | (1.0  | )% |  |  | (15.0 | )%
|                                                                                                                               |  |                         |       |      |  |      |       |    |  |  |       |   

20



---



##### Table of Contents





| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    to Year Ended December 31, 2001

Net Sales.Net sales
increased by $19,236 from $517,063 in 2001 to $536,299 in 2002,
or approximately 3.7%. The increase in net sales during 2002 was
due to an increase in volume at our aluminum and vinyl window
operations, offset by a decline in sales at the Darby and
aluminum extrusion operations. Net sales at our aluminum window
operations increased $18,898, or 11.8% over 2001. This increase
was primarily due to increased volume to our home center
customers. Net sales at our vinyl window operations increased
$7,423, or 2.6% over 2001. The growth rate at our vinyl window
operations was hindered by soft sales at our Northwest and
Rockies operations due to general economic slowdowns in their
respective markets. The decrease at our aluminum extrusion
operation was virtually all related to declining aluminum prices
which affect the overall selling price of the extrusion product,
while the decrease at our Darby operations was a result of
softer demand in the multi-family market.

Cost of Goods Sold.Cost of goods sold improved from 68.6%
of net sales during 2001 to 67.2% of net sales during 2002. The
improvement was primarily the result of a decrease in material
costs as a percentage of net sales, as material costs decreased
from 41.3% of net sales during 2001 to 39.8% of net sales during
2002. This decrease was due to our increased purchasing power
and the realization of synergies from acquisitions made in prior
years. This improvement, as a percentage of net sales, was
partially offset by an increase in our LIFO expense of $1,463,
as the LIFO expense during 2002 was $347 compared to a LIFO
benefit of $1,116 during 2001. Direct manufacturing expense
remained relatively flat as a percentage of net sales,
increasing from 27.3% of net sales during 2001 to 27.4% of net
sales during 2002. 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 $8,297 from $108,067
during 2001 (20.9% of net sales) to $116,364 during 2002 (21.7%
of net sales). The increase was partially due to an increase in
delivery expense, which increased $4,165 from $31,192 during
2001 (6.0% of net sales) to $35,357 during 2002 (6.6% of net
sales). The increase in delivery expense over 2001 was primarily
related to an increase in the volume of products shipped into
the Southern California market resulting in a longer average
distance per truckload, increased fuel prices and the variable
nature of delivery expense. General and administrative expenses
increased $4,034 from $41,447 during 2001 (8.0% of net sales) to
$45,481 during 2002 (8.5% of net sales). The increase in general
and administrative expenses was largely due to higher insurance
premiums, higher professional fees and an increase in salaries
and related payroll expenses offset by a reduction in bad debt
expense. The increase in professional fees was attributable to
the establishment of the Companys new operations in
Mexico, as well as legal fees for the successful defense against
a union organizing effort at one of the Companys
facilities. General and administrative expenses are net of gains
on sales of assets of $1,798 and $221 during 2001 and 2002,
respectively. The 2001 gain includes $1,741 from the sale of
certain vinyl extrusion assets while the 2002 gain includes $217
from the sale of an idle aluminum window manufacturing facility.
Selling expense, which consists primarily of commissions,
decreased slightly as a percentage of net sales from 6.9% during
2001 to 6.6% during 2002. The decrease was due to our ability to
leverage our sales force across a broader selling base.

Securitization Expense.The Company securitized its accounts
receivable during the third quarter of 2001. Securitization
expense decreased $399 from $1,532 in 2001 to $1,133 in 2002.
During 2002, securitization expense incurred by the Company
included a loss on the sale of accounts receivable, which
represented the interest expense and commitment fee components
of the transaction. During 2001, securitization expense of
$1,532 included $878 of fees associated with the placement of
our accounts receivable securitization facility and a loss on
the sale of accounts receivable of $654, which represented the
interest expense and commitment fee components of the
transaction.

Stock Compensation Expense.Stock compensation expense decreased
by $199 from $582 during 2001 to $383 during 2002. Stock
compensation expense during 2001 and 2002 included $282 and $83,
respectively, for the repurchase of outstanding stock options
from former employees and $300 of payments for services rendered
in the form of Atrium Corporation common stock issued to
Ardshiel, Inc.

21



---



##### Table of Contents



Amortization Expense.Amortization expense decreased $11,000
from $14,410 during 2001 to $3,410 during 2002. The decease was
primarily attributable to the Companys adoption of
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, which
eliminates the amortization of goodwill and subjects it to an
annual impairment test. Goodwill amortization for 2001 was
$11,725.

Special Charges.During 2002, we recorded a special
charge of $4,198 for liabilities associated with the divestiture
of Wing. The majority of this special charge is attributable to
$2,553 of exit costs incurred by the Company on the remaining
lease obligations at Wings former facilities. The special
charge also includes $1,645 of litigation expenses. During 2001,
we recorded special charges totaling $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.

Interest Expense.Interest expense decreased by $3,416
from $39,113 during 2001 to $35,697 during 2002. The decrease is
attributable to reduced debt level in 2002 as a result of
working capital improvements and the execution of the accounts
receivable securitization facility in August 2001, from which
the proceeds were used to repay a portion of our long-term debt.

Extraordinary Charge.Extraordinary charge decreased by $633
from $837 during 2001 to $204 during 2002. The extraordinary
charge during 2001 and 2002 consisted of the write-off of a
pro-rata portion of deferred financing costs of $837 and $204,
in connection with prepayment of debt of $20,000 and $6,544, for
the years ended December 31, 2001 and 2002, respectively.
The 2001 prepayment was from the proceeds of our securitization
of accounts receivable.



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

Net Sales.Net sales
increased by $24,760 from $492,303 in 2000 to $517,063 in 2001,
or approximately 5.0%. Net sales in 2001 increased primarily as
a result of the acquisition of Ellison during the fourth quarter
of 2000. Ellisons net sales, included in our results of
operations, increased by $113,870 from $18,724 in 2000 to
$132,594 in 2001. Additionally, the increase during 2001 was
partially due to increases from our vinyl window operations
(excluding the Ellison acquisition) as a result of increased
demand for vinyl windows. Net sales at these operations
increased $7,093, or 4.9% 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 $81,656 in 2000 to $0 in 2001 and the net
sales of Wood decreased from $7,853 in 2000 to $0 in 2001. The
increase during 2001 was also offset by decreases at our
aluminum window operations, as a result of inclement weather in
the first quarter, and at our aluminum extrusion operations,
primarily due to general softer demand. Net sales at these
operations decreased $12,086, or 4.9%, compared to 2000.

Cost of Goods Sold.Cost of goods sold improved from 75.4%
of net sales during 2000 to 68.6% of net sales during 2001. The
improvement as a percentage of net sales was primarily
attributable to the divestitures of the Wing and Wood
operations. The cost of goods sold as a percentage of net sales
during 2000 for Wing and Wood was 111.4% and 128.4%,
respectively. This improvement was partially offset by increases
at our aluminum and vinyl window operations. Cost of goods sold
at the aluminum window operations increased from 71.5% of net
sales during 2000 to 73.3% 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 shutdown of our Kel-Star
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, respectively. Cost of
goods sold at the vinyl window operations increased from 64.4%
of net sales during 2000 to 66.5% of net sales during 2001. The
increase was primarily due to the acquisition of Ellison.
Ellisons cost of goods sold was 68.6% of net sales during
2001. Included in the improvement in cost of goods sold during
2001 was an increase in our LIFO benefit of $2,657, as the LIFO
benefit during 2001 was $1,116 compared to the LIFO expense
during 2000 of $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.

22



---



##### Table of Contents



Selling, Delivery, General and Administrative
Expenses.Selling, delivery, general
and administrative expenses decreased $13,980 from $122,047
during 2000 (24.8% of net sales) to $108,067 during 2001 (20.9%
of net sales). The decrease was primarily due to the
divestitures of the Wing and Wood operations. Wings
selling, delivery, general and administrative expenses decreased
from $29,569 during 2000 to $0 during 2001. Woods selling,
delivery, general and administrative expenses decreased from
$3,698 during 2000 to $0 during 2001. The decrease during 2001
was partially offset by the acquisition of Ellison.
Ellisons selling, delivery, general and administrative
expenses included in our results of operations increased $17,689
from $3,239 during 2000 to $20,928 during 2001. The aluminum
window operations increased from 17.1% of net sales during 2000
to 17.9% of net sales during 2001 and the vinyl window
operations, excluding Ellison, improved from 28.0% of net sales
during 2000 to 25.5% of net sales during 2001. General and
administrative expenses are net of gains on sales of assets of
$695 and $1,798 during 2000 and 2001, respectively. The 2000
gain includes $446 from the sale of idle facilities and the 2001
gain includes $1,741 from the sale of certain vinyl extrusion
assets.

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 accounts receivable of $654, which
represented the interest expense component of the transaction.

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

Amortization Expense.Amortization expense 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.

Special Charges.During 2001, we recorded special
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 one-time charges 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 our 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 acquisition of Ellison.

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.

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 2002, cash was primarily used for capital
expenditures and debt payments. Net cash provided by operating
activities was $27,089 during 2002 compared to cash provided by
operating activities of $50,437 during 2001. The decrease was
primarily due to the initial cash provided by the accounts
receivable securitization facility in August of 2001. The
decrease was offset by improvements in working capital. Cash
flows used in investing activities increased from $10,596 during
2001 to $15,335 during 2002. The increase was primarily due to
the proceeds from sale of assets of $6,120 in 2001 compared to
$1,950 in 2002. Net cash used in financing activities was
$11,870 during 2002

23



---



##### Table of Contents



compared to net cash used in financing activities
of $43,240 during 2001. The decrease in net cash used in
financing activities is attributable to additional principal
payments made during 2001 on the term loans and revolving credit
facility using the initial cash provided by the accounts
receivable securitization facility.




| |                
| | ---------------
| | Long-Term Debt:

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 senior subordinated notes require
semi-annual interest payments only and are due in May 2009. The
credit facility has an excess cash flows provision
mandating additional principal payments if certain cash flows
targets are met during the year.

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 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 quarterly financial tests pertaining to total
leverage, senior leverage, interest coverage and fixed charge
coverage. As of December 31, 2002, 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 various letters of credit outstanding
primarily related to certain insurance policies and facility
lease deposits.



| |                    
| | -------------------
| | Interest Rate Swap:

We have one interest rate swap at
December 31, 2002. The swap has a notional amount of
$100,000, a negative fair value of $4,440 and an expiration date
of November 2003.

Off-Balance Sheet Arrangements



| |                                                 
| | ------------------------------------------------
| | Accounts Receivable Securitization
    Facility:

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, 2002, 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.



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

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

We finance the use of certain facilities and
equipment under lease agreements provided by various
institutions. Since the terms of these agreements meet the
definitions of operating lease agreements, the sum of future
lease payments is not reflected on our consolidated balance
sheet. As of December 31, 2002, future minimum lease
payments under these arrangements was approximately $188,470.

24



---



##### Table of Contents



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 can make additional funds
available to us depending on our accounts receivable levels. On
July 30, 2002, the Companys receivables purchase
agreement was amended to reduce the size of the accounts
receivable securitization facility from $50,000 to $42,000.

At December 31, 2002, we had $44,248 of
availability under the revolving credit facility, net of
outstanding letters of credit totaling $2,752. As of
March 24, 2003, we had cash of $1,806 and $44,248 of
availability under the revolving credit facility, net of
outstanding letters of credit totaling $2,752. At
December 31, 2002, we had $12,400 of availability under the
accounts receivable securitization facility and an additional
$9,300 currently unavailable due to borrowing base limitations,
net of securitizations of $20,300. As of March 24, 2003, we
had $1,400 available under the accounts receivable
securitization facility and an additional $8,800 currently
unavailable due to borrowing base limitations, net of
securitizations of $31,800.

Contractual Obligations

The following table summarizes our contractual
obligations at December 31, 2002, and the effects such
obligations are expected to have on our liquidity and cash flow
in future periods.

|                         |                                             |                                    |   |          |        |      |   |        |        |            |   |        |        |  |   |        |        |  |   |         |         |  |   |         |         | 
|------------------------ | ------------------------------------------- | ---------------------------------- | - | -------- | ------ | ---- | - | ------ | ------ | ---------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|                         |                                             |                                    |   |         
|                         |                                             | Payments Due by Period             |   |         
|                         |                                             |                                    |   | 2007 and |        |     
|                         |                                             | 2003                               |   | 2004     |        | 2005 |   | 2006   |        | thereafter |   | Total 
|                         |                                             |                                    |   |          |        |      |   |        |        |            |   |       
|                         |                                             |                                   
|                         |                                             | (dollars in thousands)            
|CONTRACTUAL OBLIGATIONS: |                                             |                                    |   |          |        |      |   |        |        |            |   |        |        |  |   |        |        |  |   |         |         |  |   |        
|                         | Long-term debt, exclusive of interest       |                                    | $ | 6,524    |        |      | $ | 3,647  |        |            | $ | 54,053 |        |  | $ | 60,782 |        |  | $ | 175,000 |         |  | $ | 300,006 |        
|                         | Interest rate swaps fair value              |                                    |   | 4,440    |        |      |   |       |        |            |   |       |        |  |   |       |        |  |   |        |         |  |   | 4,440   |        
|                         | Non-cancellable operating lease obligations |                                    |   | 17,708   |        |      |   | 16,488 |        |            |   | 15,425 |        |  |   | 13,476 |        |  |   | 125,373 |         |  |   | 188,470 |        
|                         | Letters of credit                           |                                    |   | 2,752    |        |      |   |       |        |            |   |       |        |  |   |       |        |  |   |        |         |  |   | 2,752   |        
|                         | Aluminum purchase commitments               |                                    |   | 2,885    |        |      |   |       |        |            |   |       |        |  |   |       |        |  |   |        |         |  |   | 2,885   |        
|                         |                                             |                                    |   |          |        |      |   |        |        |            |   |        |        |  |   |        |        |  |   |         |         |  |   |        
|                         |                                             | Total contractual cash obligations |   | $        | 34,309 |      |   | $      | 20,135 |            |   | $      | 69,478 |  |   | $      | 74,258 |  |   | $       | 300,373 |  |   | $       | 498,553 | 
|                         |                                             |                                    |   |          |        |      |   |        |        |            |   |        |        |  |   |        |        |  |   |         |         |  |   |        

Capital Expenditures

We had net cash capital expenditures of $11,157
during 2002, compared to $7,984 and $11,689 during 2001 and
2000, 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 2002 were largely a
result of our continued efforts to increase efficiency through
automation at our various manufacturing facilities. We expect
capital expenditures (exclusive of acquisitions) in 2003 to be
approximately $10,671, however, actual capital requirements may
change based on management and strategic decisions.

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

25



---



##### Table of Contents



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 until early in the fourth quarter of our fiscal
year.


Financial Accounting Standards

In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141,
Business Combinations (SFAS 141)
and SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142). SFAS 141 and
SFAS 142 are effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will
continue to be amortized over their useful lives. The Company
adopted SFAS 141 and SFAS 142 on January 1, 2002
and eliminated amortization of goodwill as of such date.
Amortization of goodwill during 2001 and 2000 was $11,725 and
$7,945, respectively.

The Company completed its initial, transitional
goodwill impairment analysis under SFAS 142 as of
January 1, 2002 and its annual impairment test in the
fourth quarter, and no goodwill impairment was deemed to exist.
In accordance with the requirements of SFAS 142, the
Company will review goodwill for impairment during the fourth
quarter of each year. Goodwill will also be reviewed for
impairment at other times during each year when events or
changes in circumstances indicate an impairment might be present.

In August 2001, the FASB issued
SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143
addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Under SFAS 143, the
fair value of a liability for an asset retirement obligation
covered under the scope of SFAS 143 would be recognized in
the period in which the liability is incurred, with an
offsetting increase in the carrying amount of the related
long-lived asset. SFAS 143 is effective for the Company
beginning on January 1, 2003. The Company does not
anticipate a significant impact affect on its operating results
as a result of adopting this statement.

The Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), effective
January 1, 2002. SFAS 144 retains the fundamental
provisions of existing generally accepted accounting principles
with respect to the recognition and measurement of long-lived
asset impairment contained in SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of
(SFAS 121). However, SFAS 144 provides new
guidance intended to address certain implementation issues
associated with SFAS 121, including expanded guidance with
respect to appropriate cash flows to be used to determine
whether recognition of any long-lived asset impairment is
required, and if required, how to measure the amount of the
impairment. SFAS 144 also requires that any net assets to
be disposed of by sale to be reported at the lower of carrying
value or fair value less cost to sell, and expands the reporting
of discontinued operations to include any component of an entity
with operations and cash flows that can be clearly distinguished
from the rest of the entity. Adoption of SFAS 144 did not
have a significant effect on the Company as of January 1,
2002.

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections (SFAS 145).
SFAS 145 rescinds SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt, requiring
that gains and losses

26



---



##### Table of Contents



from the extinguishment of debt be classified as
extraordinary items only if certain criteria are met.
SFAS 145 also amends SFAS No. 13,
Accounting for Leases, and the required accounting
for sale-leaseback transactions and certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. The Company adopted SFAS 145, beginning on
January 1, 2003, the Company will reclassify previously
reported extraordinary items as a component of earnings before
income taxes on a prospective basis. The Company wrote-off
deferred financing costs in the amount of $204 and $837 in
connection with an early retirement of debt which are reported
as extraordinary items for the years ended December 31,
2002 and 2001, respectively.


In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities
(SFAS 146). SFAS 146 requires that a
liability for a cost associated with an exit or disposal
activity be recognized initially at fair value when the
liability is incurred. SFAS 146 was adopted by the Company
on January 1, 2003 and will be applied on a prospective
basis. This statement does affect the timing of exit or disposal
activities reported by the Company that occur after
December 31, 2002.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation, (SFAS 148) which became
effective for the Company upon its issuance. SFAS 148
provides three transition options for companies that account for
stock-based compensation, such as stock options, under the
intrinsic-value method to convert to the fair value method.
SFAS 148 also revised the prominence and character of the
disclosures related to the Companys stock-based
compensation. In complying with the new reporting requirements
of SFAS 148, the Company elected to continue using the
intrinsic-value method to account for qualifying stock-based
compensation, as permitted by SFAS 148. The Company has,
however, included the disclosures prescribed by SFAS 148
within the consolidated financial statements. For 2003, the
Company is evaluating whether to adopt a transition option to
expense stock-based compensation under the provisions of
SFAS 148.

During November 2002, the FASB issued FASB
Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 generally requires a guarantor to
recognize a liability for obligations arising from guarantees.
FIN 45 also requires new disclosures for guarantees meeting
certain criteria outlined in that pronouncement. The disclosure
requirements of FIN 45 are effective for the Company at
December 31, 2002 and have been implemented as of that
date. The recognition and measurement provisions of FIN 45
are applicable on a prospective basis for guarantees issued or
modified after December 31, 2002.

During January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities.
FIN 46 provides guidance for companies having ownership of
variable interest entities, typically referred to as special
purpose entities, in determining whether to consolidate such
variable interest entities. FIN 46 has immediate
applicability for variable interest entities created after
January 31, 2003 or interests in variable interest entities
obtained after that date. For interests in variable interest
entities obtained prior to February 1, 2003, FIN 46
becomes effective on July 1, 2003. The Company does not
believe the adoption will have a significant effect on its
consolidated financial position or results of operations.




Item 7A.     Qualitative
and Quantitative Disclosures about 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, we have hedged our exposure on a
portion of our variable rate debt by entering an interest rate
swap agreement

27



---



##### Table of Contents



to lock in a fixed rate. At December 31,
2002, approximately 92% 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 swap and its expected future interest rates. The notional
amount is used to calculate the contractual payments to be
exchanged. The 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,
2002.

Expected Maturities

(dollars in thousands)


|                          |  |      |         |      |  |      |       |      |  |       |        |            |  |   |        |   |  |   |         |  |  |   |         |  
|------------------------- |  | ---- | ------- | ---- |  | ---- | ----- | ---- |  | ----- | ------ | ---------- |  | - | ------ | - |  | - | ------- |  |  | - | ------- | -
|                          |  | 2003 |         | 2004 |  | 2005 |       | 2006 |  | Total |        | Fair Value
|                          |  |      |         |      |  |      |       |      |  |       |        |           
|Liabilities               |  |      |         |      |  |      |       |      |  |       |        |            |  |   |        |   |  |   |         |  |  |   |         |  
|Variablerate debt        |  | $    | 6,518   |      |  | $    | 3,647 |      |  | $     | 54,053 |            |  | $ | 60,782 |   |  | $ | 125,000 |  |  | $ | 125,000 |  
|Average interest rate     |  |      | 4.52    | %    |  |      | 5.62  | %    |  |       | 6.77   | %          |  |   | 7.50   | % |  |   |        |  |  |   |        |  
|Interest Rate Derivatives |  |      |         |      |  |      |       |      |  |       |        |            |  |   |        |   |  |   |         |  |  |   |         |  
|Notional amount           |  | $    | 100,000 |      |  |      |      |      |  |       |       |            |  |   |       |   |  | $ | 100,000 |  |  | $ | (4,440  | )
|Average pay rate          |  |      | 6.66    | %    |  |      |      |      |  |       |       |            |  |   |       |   |  |   |        |  |  |   |        |  
|Average receive rate      |  |      | 1.14    | %    |  |      |      |      |  |       |       |            |  |   |       |   |  |   |        |  |  |   |        |  



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

We are subject to significant market risk with
respect to the pricing of our principal raw materials, which
include, among others, PVC resins and compounds, glass 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, 2002:

|                                                        |                 |  |        |                   | 
|------------------------------------------------------- | --------------- |  | ------ | ----------------- | 
|Forward commitments, expected to mature during
    2003 |                 |  |        |                  
|Contract volumes:                                       |                 |  |        |                  
|                                                        | Fixed prices    |  |        | 4,706,000 pounds  | 
|                                                        | Floating prices |  |        | 63,585,697 pounds | 
|Contract amount                                         |                 |  | $2,885 |                  
|Fair value                                              |                 |  | $2,882 |                  






|        |                                                
|------- | -----------------------------------------------
|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

None.

28



---



##### Table of Contents






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           |  |     | 37 |          |  | President, Chief Executive Officer and Director              
|Eric W. Long           |  |     | 34 |          |  | Executive Vice President and Chief Financial
    Officer     
|Robert E. Burns        |  |     | 37 |          |  | Executive Vice President and Co-Chief Operating
    Officer  
|C. Douglas Cross       |  |     | 47 |          |  | Executive Vice President and Co-Chief Operating
    Officer  
|Cliff Darby            |  |     | 38 |          |  | President of R.G. Darby Company, Inc. and Total
    Trim, Inc
|D.D. Gus Agostinelli |  |     | 57 |          |  | Senior Vice President of Human Resources                     
|Philip J. Ragona       |  |     | 41 |          |  | Senior Vice President, General Counsel and
    Secretary     
|Daniel T. Morley       |  |     | 50 |          |  | Chairman of the Board of Directors                           
|Roger A. Knight        |  |     | 43 |          |  | Director                                                     
|Andreas Hildebrand     |  |     | 35 |          |  | Director                                                     
|John C. Deterding      |  |     | 71 |          |  | Director                                                     
|John Ellison, Jr.      |  |     | 56 |          |  | Director                                                     
|Dennis M. McCormick    |  |     | 50 |          |  | Director                                                     
|W. Andrew Shea         |  |     | 37 |          |  | Director                                                     



---



|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
|* | Nimrod Natanresigned from the position of Director effective as of
    December 11, 2002 and was replaced by W. Andrew Shea.

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 and Chief Financial Officer of
Atrium Corporation and Atrium Companies, Inc. since 2000.
Mr. Long served as Secretary and Treasurer for Atrium
Corporation and Atrium Companies Inc. from 2000 through 2002.
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 with
Applebees International, Inc. and 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:

29



---



##### Table of Contents



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 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.

D.D. Gus
Agostinellihas served as Senior Vice
President of Human Resources of Atrium Corporation and Atrium
Companies, Inc. since March 2002. Mr. Agostinelli also
served as Vice President of Human Resources from January 2001 to
March 2002. Prior to joining us, Mr. Agostinelli was
Principal of DDA Associates from October 1999 to January 2001
and Vice President of Human Resources for Dal-Tile International
from January 1998 to October 1999. Mr. Agostinelli has held
senior level human resources positions with Alcoa Fujikura, Ltd,
PPG Industries and American Can International.

Philip J. Ragonahas
served as Senior Vice President, General Counsel and Secretary
of Atrium Corporation and Atrium Companies, Inc. since September
2002. Prior to joining us, Mr. Ragona was an associate with
the law firm of Paul, Hastings, Janofsky & Walker LLP
from 1995 to 2002, and with the law firm of Cahill,
Gordon & Reindel from 1992 to 1995. Mr Ragona is a
member of the New York State Bar Association and the Dallas Bar
Association.

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., is a Director of Infigen, 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., 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 Asset Management. He has served in other
capacities with GE Asset Management during the past five years.
Mr. Hildebrand is also a Director of Eagle Family Foods
Holdings, Inc., Astro Textiles Holdings, 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.

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.

30



---



##### Table of Contents



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
1997. Mr. McCormick has served as Chairman of the Board of
Directors of Infigen, Inc. since 1994. Mr. McCormick also
serves as a Director of Astro Textiles Holdings, Inc.
Mr. McCormick was Chairman of the Board of Directors of
Cellu Tissue Corporation from 1995 to 1997.

W. Andrew Sheahas
served as a Director of Atrium Corporation and Atrium Companies,
Inc. since December 2002. Mr. Shea has been a Principal of
Ardshiel, Inc. since September 2002. He served as a director of
Riddell Sports Group, Inc. from June 2001 to September 2002 and
also as a Director of 3SI Holdings, Inc. from June 2002 to
September 2002. Prior to joining Ardshiel, Mr. Shea was a
Principal of Lincolnshire Management, Inc., a New York based
private equity investment firm, from 2000 to 2002. Prior to that
he was a Vice President of Investment Banking at Merrill
Lynch & Co., Inc.






|         |                       
|-------- | ----------------------
|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, 2002, 2001 and 2000, concerning compensation
paid to or accrued 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                   |                              |      | 2002 |           |  |          | 325,000 |              |  |               | 330,000 |                 |     |  |  |   |  |  |    |       |  |  |  |       
|                               | President, Chief Executive   |      |      | 2001      |  |          |         | 300,000      |  |               |         | 275,625         |     |  |   |  |  |  |     |      |  |  |   |       |    
|                               | Officer and Director         |      |      | 2000      |  |          |         | 300,000      |  |               |         | 281,500         |     |  |   |  |  |  |     | 1,750 |  |  |   |       |    
|Eric W. Long                   |                              |      | 2002 |           |  |          | 185,000 |              |  |               | 88,000  |                 |     |  |  |   |  |  | 150 |       |  |  |  |       
|                               | Executive Vice President and |      |      | 2001      |  |          |         | 175,000      |  |               |         | 59,063          |     |  |   |  |  |  |     |      |  |  |   |       |    
|                               | Chief Financial Officer      |      |      | 2000      |  |          |         | 130,000      |  |               |         | 65,000          |     |  |   |  |  |  |     |      |  |  |   |       |    
|Robert E. Burns                |                              |      | 2002 |           |  |          | 225,000 |              |  |               | 115,625 |                 |     |  |  |   |  |  | 100 |       |  |  |  |       
|                               | Executive Vice President and |      |      | 2001      |  |          |         | 200,000      |  |               |         | 78,750          |     |  |   |  |  |  |     |      |  |  |   |       |    
|                               | Co-Chief Operating Officer   |      |      | 2000      |  |          |         | 160,000      |  |               |         | 100,000         |     |  |   |  |  |  |     | 200   |  |  |   | 30,000 | (3)
|C. Douglas Cross               |                              |      | 2002 |           |  |          | 225,000 |              |  |               | 106,250 |                 |     |  |  |   |  |  | 50  |       |  |  |  |       
|                               | Executive Vice President and |      |      | 2001      |  |          |         | 200,000      |  |               |         | 78,750          |     |  |   |  |  |  |     |      |  |  |   |       |    
|                               | Co-Chief Operating Officer   |      |      | 2000      |  |          |         | 30,000       |  |               |         | 25,000          | (4) |  |   |  |  |  |     | 500   |  |  |   |       |    
|Cliff Darby                    |                              |      | 2002 |           |  |          | 225,000 |              |  |               | 75,000  |                 |     |  |  |   |  |  |    |       |  |  |  |       
|                               | Divisional President, Darby  |      |      | 2001      |  |          |         | 186,000      |  |               |         | 130,000         |     |  |   |  |  |  |     |      |  |  |   |       |    
|                               | Group of Companies           |      |      | 2000      |  |          |         | 186,000      |  |               |         | 100,000         |     |  |   |  |  |  |     |      |  |  |   |       |    



---



|    |                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 expenses reimbursed for moving
    costs, grossed-up for applicable taxes.                                                                                                            
|   
|(4) | Mr. Cross joined us on October 25, 2000,
    accordingly, this amount represents the compensation earned from
    that date.                                                                            

31



---



##### Table of Contents



Option Grants During 2002.The following table sets forth option
grants to the named executive officers during the year ended
December 31, 2002.

|                 |  |               |     |                      |  |             |      |                      |  |                        |       |        |  |  |        |  |  |   |         |  |  |   |         | 
|---------------- |  | ------------- | --- | -------------------- |  | ----------- | ---- | -------------------- |  | ---------------------- | ----- | ------ |  |  | ------ |  |  | - | ------- |  |  | - | ------- | 
|                 |  |               |     |                      |  |             |      |                     
|                 |  |               |     | Individual Grants(2) |  |             |      | Potential Realizable
|                 |  |               |     |                      |  |             |      | Value at Assumed    
|                 |  | Number of     |     | % of Total           |  |             |      |                      |  | Annual Rates of Stock 
|                 |  | Securities    |     | Options              |  |             |      |                      |  | Price Appreciation for
|                 |  | Underlying    |     | Granted to           |  | Exercise or |      |                      |  | Option Term(3)        
|                 |  | Options       |     | Employees in         |  | Base Price  |      | Expiration           |  |                       
|Name             |  | Granted(#)(1) |     | Fiscal Year          |  | ($/SH)      |      | Date                 |  | 5%($)                  |       | 10%($)
|                 |  |               |     |                      |  |             |      |                      |  |                        |       |       
|Jeff L. Hull     |  |               |    |                      |  |             |     |                      |  |                        |      |        |  |  |       |  |  |   |        |  |  |   |        | 
|Eric W. Long     |  |               | 150 |                      |  |             | 23.1 |                      |  | $                      | 1,300 |        |  |  | 3/1/12 |  |  | $ | 122,634 |  |  | $ | 310,780 | 
|Robert E. Burns  |  |               | 100 |                      |  |             | 15.4 |                      |  |                        | 1,300 |        |  |  | 3/1/12 |  |  |   | 81,756  |  |  |   | 207,186 | 
|C. Douglas Cross |  |               | 50  |                      |  |             | 7.7  |                      |  |                        | 1,300 |        |  |  | 3/1/12 |  |  |   | 40,878  |  |  |   | 103,593 | 
|Cliff Darby      |  |               |    |                      |  |             |     |                      |  |                        |      |        |  |  |       |  |  |   |        |  |  |   |        | 



---



|    |                                                                                 
|--- | --------------------------------------------------------------------------------
|(1) | All options are for the common stock of Atrium
    Corporation.                 
|   
|(2) | Options vest ratably over 5 years or upon a
    change of control.              
|   
|(3) | The assumed rates are compounded annually for the
    full terms of the options.

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, 2002.

|                 |  |             |    |          |  |                         |        |                      |  |                |       |                  |  |  |     |  |  |   |         |  |  |   |        | 
|---------------- |  | ----------- | -- | -------- |  | ----------------------- | ------ | -------------------- |  | -------------- | ----- | ---------------- |  |  | --- |  |  | - | ------- |  |  | - | ------ | 
|                 |  |             |    |          |  |                         |        |                     
|                 |  |             |    |          |  | Number of Securities    |        | Value of Unexercised
|                 |  |             |    |          |  | Underlying Unexercised  |        | In-the-Money        
|                 |  | Shares      |    |          |  | Options at FY-End(#)(1) |        | Options at FY-End   
|                 |  | Acquired on |    | Value    |  |                         |        |                     
|Name             |  | Exercise(#) |    | Realized |  | Exercisable             |        | Unexercisable        |  | Exercisable(2) |       | Unexercisable(2)
|                 |  |             |    |          |  |                         |        |                      |  |                |       |                 
|Jeff L. Hull     |  |             | 50 |          |  | $                       | 65,000 |                      |  |                | 3,283 |                  |  |  |    |  |  | $ | 402,400 |  |  |   |       | 
|Eric W. Long     |  |             |   |          |  |                         |       |                      |  |                | 136   |                  |  |  | 184 |  |  |   | 60,600  |  |  | $ | 15,150 | 
|Robert E. Burns  |  |             |   |          |  |                         |       |                      |  |                | 120   |                  |  |  | 180 |  |  |   | 6,000   |  |  |   | 4,000  | 
|C. Douglas Cross |  |             |   |          |  |                         |       |                      |  |                | 200   |                  |  |  | 350 |  |  |   |        |  |  |   |       | 
|Cliff Darby      |  |             |   |          |  |                         |       |                      |  |                | 1,297 |                  |  |  |    |  |  |   | 197,970 |  |  |   |       | 



---



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

See Equity Compensation Plans 
1998 Stock Option Plan on page 15 of this report for
a description of our 1998 Stock Option plan.

Replacement Stock Option Plan

See Equity Compensation Plans 
Replacement Stock Option Plan on page 15 of this
report for a description of our 1998 Replacement Stock Option
Plan.

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.

32



---



##### Table of Contents



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 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 January 1,
2003. 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
January 1, 2003 and ending on December 31, 2003,
$400,000, during the period beginning on January 1, 2004
and ending on December 31, 2004, $450,000, and during the
period beginning on January 1, 2005 and ending on
December 31, 2005, $500,000. 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 equal to his base salary amount; 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.

Effective January 1, 2003, Mr. Hull has
entered into a Change of Control Agreement whereby he is
entitled to certain additional payments upon a change of
control. These payments are payable upon achievement of the
following targets:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If the stockholders of Atrium Corporation receive
    net proceeds of $850 per share or less, Mr. Hull will
    receive a payment of $1,250,000.                                                                                                                                              
|
| |  | If the stockholders of Atrium Corporation receive
    net proceeds of $850 per share but less than $992 per
    share, Mr. Hull will receive a payment of $1,250,000 plus
    the product of 7.4% of the proceeds exceeding $850 per
    share multiplied by the number of shares outstanding.
|
| |  | If the stockholders of Atrium Corporation receive
    net proceeds exceeding $992 per share, Mr. Hull will
    receive a payment of $3,250,000 plus the product of 5.6% of the
    proceeds exceeding $992 per share multiplied by the number
    of shares outstanding.                      



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

Mr. Long has entered into an employment and
non-competition agreement with us pursuant to which he serves as
our Executive Vice President and Chief Financial Officer.
Mr. Longs employment agreement has a three-year term,
which commenced January 1, 2003. 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. Longs employment agreement, he is
entitled to receive an annual base salary, as follows: during
the period beginning on January 1, 2003 and ending on
December 31, 2003, $192,500, during the period beginning on
January 1, 2004 and ending on December 31, 2004,
$200,000, and during the period beginning on January 1,
2005 and ending on December 31, 2005, $200,000.
Mr. Longs salary is subject to increase at the
discretion of the board of directors. The agreement provides
that Mr. Long may receive an annual target bonus equal to
$105,000,

33



---



##### Table of Contents



$110,000 and $125,000 for the same respective
periods, of which 50% will be payable contingent on achievement
of our EBITDA plan and 50% 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. 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.

Effective January 1, 2003, Mr. Long has
entered into a Change of Control Agreement whereby he is
entitled to certain additional payments upon a change of
control. These payments are payable upon achievement of the
following targets:



| |   |                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If the stockholders of Atrium Corporation receive
    net proceeds of $850 per share or less, Mr. Long will
    receive a payment of $100,000.                                                                                                                                              
|
| |  | If the stockholders of Atrium Corporation receive
    net proceeds of $850 per share but less than $992 per
    share, Mr. Long will receive a payment of $100,000 plus the
    product of .56% of the proceeds exceeding $850 per share
    multiplied by the number of shares outstanding.
|
| |  | If the stockholders of Atrium Corporation receive
    net proceeds exceeding $992 per share, Mr. Long will
    receive a payment of $250,000 plus the product of .37% of the
    proceeds exceeding $992 per share multiplied by the number
    of shares outstanding.                      



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

Mr. Burns has 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 January 1,
2003. 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. Burns
employment agreement, he is entitled to receive an annual base
salary, as follows: during the period beginning on
January 1, 2003 and ending on December 31, 2003,
$232,500, during the period beginning on January 1, 2004
and ending on December 31, 2004, $240,000, and during the
period beginning on January 1, 2005 and ending on
December 31, 2005, $250,000. Mr. Burns salary is
subject to increase at the discretion of the board of directors.
The agreement provides that Mr. Burns may receive an annual
target bonus equal to $132,500, $140,000 and $150,000 for the
same respective periods, of which 50% will be payable contingent
on achievement of our EBITDA plan and 50% 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. 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.

34



---



##### Table of Contents





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

Mr. Cross has 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 January 1,
2003. 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. Cross
employment agreement, he is entitled to receive an annual base
salary, as follows: during the period beginning on
January 1, 2003 and ending on December 31, 2003,
$232,500, during the period beginning on January 1, 2004
and ending on December 31, 2004, $240,000, and during the
period beginning on January 1, 2005 and ending on
December 31, 2005, $250,000. Mr. Cross salary is
subject to increase at the discretion of the board of directors.
The agreement provides that Mr. Cross may receive an annual
target bonus equal to $132,500, $140,000 and $150,000 for the
same respective periods of which, 50% will be payable contingent
on achievement of our EBITDA plan and 50% 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. 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

Mr. Darby entered into an employment
agreement with us pursuant to which he serves as President of
R.G. Darby Company and Total Trim, Inc. Mr. Darbys
employment agreement has a two year term which commenced on
January 1, 2002. Under the terms of Mr. Darbys
employment agreement, he is entitled to receive an annual based
salary of $225,000 per annum, which is subject to increase
at the discretion of the board of directors. The agreement
provides that Mr. Darby is eligible to receive an annual
bonus which amount will be payable contingent on Darbys
EBITDA plan.

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



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

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

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.

35



---



##### Table of Contents



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.



| |                                                               
| | --------------------------------------------------------------
| | Compensation Committee Interlock and
    Insider Participation

Daniel T. Morley is a 50% stockholder of
Ardshiel.



| |                
| | ---------------
| | 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.



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

We are 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 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 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 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 2002 were
$2.0 million ($.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.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|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, 2002, 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

36



---



##### Table of Contents



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(9) |         | Percentage
|                                                                       |                                                                       |           |         |           
|GE Investment Private Placement Partners II,
    a Limited Partnership |                                                                       |           | 135,655 |            |  |  | 72.5 | %
|                                                                       | 3003 Summer Street
    Stamford, CT 06984-7900                        |           |         |            |  |  |      |   | 
|Ardshiel, Inc.                                                         |                                                                       |           | 4,363   | (1)(2)(3)  |  |  | 2.2  | %
|                                                                       | 2 Greenwich Office Park
    Greenwich, CT 06831                       |           |         |            |  |  |      |   | 
|Merrill Lynch Capital Corporation                                      |                                                                       |           | 9,696   | (8)        |  |  | 5.2  | %
|                                                                       | 250 Vesey Street
    New York, NY 10281                               |           |         |            |  |  |      |   | 
|The Ellison Company, Inc.                                              |                                                                       |           | 20,983  | (5)(6)     |  |  | 11.2 | %
|                                                                       | 706 Green Valley Road, Suite 406
    Greensboro, North Carolina 27408 |           |         |            |  |  |      |   | 
|John Ellison, Jr.                                                      |                                                                       |           | 20,983  | (5)(6)     |  |  | 11.2 | %
|Jeff L. Hull                                                           |                                                                       |           | 3,483   | (7)        |  |  | 1.8  | %
|Eric W. Long                                                           |                                                                       |           | 136     | (7)        |  |  | *    |  
|Robert E. Burns                                                        |                                                                       |           | 120     | (7)        |  |  | *    |  
|C. Douglas Cross                                                       |                                                                       |           | 1,680   | (7)        |  |  | *    |  
|Cliff Darby                                                            |                                                                       |           | 2,356   | (7)        |  |  | 1.2  | %
|Dennis M. McCormick                                                    |                                                                       |           | 4,363   | (2)(3)     |  |  | 2.2  | %
|Daniel T. Morley                                                       |                                                                       |           | 4,363   | (2)(3)     |  |  | 2.2  | %
|Roger A. Knight                                                        |                                                                       |           |        |            |  |  |     |  
|Andreas Hildebrand                                                     |                                                                       |           |        |            |  |  |     |  
|John C. Deterding                                                      |                                                                       |           |        |            |  |  |     |  
|W. Andrew Shea                                                         |                                                                       |           |        |            |  |  |     |  
|All directors and executive officers as a group
    (12 persons)(4)    |                                                                       |           | 33,120  |            |  |  | 17.7 | %



---



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



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes (1) 1,040 shares of common
    stock issuable upon exercise of warrants that are currently
    exercisable; (2) 2,092 shares of common stock held by
    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                                                                                                                                                                                                                                                                                                                                                                                                                                                     

37



---



##### Table of Contents



|    |                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 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 3,283, 136, 120, 200 and
    1,297 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.                                                                                                          






|         |                                                   
|-------- | --------------------------------------------------
|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 respective 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, transfers 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 occurs 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.                            

38



---



##### Table of Contents



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 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 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 2002 were
$2.0 million ($.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.

Daniel T. Morley and Dennis M. McCormick, two of
our directors, are each a 50% stockholder of Ardshiel.

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 Atrium
Corporation 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.

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, John Ellison, Jr., C. Douglas Cross, Dennis M.
McCormick, W. Andrew Shea and Philip J. Ragona 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

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. Darby of
approximately $26,444 (adjusted from $21,700 in January 2003 and
$16,904 in April 2001) per month, adjusted annually for
inflation. The term of the lease is ten years. Rent expense paid
to Mr. Darby was approximately $278,718 in 2002.
Additionally, we lease property on a month to month basis from
Cliff Darby. Amounts paid under this arrangement were $21,600 in
2002.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

Evaluation of Disclosure Controls and
Procedures

An evaluation of the effectiveness of the design
and operation of the Companys disclosure controls
and procedures (as defined in Rule 13a-14(c) under
the Securities Exchange Act of 1934, as amended (the
Exchange Act)), was carried out within the 90-day
period prior to the filing of this annual report. This
evaluation was made under the supervision and with the
participation of the Companys management,

39



---



##### Table of Contents



including its Chief Executive Officer and Chief
Financial Officer. Based upon this evaluation, the
Companys Chief Executive Officer and Chief Financial
Officer have concluded that the Companys disclosure
controls and procedures (a) are effective to ensure that
information required to be disclosed by the Company in reports
filed or submitted under the Exchange Act is timely recorded,
processed, summarized and reported and (b) include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in reports
filed or submitted under the Exchange Act is accumulated and
communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.


Changes in Internal Controls

There have been no significant changes in the
Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date of
the Companys initial evaluation.




PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | 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.

40



---



##### 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                        
| | and Chief Financial Officer                     
| | (Principal Financial and Accounting
    Officer)

Date: March 31, 2003

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 31, 2003
|                                        
|/s/ ERIC W. LONGEric W. Long             |  | Executive Vice President and Chief Financial
    Officer (Principal Financial and Accounting Officer) |  | March 31, 2003
|                                        
|/s/ DANIEL T. MORLEYDaniel T. Morley     |  | Director                                                                                              |  | March 31, 2003
|                                        
|/s/ ROGER A. KNIGHTRoger A. Knight       |  | Director                                                                                              |  | March 31, 2003
|                                        
|/s/ ANDREAS HILDEBRANDAndreas Hildebrand |  | Director                                                                                              |  | March 31, 2003
|                                        
|/s/ JOHN C. DETERDINGJohn C. Deterding   |  | Director                                                                                              |  | March 31, 2003
|                                        
|/s/ JOHN ELLISON, JR.John Ellison, Jr.   |  | Director                                                                                              |  | March 31, 2003

41



---



##### Table of Contents



|                                           |  |          |  |               
|------------------------------------------ |  | -------- |  | --------------
|Signature                                  |  | Capacity |  | Date          
|                                           |  |          |  |               
|                                          
|/s/ DENNIS M. MCCORMICKDennis M. McCormick |  | Director |  | March 31, 2003
|                                          
|/s/ W. ANDREW SHEAW. Andrew Shea           |  | Director |  | March 31, 2003

42



---



##### Table of Contents



CERTIFICATION

PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Jeff L. Hull, certify that:

(1) I have reviewed this annual report on
Form 10-K of Atrium Companies, Inc.;

(2) Based on my knowledge, this annual
report does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this annual report;

(3) Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this annual
report;

(4) The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing of this annual
    report (the Evaluation Date); and                                                                                                           
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

(5) The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or
persons performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

(6) The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



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

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

Date: March 31, 2003

43



---



##### Table of Contents



CERTIFICATION

PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Eric W. Long, certify that:

(1) I have reviewed this annual report on
Form 10-K of Atrium Companies, Inc.;

(2) Based on my knowledge, this annual
report does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this annual report;

(3) Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this annual
report;

(4) The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing of this annual
    report (the Evaluation Date); and                                                                                                           
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

(5) The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or
persons performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

(6) The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



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

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

Date: March 31, 2003

44



---



##### 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, 2002 and 2001                                                                                   |      |     | F-3 | 
|                                            | Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000                                                     |      |     | F-4 | 
|                                            | Consolidated Statements of Stockholders
    Equity and Other Comprehensive Income (Loss) for the years ended
    December 31, 2002, 2001 and 2000 |      |     | F-5 | 
|                                            | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                                                     |      |     | 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
income (loss) and of cash flows present fairly, in all material
respects, the financial position of Atrium Companies, Inc. and
its subsidiaries (the Company) at December 31,
2002 and 2001, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2002 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 the provisions of
Statement of Financial Accounting Standards No. 133
Accounting for Derivative Instruments and Hedging
Activities on January 1, 2001 and Statement of
Financial Accounting Standards No. 142 Goodwill and
Other Intangible Assets on January 1, 2002.

PricewaterhouseCoopers LLP

Dallas, Texas


March 28, 2003


F-2



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share
amounts)


|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |         |         | 
|------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                                                                                        |                                                                                                 |                                           
|                                                                                                        |                                                                                                 | December 31,                              
|                                                                                                        |                                                                                                 |                                           
|                                                                                                        |                                                                                                 | 2002                                       |         | 2001   
|                                                                                                        |                                                                                                 |                                            |         |        
|ASSETS                                                                                                 
|CURRENT ASSETS:                                                                                         |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        | Cash and cash equivalents                                                                       |                                            | $       | 1,131   |         |  | $       | 1,247   |        
|                                                                                                        | Accounts receivable, net of allowance of $82 and
    $153, respectively                         |                                            |         | 1,847   |         |  |         | 3,895   |        
|                                                                                                        | Retained interest in sold accounts receivable                                                   |                                            |         | 25,209  |         |  |         | 14,373  |        
|                                                                                                        | Inventories                                                                                     |                                            |         | 33,712  |         |  |         | 36,737  |        
|                                                                                                        | Prepaid expenses and other current assets                                                       |                                            |         | 6,109   |         |  |         | 4,819   |        
|                                                                                                        | Deferred tax asset                                                                              |                                            |         | 1,324   |         |  |         | 1,426   |        
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        |                                                                                                 | Total current assets                       |         |         | 69,332  |  |         |         | 62,497  | 
|PROPERTY, PLANT AND EQUIPMENT, net of accumulated
    depreciation of $23,823 and $15,410, respectively |                                                                                                 |                                            | 55,322  |         |         |  | 55,755  |        
|GOODWILL                                                                                                |                                                                                                 |                                            | 345,239 |         |         |  | 345,239 |        
|DEFERRED FINANCING COSTS, net of accumulated
    amortization of $10,268 and $7,415, respectively       |                                                                                                 |                                            | 10,293  |         |         |  | 13,350  |        
|OTHER ASSETS, net of accumulated amortization of
    $6,555 and $6,948, respectively                    |                                                                                                 |                                            | 8,134   |         |         |  | 7,366   |        
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        |                                                                                                 | Total assets                               |         | $       | 488,320 |  |         | $       | 484,207 | 
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                               
|CURRENT LIABILITIES:                                                                                    |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        | Current portion of notes payable                                                                |                                            | $       | 6,524   |         |  | $       | 6,191   |        
|                                                                                                        | Accounts payable                                                                                |                                            |         | 22,535  |         |  |         | 18,539  |        
|                                                                                                        | Accrued liabilities                                                                             |                                            |         | 31,442  |         |  |         | 29,671  |        
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        |                                                                                                 | Total current liabilities                  |         |         | 60,501  |  |         |         | 54,401  | 
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|LONG-TERM LIABILITIES:                                                                                  |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        | Notes payable                                                                                   |                                            |         | 291,501 |         |  |         | 304,363 |        
|                                                                                                        | Deferred tax liability                                                                          |                                            |         | 1,324   |         |  |         | 1,426   |        
|                                                                                                        | Other long-term liabilities                                                                     |                                            |         | 560     |         |  |         | 707     |        
|                                                                                                        | Swaps contract liability                                                                        |                                            |         |        |         |  |         | 6,821   |        
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        |                                                                                                 | Total long-term liabilities                |         |         | 293,385 |  |         |         | 313,317 | 
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        |                                                                                                 | Total liabilities                          |         |         | 353,886 |  |         |         | 367,718 | 
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|COMMITMENTS AND CONTINGENCIES                                                                           |                                                                                                 |                                            |         |         |         |  |         |        
|STOCKHOLDERS EQUITY:                                                                                   |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        | Common stock $.01 par value,
    3,000 shares authorized, 100 shares issued and
    outstanding |                                            |         |        |         |  |         |        |        
|                                                                                                        | Paid-in capital                                                                                 |                                            |         | 203,684 |         |  |         | 203,552 |        
|                                                                                                        | Accumulated deficit                                                                             |                                            |         | (64,810 | )       |  |         | (78,794 | )      
|                                                                                                        | Accumulated other comprehensive loss                                                            |                                            |         | (4,440  | )       |  |         | (8,269  | )      
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        |                                                                                                 | Total stockholders equity                 |         |         | 134,434 |  |         |         | 116,489 | 
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        
|                                                                                                        |                                                                                                 | Total liabilities and stockholders equity |         | $       | 488,320 |  |         | $       | 484,207 | 
|                                                                                                        |                                                                                                 |                                            |         |         |         |  |         |        

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

F-3



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Years Ended December 31, 2002,
2001 and 2000


(dollars in thousands)


|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ---- | ------- | ------ |  | ---- | ------- | ------ | - | - | ------- | ------- | -
|                                                                                                                                                                                   |                                                                | 2002 |         | 2001   |  | 2000
|                                                                                                                                                                                   |                                                                |      |         |        |  |     
|NET SALES                                                                                                                                                                          |                                                                | $    | 536,299 |        |  | $    | 517,063 |        |   | $ | 492,303 |        
|COST OF GOODS SOLD (includes special writedown of
    inventory of $1,010 in 2001 related to facility shutdown and
    $7,206 in 2000 related to the divestiture of two divisions) |                                                                |      | 360,323 |        |  |      | 354,797 |        |   |   | 371,195 |        
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        
|Gross profit                                                                                                                                                                       |                                                                |      | 175,976 |        |  |      | 162,266 |        |   |   | 121,108 |        
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        
|OPERATING EXPENSES:                                                                                                                                                                |                                                                |      |         |        |  |      |         |        |   |   |         |        
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense)                                             |                                                                |      | 116,364 |        |  |      | 108,067 |        |   |   | 122,047 |        
|                                                                                                                                                                                   | Securitization expense                                         |      |         | 1,133  |  |      |         | 1,532  |   |   |         |        |  
|                                                                                                                                                                                   | Stock compensation expense                                     |      |         | 383    |  |      |         | 582    |   |   |         |        |  
|                                                                                                                                                                                   | Amortization expense                                           |      |         | 3,410  |  |      |         | 14,410 |   |   |         | 9,870   |  
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                                                                         |                                                                |      | 121,290 |        |  |      | 124,591 |        |   |   | 131,917 |        
|Special charges                                                                                                                                                                    |                                                                |      | 4,198   |        |  |      | 1,213   |        |   |   | 27,739  |        
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        
|                                                                                                                                                                                   |                                                                |      | 125,488 |        |  |      | 125,804 |        |   |   | 159,656 |        
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        
|                                                                                                                                                                                   | Income (loss) from operations                                  |      |         | 50,488 |  |      |         | 36,462 |   |   |         | (38,548 | )
|INTEREST EXPENSE                                                                                                                                                                   |                                                                |      | 35,697  |        |  |      | 39,113  |        |   |   | 36,967  |        
|OTHER INCOME (EXPENSE), net                                                                                                                                                        |                                                                |      | 22      |        |  |      | (20     | )      |   |   | 249     |        
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        
|                                                                                                                                                                                   | Income (loss) before income taxes and
    extraordinary charge |      |         | 14,813 |  |      |         | (2,671 | ) |   |         | (75,266 | )
|PROVISION (BENEFIT) FOR INCOME TAXES                                                                                                                                               |                                                                |      | 625     |        |  |      | 1,358   |        |   |   | (940    | )      
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        
|Income (loss) before extraordinary charge                                                                                                                                          |                                                                |      | 14,188  |        |  |      | (4,029  | )      |   |   | (74,326 | )      
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
    (net of income tax benefit of $0 in 2002 and 2001)                                                                            |                                                                |      | 204     |        |  |      | 837     |        |   |   |        |        
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        
|NET INCOME (LOSS)                                                                                                                                                                  |                                                                | $    | 13,984  |        |  | $    | (4,866  | )      |   | $ | (74,326 | )      
|                                                                                                                                                                                   |                                                                |      |         |        |  |      |         |        |   |   |         |        

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

F-4



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY AND

OTHER COMPREHENSIVE INCOME (LOSS)


For the Years Ended December 31, 2002,
2001 and 2000


(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, 1999                        |                                                                                                  |              | 100 |         |  | $            |  |               |  | $             | 109,624 |        |  | $ | 398     |         |   | $ | (2     | )      |   | $ | 110,020 |        
|Capital contribution from Atrium Corporation, net |                                                                                                  |              |    |         |  |              |  |               |  |               | 86,380  |        |  |   |        |         |   |   |       |        |   |   | 86,380  |        
|Comprehensive loss:                               |                                                                                                  |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|                                                  | Net 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 |        
|Capital contribution from Atrium Corporation, net |                                                                                                  |              |    |         |  |              |  |               |  |               | 7,248   |        |  |   |        |         |   |   |       |        |   |   | 7,248   |        
|Non-cash stock compensation expense               |                                                                                                  |              |    |         |  |              |  |               |  |               | 300     |        |  |   |        |         |   |   |       |        |   |   | 300     |        
|Comprehensive loss:                               |                                                                                                  |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|                                                  | Net 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 loss                          |                                                                                                  |              |    |         |  |              |  |               |  |               |        |        |  |   | (4,866  | )       |   |   | (8,269 | )      |   |   | (13,135 | )      
|                                                  |                                                                                                  |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Balance, December 31, 2001                        |                                                                                                  |              | 100 |         |  |              |  |               |  |               | 203,552 |        |  |   | (78,794 | )       |   |   | (8,269 | )      |   |   | 116,489 |        
|Distribution to Atrium Corporation, net           |                                                                                                  |              |    |         |  |              |  |               |  |               | (168    | )      |  |   |        |         |   |   |       |        |   |   | (168    | )      
|Non-cash stock compensation expense               |                                                                                                  |              |    |         |  |              |  |               |  |               | 300     |        |  |   |        |         |   |   |       |        |   |   | 300     |        
|Comprehensive income (loss):                      |                                                                                                  |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|                                                  | Net income                                                                                       |              |     |        |  |              |   |              |  |               |         |       |  |   |         | 13,984  |   |   |        |       |   |   |         | 13,984  |  
|                                                  | Net fair market value adjustment of derivative
    instruments, net of tax of $0                 |              |     |        |  |              |   |              |  |               |         |       |  |   |         |        |   |   |        | 3,829  |   |   |         | 3,829   |  
|                                                  |                                                                                                  |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Total comprehensive income                        |                                                                                                  |              |    |         |  |              |  |               |  |               |        |        |  |   | 13,984  |         |   |   | 3,829  |        |   |   | 17,813  |        
|                                                  |                                                                                                  |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        
|Balance, December 31, 2002                        |                                                                                                  |              | 100 |         |  | $            |  |               |  | $             | 203,684 |        |  | $ | (64,810 | )       |   | $ | (4,440 | )      |   | $ | 134,434 |        
|                                                  |                                                                                                  |              |     |         |  |              |   |               |  |               |         |        |  |   |         |         |   |   |        |        |   |   |         |        

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

F-5



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2002,
2001 and 2000


(dollars in thousands)


|                                                         |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |         |        |         |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ----- | ------- | ------ | ------- | -
|                                                         |                                                                                                              | 2002                                                    |                                                         | 2001    |        | 2000   
|                                                         |                                                                                                              |                                                         |                                                         |         |        |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                    |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|                                                         | Net income (loss)                                                                                            |                                                         | $                                                       | 13,984  |        |         | $      | (4,866  | )      |         | $     | (74,326 | )     
|                                                         | Adjustments to reconcile net income (loss) to net
    cash flows provided by (used in) operating activities: |                                                         |                                                         |         |        |         |        |         |        |         |       |         |       
|                                                         | Extraordinary charge, net of income tax benefit
    of $0                                                    |                                                         |                                                         | 204     |        |         |        | 837     |        |         |       |        |       
|                                                         | Depreciation and amortization                                                                                |                                                         |                                                         | 14,885  |        |         |        | 24,415  |        |         |       | 16,483  |       
|                                                         | Non-cash stock compensation expense                                                                          |                                                         |                                                         | 300     |        |         |        | 300     |        |         |       |        |       
|                                                         | Amortization of deferred financing costs                                                                     |                                                         |                                                         | 2,853   |        |         |        | 2,945   |        |         |       | 2,390   |       
|                                                         | Accretion of discount on notes payable                                                                       |                                                         |                                                         | 206     |        |         |        | 185     |        |         |       | 166     |       
|                                                         | Accretion of gain from interest rate collars                                                                 |                                                         |                                                         |        |        |         |        | (327    | )      |         |       | (327    | )     
|                                                         | Amortization of gain from sale/leaseback of
    building                                                     |                                                         |                                                         | (41     | )      |         |        | (9      | )      |         |       | (6      | )     
|                                                         | Provision for (recoveries of) bad debts                                                                      |                                                         |                                                         | (25     | )      |         |        | 597     |        |         |       | 4,009   |       
|                                                         | Loss on sale of receivables                                                                                  |                                                         |                                                         | 625     |        |         |        | 1,069   |        |         |       |        |       
|                                                         | Special charges                                                                                              |                                                         |                                                         | 639     |        |         |        | 910     |        |         |       | 27,739  |       
|                                                         | Write down of inventory for shutdown and
    divestiture                                                     |                                                         |                                                         |        |        |         |        | 1,010   |        |         |       | 7,206   |       
|                                                         | Gain on sales of assets                                                                                      |                                                         |                                                         | (221    | )      |         |        | (1,798  | )      |         |       | (695    | )     
|                                                         | Gain on sale of investments in equity securities                                                             |                                                         |                                                         |        |        |         |        |        |        |         |       | (507    | )     
|                                                         | Deferred tax benefit                                                                                         |                                                         |                                                         |        |        |         |        |        |        |         |       | (1,765  | )     
|                                                         | Changes in assets and liabilities, net of
    acquisitions and divestitures:                                 |                                                         |                                                         |         |        |         |        |         |        |         |       |         |       
|                                                         |                                                                                                              | Accounts receivable                                     |                                                         |         | 2,048  |         |        |         | 1,367  |         |       |         | 14,620 |        
|                                                         |                                                                                                              | Retained interest in sold accounts receivable           |                                                         |         | (4,336 | )       |        |         | 1,632  |         |       |         |       |        
|                                                         |                                                                                                              | Sale of accounts receivable                             |                                                         |         | (7,100 | )       |        |         | 27,400 |         |       |         |       |        
|                                                         |                                                                                                              | Inventories                                             |                                                         |         | 3,024  |         |        |         | 8,208  |         |       |         | (2,947 | )      
|                                                         |                                                                                                              | Prepaid expenses and other current assets               |                                                         |         | (1,040 | )       |        |         | (1,962 | )       |       |         | 10,069 |        
|                                                         |                                                                                                              | Accounts payable                                        |                                                         |         | 2,964  |         |        |         | (4,822 | )       |       |         | (7,354 | )      
|                                                         |                                                                                                              | Accrued liabilities and other long-term
    liabilities |                                                         |         | (1,880 | )       |        |         | (6,654 | )       |       |         | 804    |        
|                                                         |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|                                                         |                                                                                                              |                                                         | Net cash provided by (used in) operating
    activities |         |        | 27,089  |        |         |        | 50,437  |       |         |        | (4,441  | )
|                                                         |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|                                                         | Purchases of property, plant and equipment                                                                   |                                                         |                                                         | (13,107 | )      |         |        | (14,104 | )      |         |       | (14,518 | )     
|                                                         | Proceeds from sales of assets                                                                                |                                                         |                                                         | 1,950   |        |         |        | 6,120   |        |         |       | 2,829   |       
|                                                         | Proceeds from the sales of Wing and the Atrium
    Wood Patio Door division                                  |                                                         |                                                         |        |        |         |        |        |        |         |       | 24,355  |       
|                                                         | Acquisition of Ellison, net of cash acquired                                                                 |                                                         |                                                         |        |        |         |        |        |        |         |       | (99,276 | )     
|                                                         | Proceeds from the sale of investments in equity
    securities                                               |                                                         |                                                         |        |        |         |        |        |        |         |       | 620     |       
|                                                         | Other assets                                                                                                 |                                                         |                                                         | (4,178  | )      |         |        | (2,612  | )      |         |       | (3,790  | )     
|                                                         |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|                                                         |                                                                                                              |                                                         | Net cash used in investing activities                   |         |        | (15,335 | )      |         |        | (10,596 | )     |         |        | (89,780 | )
|                                                         |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|                                                         | Proceeds from borrowings under term notes                                                                    |                                                         |                                                         |        |        |         |        |        |        |         |       | 38,000  |       
|                                                         | Payments of notes payable and capital lease
    obligations                                                  |                                                         |                                                         | (23     | )      |         |        | (251    | )      |         |       | (309    | )     
|                                                         | Net borrowings (payments) under revolving
    credit facility                                                |                                                         |                                                         |        |        |         |        | (19,000 | )      |         |       | 3,730   |       
|                                                         | Deferred financing costs                                                                                     |                                                         |                                                         |        |        |         |        | (388    | )      |         |       | (1,326  | )     
|                                                         | Scheduled principal payments on term loans                                                                   |                                                         |                                                         | (5,484  | )      |         |        | (5,728  | )      |         |       | (2,990  | )     
|                                                         | Additional principal payments on term loans                                                                  |                                                         |                                                         | (7,228  | )      |         |        | (20,000 | )      |         |       |        |       
|                                                         | Contributions from (distributions to) Atrium
    Corporation, net                                            |                                                         |                                                         | (168    | )      |         |        | 7,248   |        |         |       | 59,102  |       
|                                                         | Payment of other long-term liabilities                                                                       |                                                         |                                                         |        |        |         |        |        |        |         |       | (1,616  | )     
|                                                         | Checks drawn in excess of bank balances                                                                      |                                                         |                                                         | 1,033   |        |         |        | (5,121  | )      |         |       | 2,982   |       
|                                                         |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|                                                         |                                                                                                              |                                                         | Net cash provided by (used in) financing
    activities |         |        | (11,870 | )      |         |        | (43,240 | )     |         |        | 97,573  |  
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                                                                              |                                                         | (116                                                    | )       |        |         | (3,399 | )       |        |         | 3,352 |        
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           |                                                                                                              |                                                         | 1,247                                                   |         |        |         | 4,646  |         |        |         | 1,294 |        
|                                                         |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD                 |                                                                                                              | $                                                       | 1,131                                                   |         |        | $       | 1,247  |         |        | $       | 4,646 |        
|                                                         |                                                                                                              |                                                         |                                                         |         |        |         |        |         |        |         |       |        

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

F-6



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

For the Years Ended December 31, 2002,
2001 and 2000


(dollars in thousands)


|                         |                                             |                                                                                                                                       |  |      |        |      |  |   |        |  |  |   |        |  
|------------------------ | ------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | -
|                         |                                             | 2002                                                                                                                                  |  | 2001 |        | 2000
|                         |                                             |                                                                                                                                       |  |      |        |     
|SUPPLEMENTAL DISCLOSURE: |                                             |                                                                                                                                       |  |      |        |      |  |   |        |  |  |  
|                         | Cash paid during the period for:            |                                                                                                                                       |  |      |        |      |  |   |        |  |  |   |       
|                         |                                             | Interest                                                                                                                              |  | $    | 33,996 |      |  | $ | 37,909 |  |  | $ | 32,629 |  
|                         |                                             | Income taxes, net of refunds                                                                                                          |  |      | 1,086  |      |  |   | 1,677  |  |  |   | (2,376 | )
|                         | Noncash investing and financing activities: |                                                                                                                                       |  |      |        |      |  |   |        |  |  |   |       
|                         |                                             | Contribution to Atrium Corporation in exchange
    for shares issued in Ellison transaction                                           |  |      |       |      |  |   |       |  |  |   | 27,279 |  
|                         |                                             | Contribution to Atrium Corporation in exchange
    for shares issued for services provided in connection with
    Ellison transaction |  |      |       |      |  |   |       |  |  |   | 1,000  |  
|                         |                                             | Exchange of assets for note                                                                                                           |  |      |       |      |  |   | 150    |  |  |   | 300    |  
|                         |                                             | Settlement of note receivable for fixed assets                                                                                        |  |      |       |      |  |   | 905    |  |  |   |       |  
|                         |                                             | Debt assumed in acquisition                                                                                                           |  |      |       |      |  |   |       |  |  |   | 1      |  

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

F-7



---



##### 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 windows, patio doors and various
building materials throughout the United States and Mexico.

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 Asset Management, 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, D and W Acquisition Corp., 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 VES, Inc., doing business as
Ellison Extrusion Systems, Inc. (since renamed Atrium Extrusion
Systems, Inc.) and Ellison Windows and Doors (collectively
Ellison) are included in the Companys
consolidated financial statements since their date of
acquisition, October 25, 2000. There were no acquisitions
in 2002 or 2001 that require pro forma information. Operations
of Atrium Funding Corporation are included in the Companys
consolidated financial statements since inception on
July 9, 2001. The operations of Atrium Ventanas de Mexico
and Atrium Servicios de Mexico are included in the
Companys consolidated financial statements since their
date of inception of March 21, 2002.

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

F-8



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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   |         | Year Ended   |  |                              |         |          
|                                                                                                                |                                                                                                                                        | December 31, |         | December 31, |  |                             
|                                                                                                                |                                                                                                                                        | 2002         |         | 2001         |  | Year Ended December 31, 2000
|                                                                                                                |                                                                                                                                        |              |         |              |  |                             
|                                                                                                                |                                                                                                                                        | Actual       |         | Actual       |  | Actual                       |         | Pro Forma
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |          
|NET SALES                                                                                                       |                                                                                                                                        | $            | 536,299 |              |  | $                            | 517,063 |           |  | $ | 492,303 |         |   | $ | 497,956 |        
|COST OF GOODS SOLD (includes special writedown of
    inventory of $1,010 in 2001 related to facility shutdown) |                                                                                                                                        |              | 360,323 |              |  |                              | 354,797 |           |  |   | 371,195 |         |   |   | 334,625 |        
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|Gross profit                                                                                                    |                                                                                                                                        |              | 175,976 |              |  |                              | 162,266 |           |  |   | 121,108 |         |   |   | 163,331 |        
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|OPERATING EXPENSES:                                                                                             |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|                                                                                                                | Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |              |         | 116,364      |  |                              |         | 108,067   |  |   |         | 122,047 |   |   |         | 106,935 | 
|                                                                                                                | Securitization expense                                                                                                                 |              |         | 1,133        |  |                              |         | 1,532     |  |   |         |        |   |   |         |        | 
|                                                                                                                | Stock compensation expense                                                                                                             |              |         | 383          |  |                              |         | 582       |  |   |         |        |   |   |         |        | 
|                                                                                                                | Deferred compensation from Ellison                                                                                                     |              |         |             |  |                              |         |          |  |   |         |        |   |   |         | 576     | 
|                                                                                                                | Amortization expense                                                                                                                   |              |         | 3,410        |  |                              |         | 14,410    |  |   |         | 9,870   |   |   |         | 14,155  | 
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                      |                                                                                                                                        |              | 121,290 |              |  |                              | 124,591 |           |  |   | 131,917 |         |   |   | 121,666 |        
|Special charges                                                                                                 |                                                                                                                                        |              | 4,198   |              |  |                              | 1,213   |           |  |   | 27,739  |         |   |   | 4,207   |        
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|                                                                                                                |                                                                                                                                        |              | 125,488 |              |  |                              | 125,804 |           |  |   | 159,656 |         |   |   | 125,873 |        
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|                                                                                                                | Income (loss) from operations                                                                                                          |              |         | 50,488       |  |                              |         | 36,462    |  |   |         | (38,548 | ) |   |         | 37,458  | 
|INTEREST EXPENSE                                                                                                |                                                                                                                                        |              | 35,697  |              |  |                              | 39,113  |           |  |   | 36,967  |         |   |   | 39,056  |        
|OTHER INCOME (LOSS), net                                                                                        |                                                                                                                                        |              | 22      |              |  |                              | (20     | )         |  |   | 249     |         |   |   | 71      |        
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|Income (loss) before income taxes and
    extraordinary charge                                                  |                                                                                                                                        |              | 14,813  |              |  |                              | (2,671  | )         |  |   | (75,266 | )       |   |   | (1,527  | )      
|PROVISION (BENEFIT) FOR INCOME TAXES                                                                            |                                                                                                                                        |              | 625     |              |  |                              | 1,358   |           |  |   | (940    | )       |   |   | 3,242   |        
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|Income (loss) before extraordinary charge                                                                       |                                                                                                                                        |              | 14,188  |              |  |                              | (4,029  | )         |  |   | (74,326 | )       |   |   | (4,769  | )      
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
    (net of income tax benefit of $0 in 2002 and 2001)         |                                                                                                                                        |              | 204     |              |  |                              | 837     |           |  |   |        |         |   |   |        |        
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|NET INCOME (LOSS)                                                                                               |                                                                                                                                        | $            | 13,984  |              |  | $                            | (4,866  | )         |  | $ | (74,326 | )       |   | $ | (4,769  | )      
|                                                                                                                |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|Other Information:                                                                                              |                                                                                                                                        |              |         |              |  |                              |         |           |  |   |         |         |   |   |         |        
|Depreciation Expense                                                                                            |                                                                                                                                        |              | 11,476  |              |  |                              | 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.

F-9



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



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

Revenue from the sale of windows and doors 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.

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 in the Companys consolidated statements of
operations and were $35,357, $31,192 and $38,619 for 2002, 2001
and 2000, 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, 2002 and 2001, the
Company had $3,342 and $2,309 of checks drawn in excess of bank
balances 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,
unrealized gains and losses are recorded in stockholders
equity. During 2000, the Company sold its equity securities for
$620 which resulted in a $507 gain on the sale. The Company did
not own any equity securities in 2002 or 2001.



| |                              
| | -----------------------------
| | 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 and Mexico. 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 the following
significant customer (presented as a percentage of actual net
sales):

|                     |  |             |    |          |  |          |   |   |  |  |    |  
|-------------------- |  | ----------- | -- | -------- |  | -------- | - | - |  |  | -- | -
|                     |  |            
|                     |  | Years Ended
|                     |  |            
|Customer             |  | 12/31/02    |    | 12/31/01 |  | 12/31/00
|                     |  |             |    |          |  |         
|The Home Depot, Inc. |  |             | 10 | %        |  |          | 4 | % |  |  | 15 | %



| |            
| | -----------
| | 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 direct
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 $43 higher at
December 31, 2002 and $304 lower at December 31, 2001.
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

F-10



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 | 

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 no longer
amortized in accordance with Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets (SFAS 142). In
accordance with SFAS 142, management reviews the carrying
value of goodwill for recoverability based on estimated fair
values of the reporting units in the fourth quarter of each year
or when events or changes in circumstances indicate, in
managements judgement, that the carrying value may not be
recoverable. The fair values of the reporting units were based
upon managements estimate of a multiple of undiscounted
cash flows. 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. If
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.



| |                           
| | --------------------------
| | 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, 2002 and 2001 were $4,345 and $3,230,
respectively, and are included in other long-term assets.
Amortization expense for 2002, 2001 and 2000 was $1,629, $1,359
and $1,925, respectively.

F-11



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                         
| | ------------------------
| | Stock-Based Compensation

At December 31, 2002, the Company had
several stock-based employee compensation plans, which are
described more fully in Note 18. The Company accounts for
these plans under the recognition and measurement principles of
the Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to
Employees, (APB 25) and related
interpretations. Stock-based employee compensation cost, related
to the issuance of stock options is not reflected in the
Companys earnings, as all options granted under those
plans had an exercise price equal to or in excess of the
estimated market value of the underlying common stock on the
date of grant.

The following table illustrates the effect on the
Companys reported net income (loss) of $13,666, $(5,021)
and $(74,730) for the years ending December 31, 2002, 2001
and 2000, respectively, if the Company had applied the fair
value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation,
(SFAS 123) to stock-based compensation plans
and warrants.

|                               |                                                                                                                                 |      |        |        |   |      |        |        |   |   |         |         |  
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------- | ------- | -
|                               |                                                                                                                                 | 2002 |        | 2001   |   | 2000
|                               |                                                                                                                                 |      |        |        |   |     
|Net income (loss), as reported |                                                                                                                                 | $    | 13,984 |        |   | $    | (4,866 | )      |   | $ | (74,326 | )      
|Adjustments:                   |                                                                                                                                 |      |        |        |   |      |        |        |   |   |         |        
|                               | Stock-based employee compensation expense
    determined under fair value method for all awards, net of
    related tax effects |      |        | (318   | ) |      |        | (155   | ) |   |         | (404    | )
|                               |                                                                                                                                 |      |        |        |   |      |        |        |   |   |         |        
|                               | Adjusted net income (loss)                                                                                                      |      | $      | 13,666 |   |      | $      | (5,021 | ) |   | $       | (74,730 | )
|                               |                                                                                                                                 |      |        |        |   |      |        |        |   |   |         |        

The above pro forma disclosures are not
representative of pro forma effects for future periods because
the determination of the fair value of all options granted
excludes an expected volatility factor and additional option
grants are expected.



| |                         
| | ------------------------
| | Provision for Warranties

The Company estimates its warranty provisions
based upon an analysis of all identified or expected claims and
an estimated cost to resolve those claims. The estimates of
expected claims are generally a factor of historical claims.
Changes in claim rates, differences between actual and expected
warranty costs could impact warranty obligation estimates.

|                                                                                   |                               |      |        |      |  
|---------------------------------------------------------------------------------- | ----------------------------- | ---- | ------ | ---- | -
|                                                                                   |                               | 2002
|                                                                                   |                               |     
|Beginning reserve for warranties                                                   |                               | $    | (1,226 | )   
|Provisions for warranties issued during the period                                 |                               |      | (3,765 | )   
|Provisions related to pre-existing warranties
    (including changes in estimates) |                               |      | 179    |     
|Settlements made (in cash or kind) during the
    period                           |                               |      | 3,843  |     
|                                                                                   |                               |      |        |     
|                                                                                   | Ending reserve for warranties |      | $      | (969 | )
|                                                                                   |                               |      |        |     



| |             
| | ------------
| | 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.

F-12



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



| |                    
| | -------------------
| | 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 August 2001, the Financial Accounting
Standards Board (FASB) issued
SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143
addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Under SFAS 143, the
fair value of a liability for an asset retirement obligation
covered under the scope of SFAS 143 would be recognized in
the period in which the liability is incurred, with an
offsetting increase in the carrying amount of the related
long-lived asset. SFAS 143 is effective for the Company on
January 1, 2003. The Company does not anticipate a
significant impact on its operating results as a result of
adopting this statement.

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections (SFAS 145).
SFAS 145 rescinds SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt, requiring
that gains and losses from the extinguishment of debt be
classified as extraordinary items only if certain criteria are
met. SFAS 145 also amends SFAS No. 13,
Accounting for Leases, and the required accounting
for sale-leaseback transactions and certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. The Company adopted SFAS 145, on
January 1, 2003, and the Company will reclassify previously
reported extraordinary items as a component of earnings before
income taxes on a prospective basis as the criteria for
classification as extraordinary will not be met. The Company
wrote-off deferred financing costs in the amount of $204 and
$837 in connection with the early retirement of debt which are
reported as extraordinary items for the years ended
December 31, 2002 and 2001, respectively.

In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities
(SFAS 146). SFAS 146 requires that a
liability for a cost associated with an exit or disposal
activity be recognized initially at fair value when the
liability is incurred. SFAS 146 was adopted by the Company
on January 1, 2003 and will be applied on a prospective
basis. This statement will affect the timing of exit or disposal
activities reported by the Company that occur after
December 31, 2002.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation, (SFAS 148) which became
effective for the Company upon its issuance. SFAS 148
provides three transition options for companies that account for
stock-based compensation, such as stock options, under the
intrinsic-value method to convert to the fair value method.
SFAS 148 also revised the prominence and character of the
disclosures related to the Companys stock-based
compensation. In complying with the new reporting requirements
of SFAS 148, the Company elected to continue using the
intrinsic-value method to account for qualifying stock-based
compensation, as permitted by SFAS 148. The Company has,
however, included the disclosures prescribed by SFAS 148
within the consolidated financial statements. For 2003, the
Company is evaluating whether to adopt a transition option to
expense stock-based compensation under the provisions of
SFAS 148.

During November 2002, the FASB issued FASB
Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 generally requires a guarantor to
recognize a liability for obligations arising from guarantees.

F-13



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

FIN 45 also requires new disclosures for
guarantees meeting certain criteria outlined in that
pronouncement. The disclosure requirements of FIN 45 are
effective for the Company at December 31, 2002 and have
been implemented as of that date. The recognition and
measurement provisions of FIN 45 are applicable on a
prospective basis for guarantees issued or modified after
December 31, 2002.

During January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities.
FIN 46 provides guidance for companies having ownership of
variable interest entities, typically referred to as special
purpose entities, in determining whether to consolidate such
variable interest entities. FIN 46 has immediate
applicability for variable interest entities created after
January 31, 2003 or interests in variable interest entities
obtained after that date. For interests in variable interest
entities obtained prior to February 1, 2003, FIN 46
becomes effective on July 1, 2003. The Company does not
believe the adoption will have a significant effect 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 allowance for bad debt, inventory reserves,
recoverability of goodwill, 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 $4,597, $3,664 and $3,852, for 2002, 2001 and 2000,
respectively. Advertising expenses that relate to contractual
cooperative advertising allowances and volume rebates with our
customers are recorded as a reduction to net sales in the
consolidated statements of operations. Other advertising
expenditures incurred by the Company are reflected in selling,
delivery, general and administrative in the consolidated
statements of operations.



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

Certain reclassifications have been made to the
2001 and 2000 balances to conform to the 2002 presentation.



|   |                 
|-- | ----------------
|3. | Special Charges:



| |     
| | ----
| | 2002



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

During 2002, the Company recorded a special
charge in the amount of $4,198 for liabilities associated with
the divestiture of the assets of Wing. The special charge is
comprised of $2,553 in exit costs incurred by the Company on the
remaining lease obligations at Wings former facilities.
The special charge also includes $1,645 for litigation expenses.
As of December 31, 2002, $3,559 of the special charge was
incurred and has been paid by the Company against its accrued
provisions for the Wing divestiture, leaving a remaining accrual
of $639 for unpaid liabilities, a portion of which is still
under negotiation.

F-14



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |     
| | ----
| | 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.

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. Upon closure of the Woodville facility in the summer of
2002, the entire inventory reserve was utilized.

As of December 31, 2002, the Company has a
reserve balance of $232 remaining for the closure of the
Woodville, Texas facility, including an additional $50 that was
provided for in 2002 and is included in selling, general,
delivery, and administrative expenses. As of December 31,
2002, $728 was incurred and has been paid by the Company against
its accrued provisions for the Woodville, Texas facility
closing. The Company does not anticipate additional liabilities
related to the Woodville closure.



| |     
| | ----
| | 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 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 |  
|                                                                |  |   |        |  

All of the Wing 2000 special charges have been
incurred and paid. In 2002, the Company incurred an additional
special charge in the amount of $4,198 related to the
divestiture of Wing. See discussion on 2002 special charges.

F-15



---



##### 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 | 
|                                                                |  |   |       | 

As of December 31, 2002, the Company has
fully utilized the accrued provisions related to the divestiture
of Wood and does not anticipate any additional liabilities
associated with the transaction.



| |       
| | ------
| | Other:

In 2000 the Company recorded special charges in
the amount of $539 for non-capitalizable legal fees associated
with the amendment of the Credit Agreement. Additionally, $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.

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.



|   |                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | Adoption of SFAS No. 133,
    Accounting for Derivative Instruments and Hedging
    Activities, (SFAS 133),
    SFAS No. 141, Business Combinations,
    (SFAS 141), SFAS 142 and
    SFAS No. 144, Accounting for the Impairment of
    Long-Lived Assets (SFAS 144):



| |          
| | ---------
| | SFAS 133:

The Company adopted SFAS 133 and the
corresponding amendments on January 1, 2001. In accordance
with the transition provisions of SFAS 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 133 as they represent normal sales and purchases.
At December 31, 2002, the fair-value of the hedging
instruments is a liability of $4,440. The Companys hedging
instruments mature in 2003.

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.

F-16



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



| |                       
| | ----------------------
| | SFAS 141 and SFAS 142:

In June 2001, the FASB issued SFAS 141 and
SFAS 142. SFAS 141 and SFAS 142 are effective for
fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized but are subject to
annual impairment tests in accordance with the statements. Other
intangible assets will continue to be amortized over their
useful lives. The Company adopted SFAS 141 and
SFAS 142 on January 1, 2002 and eliminated
amortization of goodwill as of such date. Amortization of
goodwill during 2001 and 2000 was $11,725 and $7,945,
respectively.

The Company completed its initial, transitional
goodwill impairment analysis under SFAS 142 as of
January 1, 2002 and its annual impairment test in the
fourth quarter, and no goodwill impairment was deemed to exist.
In accordance with the requirements of SFAS 142, the
Company will review goodwill for impairment during the fourth
quarter of each year. Goodwill will also be reviewed for
impairment at other times during each year when events or
changes in circumstances indicate an impairment might be present.

As shown in the following table, the Company
would have reported net income (loss), before extraordinary
charges, of $7,696 and $(66,381) during 2001 and 2000,
respectively, if the goodwill amortization included in the
Companys net loss, as reported, had not been recognized.

|                                                               |                       |                                                             |        |      |        |      |        |        |       |   |         |       |         |  
|-------------------------------------------------------------- | --------------------- | ----------------------------------------------------------- | ------ | ---- | ------ | ---- | ------ | ------ | ----- | - | ------- | ----- | ------- | -
|                                                               |                       | 2002                                                        |        | 2001 |        | 2000
|                                                               |                       |                                                             |        |      |        |     
|Net income (loss) before extraordinary charges as
    reported |                       | $                                                           | 14,188 |      |        | $    | (4,029 | )      |       | $ | (74,326 | )    
|Adjustment:                                                    |                       |                                                             |        |      |        |      |        |        |       |   |         |      
|                                                               | Goodwill amortization |                                                             |        |     |        |      |        | 11,725 |       |   |         | 7,945 |        
|                                                               |                       |                                                             |        |      |        |      |        |        |       |   |         |      
|                                                               |                       | Adjusted net income (loss) before extraordinary
    charges |        | $    | 14,188 |      |        | $      | 7,696 |   |         | $     | (66,381 | )
|                                                               |                       |                                                             |        |      |        |      |        |        |       |   |         |      



| |         
| | --------
| | SFAS 144

The Company adopted SFAS 144 effective
January 1, 2002. SFAS 144 retains the fundamental
provisions of existing generally accepted accounting principles
with respect to the recognition and measure-

F-17



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ment of long-lived asset impairment contained in
SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). However, SFAS 144
provides new guidance intended to address certain implementation
issues associated with SFAS 121, including expanded
guidance with respect to appropriate cash flows to be used to
determine whether recognition of any long-lived asset impairment
is required, and if required, how to measure the amount of the
impairment. SFAS 144 also requires that any net assets to
be disposed of by sale to be reported at the lower of carrying
value or fair value less cost to sell, and expands the reporting
of discontinued operations to include any component of an entity
with operations and cash flows that can be clearly distinguished
from the rest of the entity. Adoption of SFAS 144 did not
have a significant effect on the Company as of January 1,
2002.



|   |                                           
|-- | ------------------------------------------
|5. | Securitization of Accounts
    Receivable:

On July 9, 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, subject to a borrowing base and receivable
eligibility. On July 30, 2002, the Companys
receivables purchase agreement was amended to reduce the size of
the accounts receivable securitization facility from $50,000 to
$42,000.

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 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, 2002 and 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, 2002
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). The retained interest was $25,209 and $14,373 and
the securitized balances were $20,300 and $27,400, as of
December 31, 2002 and 2001, respectively.

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

F-18



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

servicing fee represents adequate compensation
for the services performed. The servicing fee is eliminated upon
consolidation.

The table below summarizes certain cash flow
information for the years ended 2002 and 2001:

|                                         |  |      |         |        |  |   |         |       
|---------------------------------------- |  | ---- | ------- | ------ |  | - | ------- | ------
|                                         |  | 2002 |         | 2001  
|                                         |  |      |         |       
|Proceeds from new securitizations        |  | $    | 513,245 |        |  | $ | 269,893 |       
|Cash flows received on retained interest |  |      | 269,751 |        |  |   | 109,214 |       
|Proceeds from collections reinvested     |  |      | 522,527 |        |  |   | 222,332 |       
|Net charge-offs of managed receivables   |  |      | 625     |        |  |   | 1,069   |       
|Actual and expected losses               |  |      | N/A     | (a)(b) |  |   | 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 consisted of the following
at December 31:

|                                              |  |      |        |      |  |   |        | 
|--------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                              |  | 2002 |        | 2001
|                                              |  |      |        |     
|Securitized balances                          |  | $    | 20,300 |      |  | $ | 27,400 | 
|Retained interest in sold accounts receivable |  |      | 25,209 |      |  |   | 14,373 | 
|Owned receivables                             |  |      | 1,847  |      |  |   | 3,895  | 
|                                              |  |      |        |      |  |   |        | 
|Managed receivables                           |  | $    | 47,356 |      |  | $ | 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,
2002 decreased to 1.47%, compared to a rate of 2.71% as of
December 31, 2001. The delinquency rate directly affects
the Companys borrowing base limitations. A lower
delinquency rate allows the Company to borrow additional funds
from AFC.

In 2002, the Company incurred costs of $1,133 on
the sale of its receivables that have been classified as a
separate line item in selling, delivery, general and
administrative expenses compared to costs of $1,532 in 2001.
Expenditures that were incurred due to the Companys sale
of its receivables in 2002 comprise of $1,065 related to the
loss on sale of receivables, which represents the interest
expense component of the transaction and $68 for expenses
incurred to amend the accounts receivable securitization
facility from $50,000 to $42,000. Expenditures in 2001 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 $625 and $1,069 related
to the loss on sale of receivables due to the adjustment to fair
value for the years ended December 31, 2002 and 2001,
respectively.



|   |              
|-- | -------------
|6. | Acquisitions:



| |                     
| | --------------------
| | 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 of 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

F-19



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



|   |                                     
|-- | ------------------------------------
|7. | Fair Value of Financial Instruments:

In accordance with SFAS No. 107,
Disclosures About Fair Value of Financial
Instruments, 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 $171,500 and
$162,750 as of December 31, 2002 and 2001, 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 agreements are the amount at which they could
be settled, based on estimates obtained from lenders. Swaps
consisted of the following at December 31:

|        |                     |      |   |         |   |  |   |         |  
|------- | ------------------- | ---- | - | ------- | - |  | - | ------- | -
|        |                     | 2002 |   | 2001   
|        |                     |      |   |        
|Swap #1 |                     |      |   |         |   |  |   |        
|        | Notional Amount     |      | $ | 100,000 |   |  | $ | 100,000 |  
|        | Fixed Interest Rate |      |   | 6.6625  | % |  |   | 6.6625  | %
|        | Termination Date    |      |   | 11/3/03 |   |  |   | 11/3/03 |  
|        | Fair Value          |      | $ | (4,440  | ) |  | $ | (6,821  | )
|Swap #2 |                     |      |   |         |   |  |   |        
|        | Notional Amount     |      |   |        |   |  | $ | 37,500  |  
|        | Fixed Interest Rate |      |   |        |   |  |   | 6.1475  | %
|        | Termination Date    |      |   |        |   |  |   | 12/9/02 |  
|        | Fair Value          |      |   |        |   |  | $ | (1,448  | )

In December 2001, the Company amended Swap #2
from a notional amount of $40,000 to a notional amount of
$37,500 in order to maintain hedge effectiveness and incurred a
loss of $184 associated with the amendment, which was
reclassified from other comprehensive loss to interest expense.
Additionally in 2002, the Company amended Swap #2 to a notional
amount of $32,900 in order to maintain hedge effectiveness. Swap
#2 expired in December 2002.

F-20



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 $2,885 and $18,124 with
unrealized losses of $3 and $599 at December 31, 2002 and
2001, respectively.



|   |             
|-- | ------------
|8. | Inventories:

Inventories consisted of the following at
December 31:

|                       |  |      |        |      |  |   |        | 
|---------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                       |  | 2002 |        | 2001
|                       |  |      |        |     
|Raw materials          |  | $    | 22,047 |      |  | $ | 24,209 | 
|Work-in-process        |  |      | 1,041  |      |  |   | 1,000  | 
|Finished goods         |  |      | 10,667 |      |  |   | 11,225 | 
|                       |  |      |        |      |  |   |        | 
|                       |  |      | 33,755 |      |  |   | 36,434 | 
|LIFO benefit (reserve) |  |      | (43    | )    |  |   | 303    | 
|                       |  |      |        |      |  |   |        | 
|                       |  | $    | 33,712 |      |  | $ | 36,737 | 
|                       |  |      |        |      |  |   |        | 

The change in the LIFO reserve for 2002, 2001 and
2000, resulted in a increase of cost of sales of $346, a
decrease of cost of sales of $1,116 and a increase in cost of
sales of $1,541, respectively. During 2002, inventory quantities
were reduced primarily as a result of significant working
capital improvements. Reduction in inventory quantities in both
2002 and 2001 resulted in a liquidation of LIFO quantities
carried at lower costs prevailing in prior years as compared
with the costs of purchases, the effect of which increased cost
of goods sold by approximately $87 in 2002 and decreased cost of
goods sold by approximately $282 in 2001.



|   |                                
|-- | -------------------------------
|9. | Property, Plant, and Equipment:

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

|                              |       |      |         |        |  |   |         |        | 
|----------------------------- | ----- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                              |       | 2002 |         | 2001  
|                              |       |      |         |       
|Land                          |       | $    | 550     |        |  | $ | 737     |       
|Buildings and improvements    |       |      | 10,844  |        |  |   | 12,231  |       
|Machinery and equipment       |       |      | 65,280  |        |  |   | 56,254  |       
|Construction-in-process       |       |      | 2,471   |        |  |   | 1,943   |       
|                              |       |      |         |        |  |   |         |       
|                              | Total |      |         | 79,145 |  |   |         | 71,165 | 
|Less accumulated depreciation |       |      | (23,823 | )      |  |   | (15,410 | )     
|                              |       |      |         |        |  |   |         |       
|                              |       | $    | 55,322  |        |  | $ | 55,755  |       
|                              |       |      |         |        |  |   |         |       

Depreciation expense was $11,476, $10,005 and
$6,613 in 2002, 2001 and 2000, respectively.



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

On September 10, 2001, the Company and its
subsidiary, Thermal Industries, Inc. (Thermal)
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.
Additionally, the Company entered into a supply agreement with
Royal for a period of five years at current market prices for
minimum quantities.

F-21



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                           
| | --------------------------
| | 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. This sale-leaseback gain
has been deferred and is being amortized as an adjustment to
rent expense over the term of the related lease. This sale was
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. This method
approximates the effective interest method. Amortization expense
for 2002, 2001 and 2000 was $2,853, $2,945 and $2,390,
respectively, and was recorded as interest expense in the
accompanying consolidated statements of operations.

In 2002, the Company wrote off $204 of deferred
financing costs in connection with the prepayment of $6,544 made
on the Companys Term Loan A, Term Loan B and
Term Loan C (collectively the Term Loans).
During 2001, the Company wrote off deferred financing costs of
$837 in connection with the $20,000 prepayment made on the Term
Loans (see note 11) from a portion of the proceeds of
the securitization of accounts receivable (see note 5). The
write-downs have been classified as an extraordinary charge on
early retirement of debt in the statements of operations.

F-22



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |               
|--- | --------------
|11. | Notes Payable:

Notes payable consisted of the following at
December 31:

|                                                                                                                                                                                                                                                                                      |                                                   |      |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                                                                                                                                                                                      |                                                   | 2002 |         | 2001   
|                                                                                                                                                                                                                                                                                      |                                                   |      |         |        
|$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                                                                                                                                                                                                                                                             |                                                   |      |        |         |   |   |        |        
|$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 (4.44% and 5.02% at
    December 31, 2002 and December 31, 2001, respectively)  |                                                   |      | 4,660   |         |   |   | 8,185   |        
|$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 (4.93% and 5.45% at
    December 31, 2002 and December 31, 2001, respectively)  |                                                   |      | 55,647  |         |   |   | 59,980  |        
|$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 (5.15% and 5.67% at
    December 31, 2002 and December 31, 2001, respectively) |                                                   |      | 64,693  |         |   |   | 69,547  |        
|Other notes payable                                                                                                                                                                                                                                                                   |                                                   |      | 6       |         |   |   | 28      |        
|                                                                                                                                                                                                                                                                                      |                                                   |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                                                                      |                                                   |      | 300,006 |         |   |   | 312,740 |        
|Less:                                                                                                                                                                                                                                                                                 |                                                   |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                                                                      | Unamortized discount on Senior Subordinated Notes |      |         | (1,981  | ) |   |         | (2,186  | )
|                                                                                                                                                                                                                                                                                      | Current maturities of long-term debt              |      |         | (6,524  | ) |   |         | (6,191  | )
|                                                                                                                                                                                                                                                                                      |                                                   |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                                                                      | Long-term debt                                    |      | $       | 291,501 |   |   | $       | 304,363 |  
|                                                                                                                                                                                                                                                                                      |                                                   |      |         |         |   |   |         |        

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

F-23



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2002 and 2001, no amounts
were outstanding under the Revolving Facility. As of
December 31, 2002 and 2001, letters of credit of $2,752 and
$2,645, respectively, were outstanding under the letter of
credit sub-facility. The Revolving Facility has a maturity date
of June 30, 2004.

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 2002 and
2001, the excess cash flow payments were $1,058 and $684,
respectively. As these amounts are to be paid within
100 days of the fiscal year end, they have been reflected
in current maturities of long-term debt. In December 2002, the
Company voluntarily paid $6,544 on the Term Loans, which reduced
the mandated excess cash flow payment for 2002 to $1,058, which
will be paid on or before April 10, 2003.

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 Credit Agreement requires the
Company meet certain quarterly financial tests pertaining to
total leverage, senior leverage, interest coverage and fixed
charge coverage. These covenants become more restrictive in the
fourth quarter of 2003. As of December 31, 2002, the
Company is in compliance with all related covenants and the
Company anticipates that it will continue to comply in 2003 with
the quarterly financial 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.

Principal payments due during the next five years
on long-term notes payable as of December 31, 2002 are as
follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 6,524   | 
|2004       |  |   | 3,647   | 
|2005       |  |   | 54,053  | 
|2006       |  |   | 60,782  | 
|Thereafter |  |   | 175,000 | 
|           |  |   |         | 
|           |  | $ | 300,006 | 
|           |  |   |         | 

F-24



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The ability of the Company to meet its debt
service, working capital requirements 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.



|    |                     
|--- | --------------------
|12. | Accrued Liabilities:

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

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2002 |        | 2001
|                                            |  |      |        |     
|Salaries, wages and related taxes           |  | $    | 10,255 |      |  | $ | 9,186  | 
|Interest                                    |  |      | 4,928  |      |  |   | 4,317  | 
|Current portion of interest rate swap       |  |      | 4,440  |      |  |   | 2,294  | 
|Shutdown costs and accrued severance        |  |      | 871    |      |  |   | 1,523  | 
|Advertising allowances and customer rebates |  |      | 4,103  |      |  |   | 3,212  | 
|Workers compensation                       |  |      | 764    |      |  |   | 1,200  | 
|Sales, use and property taxes               |  |      | 2,429  |      |  |   | 2,091  | 
|Warranty reserve                            |  |      | 969    |      |  |   | 1,226  | 
|Other                                       |  |      | 2,683  |      |  |   | 4,622  | 
|                                            |  |      |        |      |  |   |        | 
|                                            |  | $    | 31,442 |      |  | $ | 29,671 | 
|                                            |  |      |        |      |  |   |        | 



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

During 2002, the Company distributed capital in
the amount of $168 to Atrium Corporation, $124 represented the
repurchase of common stock and stock options from former
employees, net of options exercised by current and former
employees, and $45 related to administrative expenses.

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 from former employees, $492 for distribution to Atrium
Corporation for the repurchase of stock from former employees
and $27 related to administrative expenses.

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 former employees.

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.

F-25



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                    
|--- | -------------------
|14. | Federal Income Tax:

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

|                                          |                                                            |      |        |         |   |   |        |         |  
|----------------------------------------- | ---------------------------------------------------------- | ---- | ------ | ------- | - | - | ------ | ------- | -
|                                          |                                                            | 2002 |        | 2001   
|                                          |                                                            |      |        |        
|Deferred income tax assets:               |                                                            |      |        |         |   |   |        |        
|                                          | Stock option compensation                                  |      | $      | 889     |   |   | $      | 884     |  
|                                          | Accounts receivable                                        |      |        | 571     |   |   |        | 792     |  
|                                          | Inventory cost capitalization and valuation                |      |        | 606     |   |   |        | 1,128   |  
|                                          | Accrued vacation and bonuses                               |      |        | 1,743   |   |   |        | 1,499   |  
|                                          | Other accrued liabilities                                  |      |        | 673     |   |   |        | 1,147   |  
|                                          | Warranty reserve                                           |      |        | 390     |   |   |        | 493     |  
|                                          | Workers compensation reserve                              |      |        | 307     |   |   |        | 483     |  
|                                          | Alternative minimum tax credit carryforwards and
    other |      |        | 528     |   |   |        | 657     |  
|                                          | Deferred financing costs                                   |      |        | 172     |   |   |        | 518     |  
|                                          | Swap contract liability                                    |      |        | 1,787   |   |   |        | 3,327   |  
|                                          | Net operating loss carryforwards                           |      |        | 27,435  |   |   |        | 17,885  |  
|                                          |                                                            |      |        |         |   |   |        |        
|                                          |                                                            |      | 35,101 |         |   |   | 28,813 |        
|                                          | Valuation allowance                                        |      |        | (20,365 | ) |   |        | (18,703 | )
|                                          |                                                            |      |        |         |   |   |        |        
|                                          | Net deferred tax asset                                     |      |        | 14,736  |   |   |        | 10,110  |  
|Deferred income tax liabilities:          |                                                            |      |        |         |   |   |        |        
|                                          | Depreciation                                               |      |        | (5,483  | ) |   |        | (4,211  | )
|                                          | LIFO reserve                                               |      |        | (648    | ) |   |        | (648    | )
|                                          | Capitalized software costs                                 |      |        | (1,580  | ) |   |        | (1,203  | )
|                                          | Amortization of goodwill                                   |      |        | (7,025  | ) |   |        | (4,048  | )
|                                          |                                                            |      |        |         |   |   |        |        
|                                          | Net deferred tax liability                                 |      |        | (14,736 | ) |   |        | (10,110 | )
|                                          |                                                            |      |        |         |   |   |        |        
|Net deferred income tax asset/(liability) |                                                            |      |       |         |   |   |       |        
|Less-current deferred tax asset           |                                                            |      | 1,324  |         |   |   | 1,426  |        
|                                          |                                                            |      |        |         |   |   |        |        
|Long-term deferred tax liability          |                                                            | $    | (1,324 | )       |   | $ | (1,426 | )      
|                                          |                                                            |      |        |         |   |   |        |        

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, 2002, the Company had net
operating loss carryforwards of approximately $80,700, which
begin to expire in 2019. The Company also had $230 of
alternative minimum tax credit carryforwards at
December 31, 2002, which have no expiration date.

F-26



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                       |          |              |     |              |  |              |       |       |  |   |      |        |  
|-------------------------------------- | -------- | ------------ | --- | ------------ |  | ------------ | ----- | ----- |  | - | ---- | ------ | -
|                                       |          | Year ended   |     | Year ended   |  | Year ended  
|                                       |          | December 31, |     | December 31, |  | December 31,
|                                       |          | 2002         |     | 2001         |  | 2000        
|                                       |          |              |     |              |  |             
|Federal income tax provision (benefit) |          |              |     |              |  |              |       |       |  |   |      |       
|                                       | Current  |              | $   |             |  |              | $     |      |  |   | $    |       |  
|                                       | Deferred |              |     |             |  |              |       |      |  |   |      | (1,593 | )
|State income tax provision (benefit)   |          |              |     |              |  |              |       |       |  |   |      |       
|                                       | Current  |              |     | 625          |  |              |       | 1,358 |  |   |      | 825    |  
|                                       | Deferred |              |     |             |  |              |       |      |  |   |      | (172   | )
|                                       |          |              |     |              |  |              |       |       |  |   |      |       
|Provision (benefit) for income taxes   |          | $            | 625 |              |  | $            | 1,358 |       |  | $ | (940 | )     
|                                       |          |              |     |              |  |              |       |       |  |   |      |       

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,
|                                     |  | 2002         |        | 2001         |  | 2000        
|                                     |  |              |        |              |  |             
|Tax computed at statutory rate       |  | $            | 5,185  |              |  | $            | (935   | ) |  | $ | (26,343 | )
|State taxes, net of federal benefit  |  |              | 407    |              |  |              | 883    |   |  |   | 425     |  
|Amortization of goodwill             |  |              |       |              |  |              | 2,679  |   |  |   | 2,115   |  
|Write-off of non-deductible goodwill |  |              |       |              |  |              |       |   |  |   | 4,571   |  
|Valuation allowance                  |  |              | (5,203 | )            |  |              | (1,484 | ) |  |   | 18,150  |  
|Other items                          |  |              | 236    |              |  |              | 215    |   |  |   | 142     |  
|                                     |  |              |        |              |  |              |        |   |  |   |         |  
|Provision (benefit) for income taxes |  | $            | 625    |              |  | $            | 1,358  |   |  | $ | (940    | )
|                                     |  |              |        |              |  |              |        |   |  |   |         |  

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 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.

F-27



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                     
| | --------------------
| | 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, budgeting and
financial controls in exchange for an annual fee of $1,900, plus
expenses. Amounts paid under the management agreement totaled
$2,009, $2,063 and $2,062 in 2002, 2001 and 2000, respectively.
Of the $2,009 paid in 2002, $300 was in the form of Atrium
Corporation common stock and is included in stock compensation
expense and the remaining $1,709 is included in selling,
delivery, general and administrative expenses. 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 remaining 2001 amount and the entire amount for 2000 is
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. In connection with the Ellison acquisition (see
Note 6), Atrium Corporation paid $1,900 in fees, of which
$900 was in cash and $1,000 was in the form of Atrium
Corporation common stock. 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 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:

|                           |  |      |     |      |  |   |     | 
|-------------------------- |  | ---- | --- | ---- |  | - | --- | 
|                           |  | 2002 |     | 2001
|                           |  |      |     |     
|Receivables from employees |  | $    | 167 |      |  | $ | 156 | 

F-28



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                               
|--- | ------------------------------
|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, its General Council,
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 2002,
2001 and 2000 was $23,683, $23,197 and $16,721, respectively. Of
these totals, amounts paid to related parties were $22, $1,665
and $398 for 2002, 2001 and 2000, respectively. The Company
terminated a lease agreement with a related party in November
2001, and entered into a replacement lease agreement 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
|           |  |      
|2003       |  | $     | 17,708  | 
|2004       |  |       | 16,488  | 
|2005       |  |       | 15,425  | 
|2006       |  |       | 13,476  | 
|2007       |  |       | 12,119  | 
|Thereafter |  |       | 113,254 | 
|           |  |       |         | 
|           |  | $     | 188,470 | 
|           |  |       |         | 

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



| |                    
| | -------------------
| | 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, 2002, the Company had forward commitments for
68,292,000 pounds of aluminum, of which 4,706,000 pounds were at
fixed prices. The fixed contracts totaled $2,885 for delivery
through December 2003.



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

The Company and its subsidiary, formerly known as
Champagne Industries, Inc. (Champagne, renamed
Atrium Door and Window Company of the Rockies), are defendants
in a purported class action lawsuit pending in federal district
court in Boulder, Colorado in which 63 homeowners have sued
the Company and Champagne, along with three other home builder
and home product manufacturer defendants. The claims asserted
against Champagne allege manufacturing and design defects
associated with its Imperial window, a half-jamb wood window
manufactured by Champagne and installed in plaintiffs
homes between 1986 and 1997. The claims asserted against the
Company, which purchased Champagne in 1999, are based on alter
ego and successor liability theories. The plaintiffs, which
claim to represent a purported class of 4,500 homeowners with
Imperial windows, seek damages in an unspecified amount for
repair and replacement of

F-29



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

windows and other resulting damage, together with
other relief permitted under applicable law and equity. In
addition, one of the home builder defendants has filed a
cross-claim against Champagne seeking indemnification in an
amount of $2.8 million. We believe the Company and
Champagne have meritorious defenses and are vigorously defending
against these claims.

The case is currently before the court on
plaintiffs motion for class certification, which the trial
judge is expected to rule upon sometime in the next two to eight
months. While a vigorous defense of the case has been presented
related to the class certification issues, we believe there is a
likelihood that class certification will be granted. Because of
the fact that little discovery has been taken to date with
respect to alleged damages, together with the uncertainty with
regard to class certification, apportionment of liability among
the defendants, and insurance coverage, it is not possible at
this time reasonably to predict the final outcome of this
lawsuit, or reasonably to estimate any possible loss. We believe
that most, if not all of any such loss would be covered by third
party insurance such that the ultimate outcome of this matter is
not likely to result in a material adverse affect on the Company.

The Company and its insurance carriers have been
involved in preliminary settlement discussions and we currently
anticipate that most, if not all, of the cash funds for any
settlement would be covered by insurance. However, if the case
were to proceed to trial, there can be no assurance that a
judgment would not be awarded that is significantly higher than
the current settlement demand, or that a significant portion of
any judgment amount would not be covered by insurance.

The Company has four unionized facilities within
the State of Texas, all of which are represented by the Union of
Needletrades, Industrial and Textile Employees
(UNITE!). During May of 2001, the Company entered
into a new three-year collective bargaining agreement with
UNITE! which will expire in 2004.

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

F-30



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

continuing work because the Company does not have
a volume contribution assigned to the site (because of the lack
of records showing it used the site). The facility was a solvent
recovery, supplemental fuel blending and 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.

In connection with the sale of one of the
Companys facilities in December of 2002, a $250 escrow was
established. The escrow is receivable upon the Company obtaining
an environmental certification on the building. The Company is
currently in the process of applying for the certification and
expects to be refunded the entire $250 escrow paid at closing
during 2003.

In addition to the forgoing 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.



|    |                   
|--- | ------------------
|17. | Other Income, Net:

Other income, net consists of the following for
the years ended December 31, 2002, 2001 and 2000:

|                                             |  |      |      |      |  |      |      |   |  |   |      |  
|-------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                             |  | 2002 |      | 2001 |  | 2000
|                                             |  |      |      |      |  |     
|Rental, interest and other income            |  | $    | 214  |      |  | $    | 364  |   |  | $ | 587  |  
|Gain on sale of marketable equity securities |  |      |     |      |  |      |     |   |  |   | 507  |  
|Other expense                                |  |      | (192 | )    |  |      | (384 | ) |  |   | (845 | )
|                                             |  |      |      |      |  |      |      |   |  |   |      |  
|                                             |  | $    | 22   |      |  | $    | (20  | ) |  | $ | 249  |  
|                                             |  |      |      |      |  |      |      |   |  |   |      |  



|    |               
|--- | --------------
|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. As of December 31, 2002, a
total of 9,423 options to purchase shares of Atrium Corporation
common stock were outstanding under the 1998 plan. All options
granted under the 1998 Plan expire ten years from the date of
grant and vest ratably over periods ranging from three to five
years. The exercise prices range from $1,000 to $2,000 per
share.

F-31



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2002, 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 $1,300.
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, 2002, all of these
options were vested.

As of December 31, 2002, 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.



| |                     
| | --------------------
| | 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, 2002, a total of 1,188 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, 2002, 2001 and 2000.

|                                                        |  |              |        |              |  |              |        |   |  |   |        |  
|------------------------------------------------------- |  | ------------ | ------ | ------------ |  | ------------ | ------ | - |  | - | ------ | -
|                                                        |  | December 31, |        | December 31, |  | December 31,
|                                                        |  | 2002         |        | 2001         |  | 2000        
|                                                        |  |              |        |              |  |             
|Outstanding awards, beginning of period                 |  |              | 10,391 |              |  |              | 13,108 |   |  |   | 13,370 |  
|Granted                                                 |  |              | 650    |              |  |              | 175    |   |  |   | 5,550  |  
|Canceled or expired                                     |  |              | (335   | )            |  |              | (2,742 | ) |  |   | (5,812 | )
|Exercised                                               |  |              | (95    | )            |  |              | (150   | ) |  |   |       |  
|                                                        |  |              |        |              |  |              |        |   |  |   |        |  
|Outstanding awards, end of year                         |  |              | 10,611 |              |  |              | 10,391 |   |  |   | 13,108 |  
|                                                        |  |              |        |              |  |              |        |   |  |   |        |  
|Weighted average grant-date fair value of awards        |  | $            | 1,300  |              |  | $            | 1,300  |   |  | $ | 1,300  |  
|Weighted average exercise price of awards
    exercised |  | $            | 10     |              |  | $            | 10     |   |  | $ |       |  
|Weighted average exercise price of awards granted       |  | $            | 1,300  |              |  | $            | 1,300  |   |  | $ | 1,570  |  
|Weighted average exercise price, end of period          |  | $            | 1,136  |              |  | $            | 1,107  |   |  | $ | 1,040  |  
|Awards exercisable, end of period                       |  |              | 7,807  |              |  |              | 5,230  |   |  |   | 4,123  |  
|Awards available for future grant                       |  |              | 6,710  |              |  |              | 7,025  |   |  |   | 4,458  |  

F-32



---



##### 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, 2002:

|                         |               |                     |        |                     |  |          |  |             |  |          |   |       |  |  |       |       |  |  |   |       | 
|------------------------ | ------------- | ------------------- | ------ | ------------------- |  | -------- |  | ----------- |  | -------- | - | ----- |  |  | ----- | ----- |  |  | - | ----- | 
|                         |               |                     |        |                    
|                         |               | 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      |                     |        | 1,188               |  |          |  | 70          |  |          | $ | 77    |  |  |       | 844   |  |  | $ | 67    | 
|                         | $1,000-$1,300 |                     |        | 7,353               |  |          |  | 70          |  |          | $ | 1,133 |  |  |       | 5,133 |  |  | $ | 1,094 | 
|                         | $1,500-$2,000 |                     |        | 2,070               |  |          |  | 77          |  |          | $ | 1,757 |  |  |       | 1,830 |  |  | $ | 1,773 | 
|                         |               |                     |        |                     |  |          |  |             |  |          |   |       |  |  |       |       |  |  |   |      
|                         |               |                     | 10,611 |                     |  |          |  |             |  |          |   |       |  |  | 7,807 |       |  |  |   |      
|                         |               |                     |        |                     |  |          |  |             |  |          |   |       |  |  |       |       |  |  |   |      

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, 2002, all
of the warrants were vested.

In 1995, the FASB issued SFAS 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 123 is optional, and the Company has not elected the
recognition and measurement provisions of SFAS 123.
However, pro forma disclosures, as if the Company adopted the
cost recognition provisions of SFAS 123 are required by
SFAS 123. See Note 2 for the required stock-based
compensation pro forma disclosures. During 2002, 2001 and 2000,
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 2002, 2001 and 2000: dividend yield of 0.0%;
risk-free interest rate of 6.23%; 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.



|    |                        
|--- | -----------------------
|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 $1,016,
$1,107 and $839 during 2002, 2001 and 2000, respectively.

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

During 1999, the Company assumed Best
Builts 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 during 2000 was $6. The Best Built 401(k) plan was
merged into the Atrium Plan in 2001.

During 1999, the Company assumed Champagnes
401(k) profit sharing plan which covered substantially all
employees. Contributions were determined annually by the Board
of Directors. The total expense recorded during 2001 was $0. The
Champagne 401(k) profit sharing plan was merged into the Atrium
Plan in 2001.

F-33



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                       
|--- | ----------------------
|20. | Subsidiary Guarantors:

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, Inc.),
Thermal Industries, Inc., Atrium Door and Window Company of the
Northwest (formerly known as Best Built, Inc.), Atrium Door and
Window Company of the Rockies (formerly known as Champagne
Industries, Inc.), 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 and cash
flows of all subsidiaries are presented for all periods covered
except for the operations of Atrium Ventanas de Mexico and
Atrium Servicios de Mexico (Non-Guarantor Subsidiaries), which
are presented since their inception in March of 2002, Atrium
Funding Corporation (Non-Guarantor Subsidiary), which are
presented since its date of inception in July 2001, and Atrium
Extrusion Systems, Inc., which are included since its date of
acquisition on October 25, 2000. The balance sheet
information includes all subsidiaries as of December 31,
2002 and all subsidiaries except for Atrium Ventanas de Mexico
and Atrium Servicios de Mexico as of December 31, 2001. In
the opinion of management, separate financial statements of the
respective Guarantor Subsidiaries would not provide additional
material information, which would be useful in assessing the
financial composition of the Guarantor Subsidiaries. None of the
Guarantor Subsidiaries 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-34



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

December 31, 2002


(dollars in thousands)


|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |         |         |         | 
|------------------------------------------------------- | --------------------------------------------- | --------------------------- | ------------------------------------------ | ------------- | ------- | ------- | - | ----------------- | ------ | ------------ | ------- | ------- | ------- | ------- | ---- | ------ | ------ | ------ | ------- | ------- | ------- | ------- | 
|                                                        |                                               | Guarantor                   |                                            | Non-Guarantor |         |         |   | Reclassification/ |        |             
|                                                        |                                               | Subsidiaries                |                                            | Subsidiaries  |         | Parent  |   | Eliminations      |        | Consolidated
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |             
|ASSETS                                                 
|CURRENT ASSETS:                                         |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        | Cash and cash equivalents                     |                             | $                                          | 26,189        |         |         | $ | (10,540           | )      |              | $       | (17,860 | )       |         | $    | 3,342  |        |        | $       | 1,131   |        
|                                                        | Accounts receivable, net                      |                             |                                            | 1,841         |         |         |   | 6                 |        |              |         |        |         |         |      |       |        |        |         | 1,847   |        
|                                                        | Retained interest in sold accounts receivable |                             |                                            |              |         |         |   | 25,209            |        |              |         |        |         |         |      |       |        |        |         | 25,209  |        
|                                                        | Inventories                                   |                             |                                            | 15,678        |         |         |   | 11                |        |              |         | 18,920  |         |         |      | (897   | )      |        |         | 33,712  |        
|                                                        | Prepaid expenses and other current assets     |                             |                                            | 1,985         |         |         |   | 24                |        |              |         | 3,630   |         |         |      | 470    |        |        |         | 6,109   |        
|                                                        | Deferred tax asset                            |                             |                                            | 8,316         |         |         |   |                  |        |              |         |        |         |         |      | (6,992 | )      |        |         | 1,324   |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        |                                               | Total current assets        |                                            |               | 54,009  |         |   |                   | 14,710 |              |         |         | 4,690   |         |      |        | (4,077 | )      |         |         | 69,332  |        
|PROPERTY, PLANT AND EQUIPMENT, net                      |                                               |                             | 20,818                                     |               |         |         | 4 |                   |        |              | 34,503  |         |         |         | (3   | )      |        |        | 55,322  |        
|GOODWILL, net                                           |                                               |                             | 167,899                                    |               |         |         |  |                   |        |              | 177,340 |         |         |         |     |        |        |        | 345,239 |        
|DEFERRED TAX ASSET                                      |                                               |                             |                                           |               |         |         |  |                   |        |              | 123     |         |         |         | (123 | )      |        |        |        |        
|DEFERRED FINANCING COSTS, net                           |                                               |                             |                                           |               |         |         |  |                   |        |              | 10,293  |         |         |         |     |        |        |        | 10,293  |        
|OTHER ASSETS, net                                       |                                               |                             | 1,653                                      |               |         |         | 3 |                   |        |              | 6,478   |         |         |         |     |        |        |        | 8,134   |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        |                                               | Total assets                |                                            | $             | 244,379 |         |   | $                 | 14,717 |              |         | $       | 233,427 |         |      | $      | (4,203 | )      |         | $       | 488,320 |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                       
|LIABILITIES AND STOCKHOLDERS
    EQUITY               
|CURRENT LIABILITIES:                                    |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        | Current portion of notes payable              |                             | $                                          | 2,420         |         |         | $ |                  |        |              | $       | 4,104   |         |         | $    |       |        |        | $       | 6,524   |        
|                                                        | Deferred tax liability                        |                             |                                            |              |         |         |   |                  |        |              |         | 123     |         |         |      | (123   | )      |        |         |        |        
|                                                        | Accounts payable                              |                             |                                            | 6,018         |         |         |   | 24                |        |              |         | 13,152  |         |         |      | 3,341  |        |        |         | 22,535  |        
|                                                        | Accrued liabilities                           |                             |                                            | 21,660        |         |         |   | 56                |        |              |         | 9,256   |         |         |      | 470    |        |        |         | 31,442  |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        |                                               | Total current liabilities   |                                            |               | 30,098  |         |   |                   | 80     |              |         |         | 26,635  |         |      |        | 3,688  |        |         |         | 60,501  |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|LONG-TERM LIABILITIES:                                  |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        | Notes payable                                 |                             |                                            | 181,298       |         |         |   |                  |        |              |         | 110,203 |         |         |      |       |        |        |         | 291,501 |        
|                                                        | Deferred tax liability                        |                             |                                            | 8,316         |         |         |   |                  |        |              |         |        |         |         |      | (6,992 | )      |        |         | 1,324   |        
|                                                        | Other long-term liabilities                   |                             |                                            | 560           |         |         |   |                  |        |              |         |        |         |         |      |       |        |        |         | 560     |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        |                                               | Total long-term liabilities |                                            |               | 190,174 |         |   |                   |       |              |         |         | 110,203 |         |      |        | (6,992 | )      |         |         | 293,385 |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        |                                               | Total liabilities           |                                            |               | 220,272 |         |   |                   | 80     |              |         |         | 136,838 |         |      |        | (3,304 | )      |         |         | 353,886 |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|COMMITMENTS AND CONTINGENCIES STOCKHOLDERS
    EQUITY: |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        | Common stock                                  |                             |                                            |              |         |         |   |                  |        |              |         |        |         |         |      |       |        |        |         |        |        
|                                                        | Paid-in capital                               |                             |                                            | 4,043         |         |         |   | 19,756            |        |              |         | 179,885 |         |         |      |       |        |        |         | 203,684 |        
|                                                        | Retained earnings (accumulated deficit)       |                             |                                            | 20,064        |         |         |   | (5,109            | )      |              |         | (78,866 | )       |         |      | (899   | )      |        |         | (64,810 | )      
|                                                        | Accumulated other comprehensive loss          |                             |                                            |              |         |         |   | (10               | )      |              |         | (4,430  | )       |         |      |       |        |        |         | (4,440  | )      
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        |                                               | Total stockholders equity  |                                            |               | 24,107  |         |   |                   | 14,637 |              |         |         | 96,589  |         |      |        | (899   | )      |         |         | 134,434 |        
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        
|                                                        |                                               |                             | Total liabilities and stockholders equity |               | $       | 244,379 |   |                   | $      | 14,717       |         |         | $       | 233,427 |      |        | $      | (4,203 | )       |         | $       | 488,320 | 
|                                                        |                                               |                             |                                            |               |         |         |   |                   |        |              |         |         |         |         |      |        |        |        |         |        

F-35



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING 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-36



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENT OF
OPERATIONS

For the Year Ended December 31,
2002


(dollars in thousands)


|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |         | 
|-------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------- | ------------- |  | ------ | ------ | ----------------- | - | ------------ | ------- | ------ | - | - | ------- | -- |  | - | ------- | ------- | 
|                                                                                       |                                                                                                                                        | Guarantor    |         | Non-Guarantor |  |        |        | Reclassification/ |   |             
|                                                                                       |                                                                                                                                        | Subsidiaries |         | Subsidiaries  |  | Parent |        | Eliminations      |   | Consolidated
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |             
|NET SALES                                                                              |                                                                                                                                        | $            | 199,150 |               |  | $      | 12     |                   |   | $            | 377,225 |        |   | $ | (40,088 | )  |  | $ | 536,299 |        
|COST OF GOODS SOLD                                                                     |                                                                                                                                        |              | 128,240 |               |  |        | 12     |                   |   |              | 272,222 |        |   |   | (40,151 | )  |  |   | 360,323 |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|Gross profit                                                                           |                                                                                                                                        |              | 70,910  |               |  |        |       |                   |   |              | 105,003 |        |   |   | 63      |    |  |   | 175,976 |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|OPERATING EXPENSES:                                                                    |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|                                                                                       | Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |              |         | 48,793        |  |        |        | 979               |   |              |         | 66,592 |   |   |         |   |  |   |         | 116,364 | 
|                                                                                       | Securitization expense                                                                                                                 |              |         |              |  |        |        | 1,398             |   |              |         | (265   | ) |   |         |   |  |   |         | 1,133   | 
|                                                                                       | Stock compensation expense                                                                                                             |              |         |              |  |        |        |                  |   |              |         | 383    |   |   |         |   |  |   |         | 383     | 
|                                                                                       | Amortization expense                                                                                                                   |              |         | 1,273         |  |        |        |                  |   |              |         | 2,137  |   |   |         |   |  |   |         | 3,410   | 
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE                                          |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|EXPENSES                                                                               |                                                                                                                                        |              | 50,066  |               |  |        | 2,377  |                   |   |              | 68,847  |        |   |   |        |    |  |   | 121,290 |        
|                                                                                       | Special charges                                                                                                                        |              |         | 4,198         |  |        |        |                  |   |              |         |       |   |   |         |   |  |   |         | 4,198   | 
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|                                                                                       |                                                                                                                                        |              | 54,264  |               |  |        | 2,377  |                   |   |              | 68,847  |        |   |   |        |    |  |   | 125,488 |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|                                                                                       | Income (loss) from operations                                                                                                          |              |         | 16,646        |  |        |        | (2,377            | ) |              |         | 36,156 |   |   |         | 63 |  |   |         | 50,488  | 
|INTEREST EXPENSE                                                                       |                                                                                                                                        |              | 13,240  |               |  |        |       |                   |   |              | 22,457  |        |   |   |        |    |  |   | 35,697  |        
|OTHER INCOME (LOSS), net                                                               |                                                                                                                                        |              | (133    | )             |  |        | (1     | )                 |   |              | 156     |        |   |   |        |    |  |   | 22      |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|Income (loss) before income taxes and
    extraordinary charge                         |                                                                                                                                        |              | 3,273   |               |  |        | (2,378 | )                 |   |              | 13,855  |        |   |   | 63      |    |  |   | 14,813  |        
|PROVISION FOR INCOME TAXES                                                             |                                                                                                                                        |              | 277     |               |  |        |       |                   |   |              | 348     |        |   |   |        |    |  |   | 625     |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|Income (loss) before extraordinary charge                                              |                                                                                                                                        |              | 2,996   |               |  |        | (2,378 | )                 |   |              | 13,507  |        |   |   | 63      |    |  |   | 14,188  |        
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
    (net of income tax benefit of $0) |                                                                                                                                        |              |        |               |  |        |       |                   |   |              | 204     |        |   |   |        |    |  |   | 204     |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        
|NET INCOME (LOSS)                                                                      |                                                                                                                                        | $            | 2,996   |               |  | $      | (2,378 | )                 |   | $            | 13,303  |        |   | $ | 63      |    |  | $ | 13,984  |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |    |  |   |         |        

F-37



---



##### 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                                                                              |                                                                                                                                        | $            | 204,210 |               |  | $      |       |                   |   | $            | 345,631 |        |   | $ | (32,778 | )   |   | $ | 517,063 |        
|COST OF GOODS SOLD                                                                     |                                                                                                                                        |              | 130,919 |               |  |        |       |                   |   |              | 256,767 |        |   |   | (32,889 | )   |   |   | 354,797 |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|Gross profit                                                                           |                                                                                                                                        |              | 73,291  |               |  |        |       |                   |   |              | 88,864  |        |   |   | 111     |     |   |   | 162,266 |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|OPERATING EXPENSES:                                                                    |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|                                                                                       | Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |              |         | 47,111        |  |        |        | 1,069             |   |              |         | 59,967 |   |   |         | (80 | ) |   |         | 108,067 | 
|                                                                                       | 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                             |                                                                                                                                        |              | 54,017  |               |  |        | 2,732  |                   |   |              | 67,922  |        |   |   | (80     | )   |   |   | 124,591 |        
|Special Charges                                                                        |                                                                                                                                        |              |        |               |  |        |       |                   |   |              | 1,213   |        |   |   |        |     |   |   | 1,213   |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|                                                                                       |                                                                                                                                        |              | 54,017  |               |  |        | 2,732  |                   |   |              | 69,135  |        |   |   | (80     | )   |   |   | 125,804 |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|                                                                                       | Income (loss) from operations                                                                                                          |              |         | 19,274        |  |        |        | (2,732            | ) |              |         | 19,729 |   |   |         | 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                         |                                                                                                                                        |              | 3,982   |               |  |        | (2,732 | )                 |   |              | (3,979  | )      |   |   | 58      |     |   |   | (2,671  | )      
|PROVISION FOR INCOME TAXES                                                             |                                                                                                                                        |              | 1,358   |               |  |        |       |                   |   |              |        |        |   |   |        |     |   |   | 1,358   |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|Income (loss) before extraordinary charge                                              |                                                                                                                                        |              | 2,624   |               |  |        | (2,732 | )                 |   |              | (3,979  | )      |   |   | 58      |     |   |   | (4,029  | )      
|EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
    (net of income tax benefit of $0) |                                                                                                                                        |              |        |               |  |        |       |                   |   |              | 837     |        |   |   |        |     |   |   | 837     |        
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        
|NET INCOME (LOSS)                                                                      |                                                                                                                                        | $            | 2,624   |               |  | $      | (2,732 | )                 |   | $            | (4,816  | )      |   | $ | 58      |     |   | $ | (4,866  | )      
|                                                                                       |                                                                                                                                        |              |         |               |  |        |        |                   |   |              |         |        |   |   |         |     |   |   |         |        

F-38



---



##### 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                                                                                                                              |                               | $            | 283,409 |         |   | $                 | 246,886 |              |  | $ | (37,992 | )   |  | $ | 492,303 |        
|COST OF GOODS SOLD                                                                                                                     |                               |              | 224,184 |         |   |                   | 185,575 |              |  |   | (38,564 | )   |  |   | 371,195 |        
|                                                                                                                                       |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|Gross profit                                                                                                                           |                               |              | 59,225  |         |   |                   | 61,311  |              |  |   | 572     |     |  |   | 121,108 |        
|                                                                                                                                       |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|OPERATING EXPENSES:                                                                                                                    |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |                               |              | 78,962  |         |   |                   | 43,404  |              |  |   | (319    | )   |  |   | 122,047 |        
|                                                                                                                                       | Amortization expense          |              |         | 5,270   |   |                   |         | 4,600        |  |   |         |    |  |   |         | 9,870   |  
|                                                                                                                                       |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |                               |              | 84,232  |         |   |                   | 48,004  |              |  |   | (319    | )   |  |   | 131,917 |        
|Special Charges                                                                                                                        |                               |              | 24,585  |         |   |                   | 3,154   |              |  |   |        |     |  |   | 27,739  |        
|                                                                                                                                       |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|                                                                                                                                       |                               |              | 108,817 |         |   |                   | 51,158  |              |  |   | (319    | )   |  |   | 159,656 |        
|                                                                                                                                       |                               |              |         |         |   |                   |         |              |  |   |         |     |  |   |         |        
|                                                                                                                                       | 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-39



---



##### Table of Contents



ATRIUM COMPANIES, INC.

CONSOLIDATING STATEMENT OF CASH
FLOWS

For the Year Ended December 31,
2002


(dollars in thousands)


|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |         |         |  
|-------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------- | ------- | ------------- | ------ | ------ | ------- | ------------------ | ----- | ------------ | ------- | ------- | ------- | - | ----- | ----- | ----- | - | ------ | ------- | ------- | -
|                                                         |                                                             | Guarantor                                               |         | Non-Guarantor |        |        |         | Reclassifications/ |       |             
|                                                         |                                                             | Subsidiaries                                            |         | Subsidiaries  |        | Parent |         | Eliminations       |       | Consolidated
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |             
|CASH FLOWS FROM OPERATING ACTIVITIES                     |                                                             | $                                                       | 25,540  |               |        | $      | (13,305 | )                  |       | $            | 14,854  |         |         | $ |      |       |       | $ | 27,089 |        
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|                                                         | Purchases of property, plant and equipment                  |                                                         |         | (5,861        | )      |        |         | (5                 | )     |              |         | (7,241  | )       |   |       |      |       |   |        | (13,107 | )      
|                                                         | Proceeds from sales of assets                               |                                                         |         | 80            |        |        |         |                   |       |              |         | 1,870   |         |   |       |      |       |   |        | 1,950   |        
|                                                         | Other assets                                                |                                                         |         | (1,071        | )      |        |         | (3                 | )     |              |         | (3,104  | )       |   |       |      |       |   |        | (4,178  | )      
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|                                                         |                                                             | Net cash used in investing activities                   |         |               | (6,852 | )      |         |                    | (8    | )            |         |         | (8,475  | ) |       |       |      |   |        |         | (15,335 | )
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|                                                         | Capital contributions                                       |                                                         |         | 46,786        |        |        |         | 2,025              |       |              |         | (48,811 | )       |   |       |      |       |   |        |        |        
|                                                         | Payments of notes payable and capital lease
    obligations |                                                         |         | (8            | )      |        |         |                   |       |              |         | (15     | )       |   |       |      |       |   |        | (23     | )      
|                                                         | Scheduled principal payments on term loans                  |                                                         |         | (3,380        | )      |        |         |                   |       |              |         | (2,104  | )       |   |       |      |       |   |        | (5,484  | )      
|                                                         | Additional principal payments on term loans                 |                                                         |         | (4,456        | )      |        |         |                   |       |              |         | (2,772  | )       |   |       |      |       |   |        | (7,228  | )      
|                                                         | Distribution to Atrium Corporation, net                     |                                                         |         |              |        |        |         |                   |       |              |         | (168    | )       |   |       |      |       |   |        | (168    | )      
|                                                         | Checks drawn in excess of bank balances                     |                                                         |         |              |        |        |         |                   |       |              |         |        |         |   |       | 1,033 |       |   |        | 1,033   |        
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|                                                         |                                                             | Net cash provided by (used in) financing
    activities |         |               | 38,942 |        |         |                    | 2,025 |              |         |         | (53,870 | ) |       |       | 1,033 |   |        |         | (11,870 | )
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                             |                                                         | 57,630  |               |        |        | (11,288 | )                  |       |              | (47,491 | )       |         |   | 1,033 |       |       |   | (116   | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           |                                                             |                                                         | (31,441 | )             |        |        | 748     |                    |       |              | 29,631  |         |         |   | 2,309 |       |       |   | 1,247  |        
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD                 |                                                             | $                                                       | 26,189  |               |        | $      | (10,540 | )                  |       | $            | (17,860 | )       |         | $ | 3,342 |       |       | $ | 1,131  |        
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        

F-40



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING 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-41



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH
FLOWS

For the Year Ended December 31,
2000


(dollars in thousands)


|                                                         |                                                                         |                                                         |         |        |        |                    |        |              |          |   |       |   |   |   |        |         |         |  
|-------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | ------ | ------------------ | ------ | ------------ | -------- | - | ----- | - | - | - | ------ | ------- | ------- | -
|                                                         |                                                                         | Guarantor                                               |         |        |        | Reclassifications/ |        |             
|                                                         |                                                                         | 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 and the Atrium Wood
    Patio Door Division |                                                         |         | 24,355 |        |                    |        |             |          |   |       |  |   |   |        | 24,355  |        
|                                                         | Acquisition of Ellison, net of cash acquired                            |                                                         |         |       |        |                    |        | (99,276      | )        |   |       |  |   |   |        | (99,276 | )      
|                                                         | Proceeds from the sale of investments in equity
    securities          |                                                         |         |       |        |                    |        | 620          |          |   |       |  |   |   |        | 620     |        
|                                                         | Other assets                                                            |                                                         |         |       |        |                    |        | (3,790       | )        |   |       |  |   |   |        | (3,790  | )      
|                                                         |                                                                         |                                                         |         |        |        |                    |        |              |          |   |       |   |   |   |        |        
|                                                         |                                                                         | Net cash provided by (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 and capital lease
    obligations             |                                                         |         |       |        |                    |        | (309         | )        |   |       |  |   |   |        | (309    | )      
|                                                         | Net payments under revolving credit facility                            |                                                         |         |       |        |                    |        | 3,730        |          |   |       |  |   |   |        | 3,730   |        
|                                                         | Deferred financing costs                                                |                                                         |         |       |        |                    |        | (1,326       | )        |   |       |  |   |   |        | (1,326  | )      
|                                                         | Scheduled principal payments on term loans                              |                                                         |         |       |        |                    |        | (2,990       | )        |   |       |  |   |   |        | (2,990  | )      
|                                                         | Contributions from Atrium Corporation                                   |                                                         |         |       |        |                    |        | 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-42



---



##### Table of Contents





|    |                  
|--- | -----------------
|21. | Subsequent Events

MD Casting Acquisition:

On January 31, 2003, the Company, through
its newly-formed and wholly-owned subsidiary, MD Casting,
Inc. (MD Casting) completed the acquisition of
substantially all of the operating assets of Miniature Die
Casting of Texas, L.P. for a purchase price of $3,250 with an
additional amount of up to $600 to be paid over three years upon
the achievement of certain financial targets. MD Casting is
a zinc die cast hardware manufacturer located in
Fort Worth, Texas. The Company financed the acquisition
through its revolving credit facility. The results of operations
of MD Casting will be included in the Companys
consolidated financial statements beginning on February 1,
2003.

The acquisition will be accounted for as a
purchase in accordance with SFAS 141. The aggregate
purchase price will be allocated to the underlying assets and
liabilities based upon their respective estimated fair market
values at the date of acquisition. The results of the acquired
business will be included in the Companys consolidated
financial statements beginning on January 31, 2003.

Danvid Window Company Acquisition:

On February 14, 2003, the Company entered
into a definitive asset purchase agreement to acquire the assets
of Danvid Window Company (Danvid), a wholly-owned
subsidiary of American Architectural Products Corporation.
Danvid is an aluminum and vinyl window and door manufacturer
located in Dallas, Texas. The purchase price for Danvid is
$5,800 and the assumption of certain liabilities. Danvid is
being purchased out of bankruptcy (with both Danvid and
its parent operating as a debtor-in-possession under
Chapter 11) pursuant to a Section 363 auction sale.
The transaction is expected to close April 1, 2003 and will
be financed through the Companys revolving credit facility.

F-43



---



##### 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 28, 2003, appearing in this Annual Report on
Form 10-K also included an audit of the related financial
statement schedule listed in Item 15(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 28, 2003


S-1



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS


(dollars in thousands)


|                                 |                              |            |   |                      |  |             |   |               |   |               |   |     |  |  |   |        |   |  |   |       | 
|-------------------------------- | ---------------------------- | ---------- | - | -------------------- |  | ----------- | - | ------------- | - | ------------- | - | --- |  |  | - | ------ | - |  | - | ----- | 
|                                 |                              |            |   |                      |  |             |   |              
|                                 |                              |            |   | Column C  Additions |  |             |   |              
|                                 |                              |            |   |                      |  |             |   |              
|                                 |                              | Column B  |   | (1)                  |  | (2)         |   |               |   |              
|                                 |                              | Balance at |   | Charged to           |  | Acquired    |   | Column D     |   | Column E    
|                                 |                              | Beginning  |   | Costs and            |  | Through     |   | Deductions   |   | Balance at   
|Column A  Description           |                              | of Period  |   | Expenses             |  | Acquisition |   | Write-Offs(a) |   | End of Period
|                                 |                              |            |   |                      |  |             |   |               |   |              
|Allowance for doubtful accounts: |                              |            |   |                      |  |             |   |               |   |               |   |     |  |  |   |        |   |  |   |      
|                                 | 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   | 
|                                 | Year ended December 31, 2002 |            | $ | 153                  |  |             | $ | (25           | ) |               | $ |    |  |  | $ | (46    | ) |  | $ | 82    | 



---



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

|                                |                              |            |   |                      |  |             |   |            |     |               |   |   |  |  |   |        |   |  |   |        | 
|------------------------------- | ---------------------------- | ---------- | - | -------------------- |  | ----------- | - | ---------- | --- | ------------- | - | - |  |  | - | ------ | - |  | - | ------ | 
|                                |                              |            |   |                      |  |             |   |           
|                                |                              |            |   | Column C  Additions |  |             |   |           
|                                |                              |            |   |                      |  |             |   |           
|                                |                              | Column B  |   | (1)                  |  | (2)         |   |            |     |              
|                                |                              | Balance at |   | Charged to           |  | Acquired    |   |            |     | Column E    
|                                |                              | Beginning  |   | Costs and            |  | Through     |   | Column D  |     | Balance at   
|Column A  Description          |                              | of Period  |   | Expenses             |  | Acquisition |   | Deductions |     | End of Period
|                                |                              |            |   |                      |  |             |   |            |     |              
|Income tax valuation allowance: |                              |            |   |                      |  |             |   |            |     |               |   |   |  |  |   |        |   |  |   |       
|                                | Year ended December 31, 2000 |            | $ |                     |  |             | $ | 18,150     |     |               | $ |  |  |  | $ |       |   |  | $ | 18,150 | 
|                                | Year ended December 31, 2001 |            | $ | 18,150               |  |             | $ | 2,137      | (b) |               | $ |  |  |  | $ | (1,584 | ) |  | $ | 18,703 | 
|                                | Year ended December 31, 2002 |            | $ | 18,703               |  |             | $ | 9,193      |     |               | $ |  |  |  | $ | (7,531 | ) |  | $ | 20,365 | 



---



|    |  |                                                                           
|--- |  | --------------------------------------------------------------------------
|(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  |   | Costs and            |  | Through     |   | Column D  |  | Balance at   
|Column A  Description |                              | of Period  |   | Expenses             |  | Acquisition |   | Deductions |  | End of Period
|                       |                              |            |   |                      |  |             |   |            |  |              
|Inventory allowance:   |                              |            |   |                      |  |             |   |            |  |               |   |   |  |  |   |        |   |  |   |      
|                       | Year ended December 31, 2000 |            | $ | 1,011                |  |             | $ | 102        |  |               | $ |  |  |  | $ | (622   | ) |  | $ | 491   | 
|                       | Year ended December 31, 2001 |            | $ | 491                  |  |             | $ | 1,181      |  |               | $ |  |  |  | $ | (116   | ) |  | $ | 1,556 | 
|                       | Year ended December 31, 2002 |            | $ | 1,556                |  |             | $ | 66         |  |               | $ |  |  |  | $ | (1,010 | ) |  | $ | 612   | 

S-2



---



##### 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.(6)                                                                                                                                                           
|        | 2  | .2          |  | Agreement and Plan of Merger, dated as of
    October 25, 2000, between D and W Holdings, Inc.
    and Atrium Corporation(5)                                                                                                                                                                                                              
|        | 2  | .3          |  | Agreement and Plan of Merger, dated as of
    December 27, 2001, between R.G. Darby Company 
    South and Door Holdings, Inc.(2)                                                                                                                                                                                                        
|        | 2  | .4          |  | Agreement and Plan of Merger, dated as of
    December 27, 2001, between Total Trim, Inc. 
    South and Door Holdings, Inc.(2)                                                                                                                                                                                                          
|        | 2  | .5          |  | Agreement and Plan of Merger, dated as of
    December 27, 2001, between Door Holdings, Inc. and Atrium
    Companies, Inc.(2)                                                                                                                                                                                                            
|        | 2  | .6          |  | Agreement and Plan of Merger, dated as of
    December 27, 2001, between H.I.G. Vinyl, Inc. and Heat,
    Inc.(2)                                                                                                                                                                                                                         
|        | 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(2)                                                                                                                                                     
|        | 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.(2)                                                                                                                                                                                     
|        | 2  | .9          |  | Agreement and Plan of Merger, dated as of
    December 27, 2001, between Wing Industries Holdings, Inc.
    and Atrium Companies, Inc.(2)                                                                                                                                                                                                 
|        | 4  | .1          |  | Indenture, dated as of May 17, 1999, among
    Atrium Companies, Inc., the Guarantors named therein and State
    Street Bank and Trust Company(7)                                                                                                                                                                                        
|        | 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(5)                                                                                                                         
|        | 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(7)                                                                                                                             
|        | 10 | .1          |  | Asset Purchase Agreement, dated as of
    August 30, 2000, between Atrium Companies, Inc. and
    Woodgrain Millwork, Inc.(5)                                                                                                                                                                                                             
|        | 10 | .2          |  | Asset Purchase Agreement, dated as of
    June 30, 2000, among Atrium Companies, Inc., Wing
    Industries, Inc. and Premdor Corporation(5)                                                                                                                                                                                               
|        | 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.(7)
|        | 10 | .4          |  | Stock Purchase Agreement, dated as of
    May 10, 1999, between Champagne Industries, Inc. and Atrium
    Companies, Inc.(7)                                                                                                                                                                                                              
|        | 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.(7)                                                                                  
|        | 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.(9)                                                                                                                               
|        | 10 | .7          |  | Lease Agreement, dated as of November 29,
    2001, between Windough (DE) LP, and Atrium Companies,
    Inc.(2)                                                                                                                                                                                                                           
|        | 10 | .8          |  | Lease Agreement, dated as of November 18,
    1999, between Delaware Frame (Tx), LP and Atrium Companies,
    Inc.(5)                                                                                                                                                                                                                     



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .9          |  | Employment Agreement, dated as of January 1,
    2003, among Atrium Corporation, Atrium Companies, Inc. and Jeff
    L. Hull(1)                                                                                                                                                      
|        | 10 | .10         |  | Change of Control Agreement, dated as of
    January 1, 2003, among Atrium Corporation, Atrium
    Companies, Inc. and Jeff L. Hull(1)                                                                                                                                               
|        | 10 | .11         |  | Employment Agreement, dated as of January 1,
    2003, among Atrium Corporation, Atrium Companies, Inc. and Eric
    W. Long(1)                                                                                                                                                      
|        | 10 | .12         |  | Change of Control Agreement dated as of
    January 1, 2003 among Atrium Corporation, Atrium Companies,
    Inc. and Eric W. Long(1)                                                                                                                                                 
|        | 10 | .13         |  | Employment Agreement, dated as of January 1,
    2003, among Atrium Corporation, Atrium Companies, Inc. and
    Robert E. Burns(1)                                                                                                                                                   
|        | 10 | .14         |  | Consulting, Non-Competition and Non-Solicitation
    Agreement, dated as of October 25, 2000, between Atrium
    Companies, Inc. and John Ellison, Jr.(5)                                                                                                                            
|        | 10 | .15         |  | Amendment to Consulting, Non-Competition and
    Non-Solicitation Agreement, dated as of July, 2001, between
    Atrium Companies, Inc. and John Ellison, Jr.(2)                                                                                                                     
|        | 10 | .16         |  | Side Letter Agreement, dated as of
    October 25, 2000, between Atrium Companies, Inc. and John
    Ellison Jr.(5)                                                                                                                                                                  
|        | 10 | .17         |  | Employment Agreement, dated as of January 1,
    2003, among Atrium Corporation, Atrium Companies, Inc. and C.
    Douglas Cross(1)                                                                                                                                                  
|        | 10 | .18         |  | Buy-Sell Agreement, dated October 25, 2000,
    among D and W Holdings, Inc., C. Douglas Cross and GE
    Investment Private Placement Partners II(5)                                                                                                                                
|        | 10 | .19         |  | 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(7)                                                                                  
|        | 10 | .20         |  | 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(7)
|        | 10 | .21         |  | Side Letter Agreement, dated as of
    October 24, 2000, among D and W Holdings, Inc.,
    Atrium Corporation and Atrium Companies, Inc.(5)                                                                                                                                          
|        | 10 | .22         |  | Contribution Agreement, dated as of
    October 25, 2000, between D and W Holdings, Inc.
    and Atrium Companies, Inc.(5)                                                                                                                                                           
|        | 10 | .23         |  | Contribution Agreement, dated as of
    October 25, 2000, between Atrium Corporation and Atrium
    Companies, Inc.(5)                                                                                                                                                               
|        | 10 | .24         |  | 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(5)                                                       
|        | 10 | .25         |  | Employment Agreement, dated as of
    September 30, 2002, among Atrium Corporation, Atrium
    Companies Inc. and Philip J. Ragona(1)                                                                                                                                                
|        | 10 | .26         |  | Employment Agreement, dated as of January 1,
    2002, between Atrium Corporation and Cliff Darby(2)                                                                                                                                                                                 
|        | 10 | .27         |  | Buy-Sell Agreement, dated as of October 2,
    1998, among D and W Holdings, Inc., GE Investment
    Private Placement Partners II and Cliff Darby(8)                                                                                                                                
|        | 10 | .28         |  | D and W Holdings, Inc. 1998 Stock
    Option Plan(8)                                                                                                                                                                                                                                 
|        | 10 | .29         |  | Amendment No. 1 to D and W
    Holdings, Inc. 1999 Stock Option Plan, dated as of May 17,
    1999(7)                                                                                                                                                                                
|        | 10 | .30         |  | D and W Holdings, Inc. 1998 Replacement
    Stock Option Plan(8)                                                                                                                                                                                                                     
|        | 10 | .31         |  | 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(7)                                                                                                   



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .32         |  | 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.(7)                                                                                                                                                                                                                                                                                                                    
|        | 10 | .33         |  | 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(2)                   
|        | 10 | .34         |  | 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(2)
|        | 10 | .35         |  | 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(6)                                                                               
|        | 10 | .36         |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Daniel T. Morley(5)                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .37         |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Jeff L. Hull(5)                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .38         |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Andreas Hildebrand(5)                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .39         |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and John Deterding(5)                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .40         |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Robert E. Burns(5)                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .41         |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Roger A. Knight(5)                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .42         |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Eric W. Long(5)                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .43         |  | Indemnification Agreement, dated as of
    October 25, 2000, between D and W Holdings, Inc.
    and John Ellison, Jr.(5)                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .44         |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Cliff Darby(5)                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .45         |  | Indemnification Agreement, dated as of
    October 25, 2000, between D and W Holdings, Inc.
    and Dennis M. McCormick(5)                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .46         |  | Indemnification Agreement, dated as of
    September 30, 2002, between Atrium Corporation and Philip
    J. Ragona(1)                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .47         |  | Indemnification Agreement, dated as of
    December 12, 2002, between Atrium Corporation and W. Andrew
    Shea(1)                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .48         |  | Indemnification Agreement, dated as of
    October 25, 2000, between Atrium Corporation and C. Douglas
    Cross(5)                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .49         |  | Contribution Agreement, dated as of May 2,
    2001, between Atrium Corporation and Atrium Companies, Inc.(4)                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .50         |  | Contribution Agreement, dated as of May 16,
    2001 among Atrium Corporation and Atrium Companies, Inc.(2)                                                                                                                                                                                                                                                                                                                                                                                    



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                        
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .51         |  | Receivable Purchase Agreement dated as of
    July 31, 2001, among Atrium Funding Corp., Atrium
    Companies, Inc., Fairway Finance Corporation and BMO Nesbitt
    Burns Corp.(3)                                                                                    
|        | 10 | .52         |  | Purchase and Sale Agreement dated July 3,
    2001, between the various entities listed on Schedule A
    thereto and Atrium Funding Corp.(3)                                                                                                                          
|        | 10 | .53         |  | Amendment No. 1, dated as of July 30,
    2002 to the Receivable Purchase Agreement dated as of
    July 31, 2001 among Atrium Funding Corp., Atrium Companies,
    Inc., Fairway Finance Corporation and BMO Nesbitt Corp.(1)                                         
|        | 10 | .54         |  | Amendment No. 2, dated as of
    September 23, 2002 to the Receivable Purchase Agreement
    dated as of July 31, 2001 and amended as of July 30,
    2002 among Atrium Funding Corp., Atrium Companies, Inc., Fairway
    Finance Corporation and BMO Nesbitt Corp.(1)
|        | 21 | .1          |  | Subsidiaries of Atrium Companies, Inc.(1)                                                                                                                                                                                                                              



---



|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed herewith.                                                                                                                                                   
|   
|(2) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 10-K filed on April 1, 2002.                                                           
|   
|(3) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 8-K filed on August 14,
    2001.                                                      
|   
|(4) | 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.
|   
|(5) | Incorporated by reference from Atrium
    Corporations Registration Statement on Form S-4,
    dated January 22, 2001, SEC File No. 333-54122.                   
|   
|(6) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 8-K, dated October 24, 2000
    and filed on November 9, 2000.                         
|   
|(7) | Filed with Atrium Companies, Inc.s
    Registration Statement on Form S-4 dated July 15,
    1999, SEC File No. 333-82921.                                       
|   
|(8) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 10-K dated March 31, 1999
    and filed on April 15, 1999.                             
|   
|(9) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 8-K, dated March 27, 1998
    and filed on April 13, 1998.